By narrowing the definition of 'employee,' Republicans would leave a lot of American workers without labor protections.
Republican lawmakers took to social media Tuesday to announce the introduction of a new bill that would rewrite labor laws in a way that would deprive more American workers of critical workplace rights.
"Today I joined @RepStefanik, @SenatorTimScott, and @MarshaBlackburn in introducing the Modern Worker Empowerment Act," tweeted Rep. Michelle Steel (R-CA) on Tuesday. "This legislation updates outdated labor laws and gives contractors and entrepreneurs the flexibility to thrive in our modern workforce."
The new legislation, introduced by Steel alongside Republicans Rep. Elise Stefanik of New York, Sen. Tim Scott of South Carolina, and Sen. Marsha Blackburn of Tennessee, would amend the Fair Labor Standards Act to provide a uniform litmus test for employers to determine whether a worker should be classified as an employee or as an independent contractor.
At least 6.9% to 9.6% of American workers — some 10.6 million — are currently classified as independent contractors. But experts note that 10% to 30% of employers miscategorize their employees as independent contractors, to the tune of millions of workers nationwide.
Findings by U.S. Treasury Department economists support this finding, noting that "self-employment" has grown 30% since 2001 in large part due to employees being wrongly categorized as contractors.
Under the Fair Labor Standards Act, independent contractors are not employees and therefore are not bound by the act's wage and labor standards, nor are they entitled to its protections. Currently, a number of different tests are used by employers, courts, and state and federal agencies to classify workers as either employees or independent contractors. Each test has different standards.
One such test, which Steel and her fellow Republicans hope to make legally and uniformly binding on all government agencies and businesses, is the Internal Revenue Service's "common-law test." The common-law test is based on three factors.
The first test is behavioral. If the employer controls the specifics of how the worker does their job, then the worker is an employee, not an independent contractor. The second is financial: If the employer controls certain financial components of the worker's job, such as providing the employee with supplies or reimbursing expenses, then the worker is an employee.
The third factor involves the "type of relationship." Is the person's work a "key aspect" of the business? Do the worker and the business intend to have a long-term relationship? Does the business provide the worker with any "employee-type" benefits? If so, the worker is an employee.
But according to Michael Koppel, a tax expert and certified public accountant, the IRS common-law test is subjective, and does not provide definitive answers. "One of the important things to remember regarding the IRS factors is there is no definitive way of determining whether a worker has been properly classified," Koppel writes.
There's another problem with Republican efforts to replace the language in the Fair Labor Standards Act to mandate the IRS common-law test as the gold standard: The original standard in the act protected workers more than the standard they're seeking to replace it with would.
According to Department of Labor guidance issued July 15, 2015, under former President Barack Obama, many if not most independent contractors are actually misclassified employees. In a memorandum, the department's Wage and Hour Division noted that unlike the IRS common-law test, the Fair Labor Standards Act's standard is intentionally broad in its definition of employee.
Division administrator David Weil said this was meant to ensure as many employees as possible could be covered under the act. He stated that the "common-law" test enforces a narrower definition than that intended by the act because the common-law test fails to examine "the broader economic realities of the working relationship."
This Department of Labor withdrew its guidance under Donald Trump's administration in June 2017, signaling its intention not to enforce it.
Republican lawmakers, by narrowing the definition of "employee," characterize as many workers as possible as "independent contractors," which labor advocates say protects businesses, not workers.
Independent contractors are in general paid less than employees, according to the nonprofit Washington Center for Equitable Growth. They also aren't entitled to basic labor rights and benefits such as protections against discrimination, the right to unionize, medical leave, health care, and 40-hour work weeks.
For example, Uber, the ride-hailing and delivery service, depends on the work of independent contractors rather than employees. But while taxi drivers make a median income of $12.49 an hour, and in some localities earn up to $17 an hour, the average take-home pay of an Uber driver is just over $9 an hour — below minimum wage in many markets.
Published with permission of The American Independent Foundation.