PUBLISHED: | UPDATED:

The “gig economy” is the labor market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs. The term gig is slang for “a job for a specified period of time” and is typically used with musicians. Think of a band that just got a gig to play.

All Uber, Lyft, Instacart, GrubHub, DoorDash, PostMates or Amazon drivers are independent contractors. They can work whatever hours they want, however they have to provide their own vehicles and pay for all transportation expenses; including gas, road tolls, car maintenance and auto insurance. Many of these gig drivers complain that it’s not just the cost of their vehicles (including depreciation value wear and tear), but the hours needed to work to make any money. Many say they are actually netting less than minimum wage after expenses. And yet today, more than 1% of our workforce drives for either Uber and/or Lyft.

A study by Intuit estimated that by 2020, 40% of our workforce will be gig employees. Or not. This past May, the California Supreme Court ruled a unanimous landmark decision of Dynamex Operations West, Inc. v. Superior Court of Los Angeles for determining whether a worker is an employee or independent contractor.

The key difference for an independent contractor is California labor law. By being classified as an “independent contractor,” you are not subject to minimum wage or overtime, you have no benefits, no rights to unemployment benefits, no workers’ comp rights and you have to pay the full 15.3% of FICA (Federal Insurance Contributions Act) or Social Security and Medicare taxes on Schedule C of your tax return. If you were classified as an “employee” you would be subject to minimum wage and overtime, you would be eligible for employee benefits (medical/dental/life insurance, retirement, workers comp, etc.) plus your employer would be paying 7.65% of your FICA taxes.

(Sidetrack: I don’t hear a single Democratic presidential candidate talking how our tax code benefits the wealthy as the 2019 maximum taxable earnings for Social Security withholding is $132,900. Medicare withholding has no maximum wage. In other words if you make $500,000 per year, you only pay Social Security taxes of the first $132,000 of your income. Any income above that you pay $0 Social Security taxes. Who does that sounds like it benefits?)

The Dynamex court ruling is significant as many tech business models are dependent upon the low overhead costs using independent contractors. If these tech companies workers must pass the “ABC Test” of these three requirements: 1) The worker is free from the employer’s control or direction in performing the work. 2) The work takes place outside the usual course of the business of the company and off the site of the business. 3) Customarily, the worker is engaged in an independent trade, occupation, profession, or business — it could destroy their business model. Do these three tests sound like an Uber driver to you?

In Sacramento, Assembly Bill 5 was passed by our state Assembly and is working through the state Senate. You’ll be hearing more about this bill in the coming months as it could have drastic affects on our California labor economy. It could potentially affect everything from employees of franchisees (think Subway or Marriott corporate vs. local franchisee owner) to Realtors, hair stylists, manicurists and exotic dancers. If AB5 passes, will these tech companies have to go back and retroactively pay past wages and overtime to their current and past workers? Also if AB5 passes, I’d be shorting the stocks of Uber and Lyft as California is 17% of Uber’s total business and 24% of Lyft’s. Recently the CEOs of Uber and Lyft co-wrote an op-ed in the San Francisco Chronicle against AB5, pleading their side of the story. As expected, the California Chamber of Commerce came out against this bill.

As with most things, there are political undertones to this ruling. Most of our government (federal, state, county and city) subcontracts out many of their works to subcontractors, many who are non-union. The labor unions want to ride this wave and have all workers doing any government work to not just be paid “prevailing wages”, but be classified as union employees, which could mean higher labor costs, plus benefits including PERS (California Public Employee Retirement) retirement for all government entities.

Matthew Owen resides in Eureka.

blog comments powered by Disqus