To be clear, this won’t sink the freelance economy. Freelancing is global, growing exponentially, and driven by the younger generation as we’ll discuss below. Freelancers contributed nearly $1 trillion, or almost 5% of U.S. GDP in 2019.
But it will hurt the very people the bill tries to help – American freelancers. People like Michelle Jackson, who in her own words, “I’m one of the hundreds and thousands of Black women who would prefer to go it on their own. I was able to build out a number of different revenue streams within my business.”
There’s no putting the genie back in the bottle. The question is if the US wants to trade politics for prosperity.
What is the Pro Act?
H.R. 842 “expands various labor protections related to employees’ rights to organize and collectively bargain in the workplace”.
What’s important for us is that it uses the ABC test to classify employee or independent contractor. In the bill’s own words: “An individual performing any service shall be considered an employee and not an independent contractor, unless—
“(A) the individual is free from control and direction in connection with the performance of the service, both under the contract for the performance of service and in fact;
“(B) the service is performed outside the usual course of the business of the employer; and
“(C) the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.”.
A and C aren’t too bad.
(B) is deadly as freelance work is typically core to the business. Unlike janitorial services, freelancers write core content, design core material, and develop core assets.
What’s the Big Deal?
When a progressive and conservative can agree you know you’re on the wrong side of history.
Or take Gene Marks, small business owner who hires freelancers for various parts of his client technology projects. Gene pays his freelancers between $50-150 an hour. His freelancers typically work a couple hours of week and are in complete control of when and how they work.
If the Pro Act passes, Gene says, “I’ll revisit my overhead structure and adjust my client billings. In the end, I’ll figure it out. But as for my 1099 workers who enjoy being in charge of their own small businesses, entrepreneurial and their own boss? That’s all going to end for most of them. I guess they’ll just have to get used to me — or some other employer — now being their boss going forward.”
The Major Flaws
1: Ride share drivers don’t represent all freelancers and shouldn’t be in the same policy bucket as full time freelancers.
From Upwork’s 2019 Freelancing in America Report:
- 45% are in skilled services like computer programming, marketing, IT, business consulting to name a few.
- 60% started freelancing by choice.
- 51% of freelancers say no amount of money could convince them to take a full time job.
- 40% of Millennial’s and 53% of Gen Z are freelancing.
2: The PROAct bites the hand that will feed our next engine of economic opportunity.
Freelancers aren’t just individuals, they’re employers. In 2017, 1.2m freelancers hired one or more employees. At Venture L, our numbers of freelancers hiring at a percentage level is higher, and Covid, specifically the instant adoption of remote, has spurred increased interest in freelancers wanting to hire fellow freelancers and form remote agencies.
3: We can’t hide, the freelance economy is global, and if we don’t empower freelancers, other countries will and clients will hire other freelancers.
The freelance economy transcends borders.
For freelancers, so long as there’s WiFi, talent will choose to freelance. Which is why freelancing has outpaced overall employment growth in the United Kingdom, France and the Netherlands according to Morgan Stanley. And why there are approximately 77 million freelancers across Europe, India, and the United States according to Deloitte.
For companies, the adoption of freelancers won’t stop since freelancing is the talent portion of digital transformation. Just like systems transition to the cloud, so too is talent transitioning to the Human Cloud.
No one bill nor country can stop this shift. This bill will simply put red tape on US freelancers, further decreasing their ability to compete.
It’s not likely the Pro Act will pass the Senate.
But the bill forces us to question and challenge policy around work, specifically the role of government as we transition to a remote freelance economy.
Stay tuned – next post we’ll discuss how policy can fix the broken ‘gig’ economy and empower talent in the freelance economy.