If you do the work, does it matter what you’re designated?

The California Labor Commissioner recently ruled that an Uber driver was an employee, not an independent contractor.  The chairwoman of New York’s Taxi and Limousine Commission took the opposite view.  The issue is now being considered by more than one US court, with some Uber drivers suing for employee status in order to gain extra rights and benefits.  TaskRabbit, Lyft and AirBnB may soon face similar demands.  The law, it seems, is not clear, opening up the opportunity to fiddle with definitions and thereby shape employment reality.

The so-called “freelance economy” is not the only story challenging our conception of what it means to be an employee.  Before Uber came along and disrupted everything, 88% of taxi drivers were already contractors.  FedEx and McDonalds have recently been accused of misclassifying thousands of workers in order to avoid labour law requirements, taxes and benefits.  Microsoft did something similar in the 1990s.  In the UK and elsewhere, laws are frequently enacted and amended to address the tax implications of professional workers turning themselves into limited companies which are then hired by their former employers.  Over 1,500 BBC workers, including Jeremy Paxman and Anne Robinson, were found to be using service companies, saving the broadcaster from paying national insurance contributions.  Zero-hours contracts have become a toxic issue in British politics.

Governments need to be able to collect payroll tax, but if tax codes are well crafted it should be irrelevant whether it is paid by the employer or the worker.  If Uber is forced to designate its drivers as employees and start paying social security contributions, then they will simply pay the drivers less.  This should have no impact on the take-home pay of law-abiding drivers who have been paying their own self-employed taxes and levies.  As the Economist puts it, “conventional economics says the burden of a tax cannot be altered just by changing which party writes the cheque.”  The same could be true for pension contributions and health insurance: there’s no reason in a well-functioning market why the sensible freelancer can’t make the same provisions as an employer from their higher wage packet.

As new business models proliferate and go global, national lawmakers will struggle to keep up.  So what should they focus on?  Probably not the labels.  People need stable paid work, pensions and insurance against misfortune; governments need taxes.  So long as these can be achieved in one way or another, it may not matter whether we are employees, contractors, franchisees or freelancers.

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