The emerging tax classification gap
We often hear about the wage gap. But, one emerging reality from the trend of the flexible economy is a tax classification gap. For those not following, a few weeks ago, a London employment tribunal ruled that local Uber drivers will now be classified as employees of the San Francisco-based company vs. being considered self-employed or independent contractors. The ruling follows the company’s offer to settle a class action lawsuit with drivers in California and Massachusetts for $100 million after the drivers argued Uber classified them as independent workers in an effort to drive down wages and withhold benefits.
This news marks the latest step in the ongoing discussion of how workers and employers should operate and interact within the flexible economy. A ruling like this opens the floodgates to a series of important labor questions such as, what does it mean to be an employee? Who is responsible for protecting independent workers? Who is accountable for labor vulnerabilities?
These become meaningful questions as the popular two-sided marketplaces that cater to flexible working continue to grow and revolutionize the way we do business. These companies powering platforms that allow suppliers and consumers to meet and trade goods or services show no signs of slowing down: Uber, Lyft, Airbnb, Care.com, Etsy, Snagajob.
And the population of workers taking advantage of these opportunities is growing as well. According to the latest McKinsey report, 72 percent of independent workers in the U.S. and E.U. are choosing the flexible economy lifestyle because they want to, not out of necessity. Generally speaking, independent workers report higher levels of satisfaction on many aspects of their work life than traditional company employees. These factors include flexible hours and location, as well as work/life independence. However, on the flip side, the aspects that scored lower contentment levels were income security and benefits.
So this begs the question: how do we protect the rights of workers as the way we conduct business and the traditional employer-employee relationship evolves? How do we responsibly reimagine the support system for the worker? Where does the contract begin and end and who are the stakeholders at each end? Right now, a worker is classified either as a 1099 employee or a W2 employee. It’s a binary choice in a system that is demanding more options.
At Snagajob we have been thinking about this a lot. Earlier this year we launched a pilot network of on-demand workers in Northern Virginia with one employer that was met with compelling results. We have since expanded to focusing on student workers at Virginia Commonwealth University and partnering with half a dozen companies in Richmond, Virginia. We gave a name to our experimental network – HUSL – and are gearing up to broaden our scope with even more workers and employers.
Our mission at Snagajob is to put people in the right fit positions so they can live more fulfilling lives. This means doing what we can to improve the work experience for the people who make up our marketplace and offering them the tools they need.
And, frankly, when it comes to how to classify workers who fall in the emerging gap, there is no clear, current answer. What we do know is that we are committed to finding solutions for hourly workers. So we are relying heavily on experimentation within our Innovation Lab to help us learn quickly through our product efforts and stay partnered on the policy side, which unfortunately moves much more slowly. I personally couldn’t be more excited as we take this next step toward solving the complex challenges that affect hourly workers, employers and the platforms where they meet. Stay tuned for more.