In my last post, I discussed how the human cloud has been changing the way employers and workers connect so rapidly that regulators can’t keep up. While this is a complex problem, with tax revenue implications for all parties involved, clearly the government needs to catch up somehow. Here, I offer some possible solutions.
One way to do this would be to eliminate the need to distinguish between employees and independent contractors. Employers often lament that even seemingly identical cases result in opposite determinations of a worker’s status based solely on who is making the decision. This uncertainty has a negative impact upon a system set up to provide near universal benefits to workers. Given the extensive resources spent by federal and state governments and businesses alike to address a worker’s status, eliminating the issue could allow such resources to be better directed elsewhere.
A loss of tax revenue does not need to be an impediment. The technology exists to tax independent contractors in the same general manner as employees, even if the political will does not. For example, limited independent contractor withholding was enacted by Congress, but repealed without ever going into effect because of complaints from the business community. Irrespective, the tax side of the equation can be solved.
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The bigger problem is solving the benefit side of the equation: How does the government determine that an independent contractor is “unemployed” versus simply not interested in working for a period of time? Under the current benefit model tied exclusively to employment, there is no clear solution to that problem. Rather, a solution would require a fundamental change in how taxes and benefits are administered by the government.
Other status based problems are also potentially solvable. For example, all workers could be covered by a worker’s compensation policy of some kind that provided minimum coverage. Some states already require coverage, while others allow for it. But by thinking only within the framework of the 1930s industrial era worforce model that still exists today, resources will continue to be wasted on making arbitrary decisions about status.
These are just a few ideas for ways to alleviate the current climate. Until regulations keep up, we’ll continue to see states go after employers alleging misclassification of workers in an effort to recoup lost unemployment and other tax revenue.
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