The rise of freelancing has created a class of workers who are chronically underemployed. A growing number of people in the workforce are at risk for falling through the cracks and need to be protected from legal violations like wage theft, sexual harassment, or discrimination.
The “the fissured workplace: why work became so bad for so many and what can be done to improve it” is a book that discusses the problems of the modern workforce. The author, David Weil, presents a number of solutions to these problems.
The employment data for July seemed to be good news for the US economy. It revealed that 255,000 new jobs were created, much above analyst predictions, while the unemployment rate remained constant at 4.9 percent, the lowest since 2008.
According to the White House and the mainstream media, the employment data demonstrates America’s excellent comeback from the Great Recession. For the last two years, America has created around 200,000 new jobs every month, regaining all of the 8.7 million jobs lost during the Great Recession (and then some), bringing us back to what economists consider full employment.
Employment quality, not simply job number, is an important aspect of the jobs narrative that is frequently overlooked.
The economic situation on the ground, however, paints a different narrative. Only 30% of Americans say that economic circumstances in the United States are “excellent/good,” according to a Pew Research Center poll conducted in July 2016, and only 1/3 expect that economic conditions will improve in the next year. According to a recent CNN survey, 56% of Americans believe their children will be worse off financially than they are. Surprisingly, 47% of Americans said they didn’t have $400 in savings to meet an emergency in a Federal Reserve poll.
This economic unrest has spurred anti-establishment presidential contenders Donald Trump and Bernie Sanders, who have both used economic inequity as a campaign theme. The economy is routinely ranked as the most significant topic in the 2016 campaign, ahead of terrorism, health care, and education, according to polls.
So, what is it that is causing Americans to be concerned about the economy? Why are so many people living paycheck to paycheck in these ostensibly better times?
Employment quality, not simply job number, plays a significant role in the plot. The so-called “contingent worker,” which includes contractors and non-traditional employees who aren’t linked to a single employer—and who aren’t given with the benefits, legal protections, and security that come with full-time employment—is on the increase. According to one assessment, contingent employment arrangements accounted for all of the net economic growth during the previous decade.
In some ways, the transition to a contingent workforce is a product of the changing economy. Companies, on the other hand, have unjustly reduced labor expenses by transferring jobs to other parties and misclassifying people as independent contractors.
Employee misclassification is a severe issue that hurts the whole economy, according to the Department of Labor, which is clamping down on the practice. Recent court decisions may make it more difficult for businesses that rely largely on independent contractors to outsource their obligations to employees. Workers must grasp the law and understand their rights as a result of more challenges to damaging company practices such as misclassification.
Is it possible that you were misclassified?
The Economy’s “Failure”
David Weil literally wrote the book on how outsourcing of labor by businesses has transformed not just the economy, but also the nature of work.
Weil, a former economics professor at Boston University, earned a post as director of the Wage and Hour Division at the Department of Labor after writing “The Fissured Workplace: Why Work Became So Bad for So Many and What Can Be Done to Improve It.”
“At Salary and Hour, our primary objective is fairly simple: make sure people earn a fair day’s wage for a hard day’s work,” Weil said. “The problem is that the workplace has changed a lot in the previous 20 years.”
According to Weil, the workplace has “fissured” as corporations, in response to shifting market demands, have lowered labor expenses as part of a larger drive to become leaner and more flexible, abandoning their position as direct employers of employees in the process.
Market developments were sluggish and incremental during the most of the twentieth century, and customer preferences were largely straightforward. Production was based on a demand-driven “push” technique. Companies were able to concentrate on economies of scale, or achieving a cost advantage via higher production, as a result of this.
Work was repetitious yet consistent, reflecting these patterns. Workers were given adequate opportunity to master new skills while workplace technology evolved slowly. The major employment connection was between huge corporations—such as GM, US Steel, IBM, and Xerox—and the employees who manufactured their goods. The norm was direct, long-term employment with a single firm.
As globalization and technology changed the economy in the late 1980s and early 1990s, all of this started to shift. When these forces worked together, they broadened the competitive environment and offered almost limitless new market possibilities.
Consumers who were more intelligent started to transition to a “push” economy. Change became rapid, dynamic, and unavoidable. Businesses started to remove operations deemed ancillary to their main business models, moving their attention to product differentiation and market niches, as they faced greater demands to react to market changes. In this new economy, maintaining brand integrity (and hence loyal customers) and cutting expenses have emerged as the foundations of success.
Workers, unfortunately, are seen as low-hanging fruit when it comes to cost-cutting. Maintaining a full-time staff is costly. Payroll expenditures are increased by 25% to 30% due to employee expenses such as federal (FICA) payroll taxes, unemployment and workers’ compensation insurance premiums, health and retirement benefits, and paid time off. Employees are the only ones who must be paid the minimum wage and overtime, and they have significantly stronger legal safeguards against workplace accidents, discrimination, exploitation, and wrongful termination.
Businesses learned they could farm out tasks that were previously performed inside to a network of vendors. As a result, they were able to minimize direct employee expenses by creating competitive marketplaces for services.
In other words, corporations continue to reap the benefits of their employees’ labor without having to act as their legal employer and taking on extra financial risks. Companies are tearing away the long-standing cornerstone of the US economy—the employer-employee relationship—using business models including subcontracting, temp agencies, labor brokers, franchising, and third-party management, resulting in what Weil calls the “fissured” workplace.
Weil concedes that fissuring isn’t always motivated by a desire to save money on payroll. Workers’ roles have evolved in tandem with market changes. In a company climate that necessitates constant reflection and rearrangement, a static staff makes little sense. The traditional 9-to-5 work schedule is quickly becoming outdated. Teams are created around projects that leverage contingent labor and independent specialists in today’s leaner organization. Teams may be dissolved and new ones established on an ad hoc basis after a project is done.
Contingent labor, from this viewpoint, improve corporate efficiency, agility, and flexibility. They are not only less expensive than workers, but they also convert employment expenditures into variable service costs rather than fixed labor costs.
Weil, on the other hand, argues that this strategy enables businesses to have their cake and eat it, too. Companies may avoid some of the burdens—but not the benefits—of having employees by labeling certain workers “independent contractors” and recruiting others via agencies. Contingent employees help establish a brand that earns the main firm a lot of money, but they don’t have job-based health and retirement benefits, as well as minimum wage, overtime, and other labor law protections.
The Contingent Worker’s Ascension
Weil uses the example of a hotel that operates under a well-known worldwide brand to demonstrate the workplace that has broken and split apart. Most of the people who welcome visitors, clean rooms, landscape, and make meals are not hotel employees or even hotel brand employees. They’re more than likely hired by a company that provides hotel management services.
“From 2005 to 2015, all of the net job growth in the US economy seems to have happened in alternative work arrangements.”
The hotel business isn’t the only one with hazy job borders. The so-called “gig economy,” which includes businesses like Uber, Lyft, Handy, and Taskrabbit, has raised awareness of the dependence on contract work. Workers who carry parcels, install cable and internet, drive cabs, provide security, and execute construction work, for example, have no ties to the firms that pretend to employ them. Professionals such as physicians, attorneys, financial advisors, and educators and health-care providers are among those who are losing their jobs.
Due to a lack of common language, determining the size of the contingent labor is difficult. Contingent employees may make up anywhere from 5% to 40% of the entire labor force, depending on the criteria employed. In the lack of comprehensive, nationally representative data, estimates are also challenging.
The Bureau of Labor Statistics (BLS) conducted the Contingent Work Supplement (CWS) from 1995 to 2005 as a supplement to its monthly Current Population Survey (CPS). In 1995, 1996, 1999, 2001, and 2005, BLS conducted the CWS. BLS has not received funds to administer the supplement since 2005.
Public and commercial entities have sought to fill in data gaps in the absence of the CWS. Employees in “alternative work arrangements,” such as temporary assistance agency workers, on-call workers, contract firm workers, and independent contractors, were tallied in a version of the CWS done by the RAND Corporation (freelancers). Using data from the CWS and other government surveys, the Government Accountability Office (GAO) utilizes these similar categories of alternative work arrangements, but adds self-employed people and part-time employees.
Contingent employees made up 30.6 percent of the labor force in 2005 and 40.4 percent in 2010, according to the GAO’s definition of alternative work arrangements. Contract employees, on-call workers, and agency temps—what the GAO refers to as “core contingent arrangements”—accounted for 5.6 percent of the workforce in 2005 and 7.9 percent of the workforce in 2010.
When RAND compared BLS CWS data to statistics from its 2015 RAND-Princeton Contingent Worker Survey (RPCWS), it discovered that the prevalence of alternative work arrangements increased by more than 50% from 10.1 percent in 2005 to 17.2 percent in 2015. The percentage of employees in alternative work arrangements climbed by roughly 85 percent from 1995 to 2015, according to combined CWS/RPCWS statistics (9.3 percent to 17.2 percent ).
The Great Recession seems to have accelerated the trend of businesses employing more temporary staff. According to RAND, overall employment in the United States rose by 9.1 million (6.5%) from 2005 to 2015, although conventional full-time work actually decreased by 0.4 million (0.3 percent ). According to these figures, “all of the net job growth in the US economy from 2005 to 2015 seems to have happened in alternative work arrangements,” according to RAND.
And the expansion continues. According to Intuit, an enterprise software business, more than 80% of big companies expect to significantly boost their usage of flexible employees in the coming years. Intuit estimated in 2011 that contingent employees would make up more than 40% of the workforce by 2020—a prediction that is already out of date. Many people currently believe that by the turn of the century, contingent employees will make up half of the workforce.
Focus on Independent Contractors
Independent contracting is the most frequent kind of alternative employment arrangement. Independent contractors (ICs) are defined differently depending on the situation. ICs “get consumers on their own to supply a product or service,” according to the BLS, GAO, and RAND. According to Navigant, a business consulting firm, ICs:
- Work on numerous tasks at the same time
- Move around a lot from one endeavor to the next.
- When it comes to their “customer,” they have a lot of freedom.
- They often bring their own tools and equipment to the job.
Although independent contractors are termed “self-employed,” not all self-employed employees (such as restaurant owners) see themselves as such. “Independent consultants” and “freelancers” are other terms for ICs.
In terms of distinguishing ICs from workers, the most reliable method is to look at how income is recorded. Unlike employees, who file a Form W-2 with the Internal Revenue Service (IRS), independent contractors file a Form 1099-MISC with the IRS.
In the United States, around one out of every ten employees is classified as an independent contractor. However, the specific number is difficult to nail down due to a variety of classifications and data sources. According to GAO figures, ICs make up 15-16 percent of the work force, whereas RAND estimates that ICs make up 9.6% of the labor force (as of 2015).
Between 1995 and 2015, the overall proportion of ICs in the workforce climbed by roughly 50%. IC characteristics have changed as well, particularly in terms of gender and employment. Although the number of male ICs has stayed consistent at roughly 8%-9% of all employees over the previous 20 years, the number of female ICs has almost doubled. Construction (down 5%), Manufacturing (up 4.8%), Education and Health Services (up 8.8%), and Agriculture, Forestry, Fishing, and Hunting (up 8.8%) are the industries with the highest movements in IC employees (up 26.8 percent ).
Employees vs. Independent Contractors: What’s the Difference?
The employment — and exploitation — of independent contractors is a contentious issue.
On the one hand, polls reveal that many employees prefer working as an independent contractor versus working as an employee. According to the BLS, 82.3 percent of ICs choose to work individually rather than as employees. According to a Pew Research Center poll, 39 percent of self-employed people are “totally pleased” with their careers, whereas just 28% of employees are. Workers choose independent contracting for a variety of reasons, including flexibility, autonomy, and a road to entrepreneurship.
Contingent workers earn less and have fewer benefits than employees, have less economic stability, and are more likely to seek government help.
Self-employment may be a lucrative career route for competent professionals who enjoy the advantages of selling their skills to firms while keeping their independence. Others are torn between being an employee and becoming an independent contractor. They may be financially reliant on and have their work regulated by a single corporation that looks to be their employer, yet that company may view them as a contractor rather than an employee. Employers misclassify their workers as independent contractors in 10-30% of cases.
Employees, governments, and, if they’re discovered breaching the law, businesses are all affected by the purposeful misclassification of employees as independent contractors. While misclassified workers are denied access to benefits and protections, firms may save 25-30% on payroll expenditures by using this method. Independent contractors and other contingent workers earn less and have fewer benefits than employees, have less economic stability, and are more likely to seek public assistance, according to research. Tax revenues are also reduced as a consequence of misclassification, as are losses to state unemployment and workers’ compensation systems.
Governments Strike Back
Throughout the 1990s and early 2000s, there was a lack of enforcement of independent contractor regulations, but since 2007, federal and state officials have begun clamping down on misclassification.
The Department of Labor has increased its efforts to “detect and deter” misclassification by hiring more investigators, prosecuting more companies suspected of misclassifying workers in order to avoid paying overtime or the minimum wage, and providing grants to state workforce agencies to increase enforcement efforts.
These initiatives are referred to by the Department of Labor as a “Misclassification Initiative.” The agency believes that it has collected roughly $1.6 billion in back pay for 1.7 million employees between 2009 and 2015. The IRS has also attempted to combat employee misclassification via its Questionable Employment Tax Practices program, Voluntary Classification Settlement Program, and routine audit procedures. Many state workforce agencies have been aggressive in pursuing firms suspected of misclassifying workers as independent contractors, notably in left-leaning California, Massachusetts, and New York.
Misclassification Lawsuits Against Independent Contractors
Workers are increasingly taking things into their own hands and filing class action lawsuits to challenge their status as independent contractors.
Couriers, exotic dancers, and drivers for on-demand ride firms Uber and Lyft, among others, have brought misclassification claims in recent years, with high-profile cases filed by couriers, exotic dancers, and drivers for on-demand transport companies Uber and Lyft, among others.
FedEx, Uber, and Lyft all agreed settlements with employees in 2016 totaling $240 million, $100 million, and $27 million, respectively.
These instances highlight a common thread in determining whether a person is an employee or a contractor: the degree of employer influence over how work is completed.
FedEx ground workers claimed they were employees since the company gave them specified routes, made them to check in with management at the beginning of each day, and monitored their appearance and equipment. Similarly, Uber and Lyft drivers said that they were subjected to a laundry list of explicit rules that, if not met, may lead to their dismissal. Even exotic dancers have used similar grounds to win misclassification lawsuits, claiming that they were disallowed freedom in scheduling, instructed how to dress, and forced to perform a specific number of dances.
However, although settlements might provide employees with compensation in the form of back pay and reimbursement for expenses, they seldom give clarity on worker status since employers generally agree to a settlement only if they can continue to treat workers as independent contractors. Drivers, for example, remain independent contractors as part of the Uber and Lyft agreements. When a matter is determined at trial, however, the court has the authority to decide whether a person is an employee or a contractor, which may result in a worker having much greater rights in the future.
Misclassification cases are usually brought in federal court under the Fair Labor Standards Act (FLSA), a federal legislation that ensures workers get the federal minimum wage and overtime compensation for working more than 40 hours per week. Workers may also file state-level misclassification cases since many states have more favorable minimum wage and overtime rules than the federal government. Plaintiffs in most wage and hour disputes file in federal court, claiming both federal and state claims.
Because wage and hour rules only apply to employees (not contractors), determining whether a person is an employee or an independent contractor is crucial in these circumstances. To assess whether a “employment connection” exists, the FLSA employs a six-factor “economic realities” test. This interpretation focuses on the extent to which a worker is financially reliant on the employer’s company. In each situation, all of the criteria are examined, and no one element is determinative in and of itself.
Some states have their own labor laws and standards for determining whether or not someone is employed. California adopts an 11-factor economics reality test devised by the California Supreme Court to start with the assumption that the worker is an employee. Massachusetts has passed an independent contractor statute that includes a three-factor test that requires firms to overcome the “presumption” that they are employees.
Legislation
In the fractious economy, new regulations may be required to handle employment misclassification and other labor difficulties.
Most labor rules were enacted decades ago, when the economy was very different from what it is now. The FLSA was enacted in 1938, at a period when the United States’ economy was focused on manufacturing, children worked long hours in factories, and the minimum pay was ten cents per hour.
Legal experts have pointed out how the FLSA, which only applies to “workers” working for businesses with a minimum annual revenue of $500,000, has led to misclassification and labor outsourcing to smaller businesses. These laws incentivize firms to lay off workers, recruit temps, and identify others as independent contractors. Employers have also turned to holding corporations, shell businesses, franchises, and other inventive arrangements to get around wage and hour requirements, claiming that each firm is an independent employer that does not exceed the $500,000 level. These same businesses might claim that they don’t have enough workers to comply with the Family Leave and Medical Act (FMLA).
A recent National Work Relations Board (NLRB) judgment on contract labor may make it more difficult for businesses to outsource their legal obligations. The National Labor Relations Board (NLRB) agreed in August 2015 to adopt a more liberal definition of what it means to be a “joint employer,” which should make it simpler for contingent workers to organize under the NLRA, which only applies to employees.
The lawsuit arose when a Teamsters local union claimed that it wouldn’t be able to bargain effectively unless it could negotiate with both a recycling firm and the temporary employment agency that supplies its employees. The NLRB agreed with the union that the bigger corporation set working conditions and should therefore be designated a joint employer, stating that “its prior joint employer standard has failed to keep pace with changes in the workplace and economic realities.”
Since 2007, more than a dozen federal measures addressing misclassification of independent contractors have been presented, with dozens more passing at the state level.
Since 2007, more than a dozen federal measures addressing misclassification of independent contractors have been presented, and dozens have been approved at the state level, from the Northeast to the Mountain West to the Deep South.
The Payroll Fraud Prevention Act, first proposed in 2013 and then again in 2014, sought to make intentional employee misclassification a federal offense, amend the FLSA to include a new category of workers (“non-employees”), and require all employers to inform employees and non-employees of their legal rights. The Independent Contractor Tax Fairness and Simplification Act, presented in 2015 by Congress, recognizes the crucial role that legal ICs play in the economy while limiting the definition of IC under the Internal Revenue Code’s safe harbor provision.
Because of the Congressional gridlock, IC legislation is unlikely to pass before the 2016 elections. State legislatures, on the other hand, have been much more effective in enacting legislation to combat employment misclassification.
In a new economy that bears no similarity to the old economy in many ways, modernizing regulatory rules and legislation is important. Government must adjust as the nature of labor changes.
However, it is necessary to wonder whether governments will be able to keep up with the fast changes that technology and globalization have enabled…or will they be doomed to fall behind?
Despite the challenges that a changing workplace presents, David Weil of the Department of Labor thinks that the government may still play a vital role in promoting fair treatment rules. Fairness, he claims, is a fundamental human concept. Income inequality and a general feeling of injustice develop when a corporation generates value but the individuals who perform the labor do not participate equally in the profits, as happens in the fractured workplace.
However, in an economy that is driving individuals toward more autonomy, it is critical for employees to understand their rights and be their own best advocates. Workers have suffered the most as a result of workplace fracturing. And it is employees who stand to benefit the most from ensuring that they are paid fairly for a hard day’s work.
Watch This Video-
The “How to make employment fair in an age of contracting and temp work” is a piece that discusses the topic of how workers are falling through the cracks in the fissured workplace. Reference: how to make employment fair in an age of contracting and temp work.
Frequently Asked Questions
How do companies surveil employees?
A: Companies can surveil employees by tracking their time and location, as well as what they do on company computers. Many companies also have a culture of snooping around on other peoples personal devices to keep an eye out for any potentially damaging information that could be leaked to the public or competitors.
What is organizational fissuring?
What is fissured outsourcing?
A: Fissured outsourcing is the process of independent service workers with flexible contracts being paid on a piecework basis.
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