In Dynamex Operations West, Inc. vs. Superior Court of Los Angeles, the State of California is on the fence about how to properly classify a worker as an employee or as an independent contractor. The Supreme Court explains that a worker is considered someone who is hired to do the usual work of a business, while an independent contractor is an outsider doing work outside of a business’s normal operation. This ruling does not bode well for the ever increasing gig economy.
This law will in fact affect companies, especially ridesharing apps such as Lyft and Uber, who classify their workers as independent contractors. Although the contractors do the work that exactly abides by the company’s standards, contrary to the Supreme Court’s definition of a contractor, Lyft and Uber drivers are not considered “employees.” They make their own schedules; they can start driving at any given time and call it a day whenever they choose.
At a time when the gig economy is at an all time high and workers are demanding more rights, the court adopts a broader definition of who qualifies as an employee. The gig economy is simply a labor market characterized by the prevalence of short term contracts, commonly associated with freelancers. The gig economy is not made up of unemployed persons looking for work. In fact, most freelancers are not looking for anything long term. 63 percent of freelancers stated that they started freelancing not by necessity but in fact by choice, according to Forbes.
The government is only making this a big deal because the IRS believes that some companies are intentionally misreporting whether workers are employees or contractors. They do this to avoid paying taxes that companies are responsible for, such as payroll taxes, unemployment, Social Security and Medicare. According to Forbes, approximately 3.4 billion employees are misreported as contractors.
Essentially, that is money that the government is not receiving because it is not accounted for. The California Supreme Court passed this law in order to reduce shortchanging the government by billions of dollars annually. The court mentioned that this law is supposed to expand the number of workers eligible for minimum rest breaks, according to The Guardian, as if they actually care about the employees, or contractors, or whatever they want to categorize us as. 50 percent of millennials are already a part of the gig economy. By 2027, freelancers are expected to become the workforce majority, says Forbes.
Lyft and Uber more than likely will not be personally affected by this change because they make enough revenue to keep afloat. However, smaller companies who have smaller budgets and can’t afford to pay hourly wages and taxes, will not survive. This isn’t even considering from the freelancer’s point of view, because people pursuing creative careers rely on this classification for their livelihoods.
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