[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
UNLOCKING OPPORTUNITY: ALLOWING
INDEPENDENT CONTRACTORS TO
ACCESS BENEFITS
=======================================================================
HEARING
Before The
SUBCOMMITTEE ON WORKFORCE
PROTECTIONS
of the
COMMITTEE ON EDUCATION AND THE
WORKFORCE
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, APRIL 11, 2024
__________
Serial No. 118-44
__________
Printed for the use of the Committee on Education and the Workforce
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available via: edworkforce.house.gov or www.govinfo.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
56-785 PDF WASHINGTON : 2024
COMMITTEE ON EDUCATION AND THE WORKFORCE
VIRGINIA FOXX, North Carolina, Chairwoman
JOE WILSON, South Carolina ROBERT C. ``BOBBY'' SCOTT,
GLENN THOMPSON, Pennsylvania Virginia, Ranking Member
TIM WALBERG, Michigan RAUL M. GRIJALVA, Arizona
GLENN GROTHMAN, Wisconsin JOE COURTNEY, Connecticut
ELISE M. STEFANIK, New York GREGORIO KILILI CAMACHO SABLAN,
RICK W. ALLEN, Georgia Northern Mariana Islands
JIM BANKS, Indiana FREDERICA S. WILSON, Florida
JAMES COMER, Kentucky SUZANNE BONAMICI, Oregon
LLOYD SMUCKER, Pennsylvania MARK TAKANO, California
BURGESS OWENS, Utah ALMA S. ADAMS, North Carolina
BOB GOOD, Virginia MARK DeSAULNIER, California
LISA McCLAIN, Michigan DONALD NORCROSS, New Jersey
MARY MILLER, Illinois PRAMILA JAYAPAL, Washington
MICHELLE STEEL, California SUSAN WILD, Pennsylvania
RON ESTES, Kansas LUCY McBATH, Georgia
JULIA LETLOW, Louisiana JAHANA HAYES, Connecticut
KEVIN KILEY, California ILHAN OMAR, Minnesota
AARON BEAN, Florida HALEY M. STEVENS, Michigan
ERIC BURLISON, Missouri TERESA LEGER FERNANDEZ, New Mexico
NATHANIEL MORAN, Texas KATHY E. MANNING, North Carolina
LORI CHAVEZ-DeREMER, Oregon FRANK J. MRVAN, Indiana
BRANDON WILLIAMS, New York JAMAAL BOWMAN, New York
ERIN HOUCHIN, Indiana
VACANCY
Cyrus Artz, Staff Director
Veronique Pluviose, Minority Staff Director
------
SUBCOMMITTEE ON WORKFORCE PROTECTIONS
KEVIN KILEY, California, Chairman
GLENN GROTHMAN, Wisconsin ALMA ADAMS, North Carolina,
ELISE M. STEFANIK, New York Ranking Member
JAMES COMER, Kentucky ILHAN OMAR, Minnesota
MARY MILLER, Illinois HALEY M. STEVENS, Michigan
ERIC BURLISON, Missouri MARK TAKANO, California
C O N T E N T S
----------
Page
Hearing held on April 11, 2024................................... 1
OPENING STATEMENTS
Kiley, Hon. Kevin, Chairman, Subcommittee on Workforce
Protections................................................ 1
Prepared statement of.................................... 3
Adams, Hon. Alma, Ranking Member, Subcommittee on Workforce
Protections................................................ 5
Prepared statement of.................................... 7
WITNESSES
Sharp, Kristin, Chief Executive Officer, Flex Association.... 9
Prepared statement of.................................... 12
Hoffman, Gabriella, Senior Policy Analysis, Independent
Women's Forum Center for Economic Opportunity.............. 21
Prepared statement of.................................... 23
Wells, Dr. Katie, Postdoctoral Fritz Fellow, Tech and Society
Initiative, Georgetown University.......................... 30
Prepared statement of.................................... 32
Palagashvili, Dr. Liya, Senior Research Fellow, Mercatus
Center at George Mason University.......................... 36
Prepared statement of.................................... 38
ADDITIONAL SUBMISSIONS
Foxx, Hon. Virginia, a Representative in Congress from the
State of North Carolina:
Letter from Stride Health, Inc........................... 63
Scott, Hon. Robert C. ``Bobby'', a Representative in Congress
from the State of Virginia:
Statement dated May 25, 2023, from NELP.................. 57
Letter dated November 28, 2022, from AARP................ 59
UNLOCKING OPPORTUNITY: ALLOWING
INDEPENDENT CONTRACTORS TO
ACCESS BENEFITS
----------
Thursday, April 11, 2024
House of Representatives,
Subcommittee on Workforce Protections,
Committee on Education and the Workforce,
Washington, DC.
The subcommittee met, pursuant to notice, at 9:01 a.m., in
room 2175, Rayburn House Office Building, Washington, DC, Hon.
Kevin Kiley [Chairman of the Subcommittee] presiding.
Present: Representatives Kiley, Grothman, Miller, Burlison,
Foxx, Adams, Stevens, and Scott.
Staff present: Cyrus Artz, Staff Director; Nick Barley,
Deputy Communications Director; Mindy Barry, General Counsel;
Isabel Foster, Press Assistant; Daniel Fuenzalida, Staff
Assistant; Sheila Havenner, Director of Information Technology;
Alex Knorr, Legislative Assistant; Trey Kovacs, Professional
Staff Member; Georgie Littlefair, Clerk; John Martin, Deputy
Director of Workforce Policy/Counsel; Hannah Matesic, Deputy
Staff Director; Audra McGeorge, Communications Director; Kevin
O'Keefe, Professional Staff Member; Rebecca Powell, Staff
Assistant; Maura Williams, Director of Operations; Brittany
Alston, Minority Operations Assistant; Ni'Aisha Banks, Minority
Intern; Ilana Brunner, Minority General Counsel; Stephanie
Lalle, Minority Communications Director; Raiyana Malone,
Minority Press Secretary; Kevin McDermott Minority Director of
Labor Policy; Veronique Pluviose, Minority Staff Director;
Dhrtvan Sherman, Minority Committee Research Assistant; Bob
Shull, Minority Senior Labor Policy Counsel; Banyon Vassar,
Minority IT Administrator.
Chairman Kiley. The Subcommittee on Workforce Protections
will come to order. I note that a quorum is present. Without
objection, the Chair is authorized to call a recess at any
time. How can we ensure that American workers remain secure and
prosperous in the modern economy?
Expanding access to benefits is central to that goal,
benefits, including paid leave, retirement, health insurance,
life insurance, childcare allowances, and more are
indispensable in today's American workforce. According to the
Society of Human Resources Management, 60 percent of employees
find benefits extremely or very important when considering
future jobs.
However, millions of hardworking individuals across the
country lack access to such benefits. Independent contractors
who are not covered by Federal employment statutes, have
indicated the benefits are important to them, but not at the
expense--this is important, not at the expense of their
flexible work schedule.
For instance, a 2020 survey of ride share drivers showed
that 67 percent of drivers prefer to get benefits with their
independent contractor status intact instead of receiving
benefits through traditional employment. Now, estimates vary,
but on the high end nearly 70 million American workers rely on
independent forms of work, and on the low end about 17 million.
This segment of the workforce is only growing. That is a
lot of wives, children, families that may not have reliable
benefit coverage, no matter how you slice it. There are two
basic ways forward. One is to accept tomorrow's workforce will
have less access to benefits than today's. I think the better
course, however, is to transition to a new model in which
benefits are attached to the worker and not the employer.
We should not resign our workforce to the constant struggle
of searching for benefits every time they pursue a new form of
work. American families should not be put at risk for the type
of livelihood one chooses to pursue. Benefits need to be
flexible, customizable and fit the nature of every type of
work.
The solution is very clear. It is portable benefits. By
attaching benefits to the worker, portable benefits build a
bridge from traditional employment to the modern workforce
without putting families at risk. In fact, this transition is
already underway. Many states are spearheading portable benefit
program, and more than 10 states are taking a serious look at
implementing portable benefits.
In my State, California, there are over 200,000 Uber
drivers alone that stand to benefit from such a program. That
number does not include the thousands of photographers and
freelance writers, and hundreds and hundreds of other types of
freelancing that exist across the Golden State and across the
country.
Now, I will be the first to admit that neither California,
nor the Department of Labor have been especially supportive of
independent workers. Quite the contrary. However, I see policy
movement in this direction as common ground that we can all
share, regardless of which side we have been on, on some of
these more vexing issues to this point.
With that, I look forward to the insights of our witnesses,
and I yield to the Ranking Member for an opening statement.
[The statement of Chairman Kiley follows:]
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Ms. Adams. Thank you, thank you, Mr. Kiley, and thank you
to our witnesses for being here today. Basic worker
protections, including fair wages, reasonable hours, and safe
workplaces are grounded in two key employment laws: the Fair
Labor Standards Act and the Occupational Safety and Health Act.
Unscrupulous firms have sought ever since to erode
protections, which generations of exploited workers fought and
sometimes died to achieve. Many companies are now squeezing
workers to save money by shifting away from direct employer-
employee relationships to outsource subcontractors and hiring
what they claim are independent contractors.
Doing this benefits companies by saving labor costs, while
offloading risk to workers. Committee Republicans can rebrand
misclassifying workers as independent contractors, or gig
workers, a thousand times over. The problem is the same. These
workers are deprived of basic protections like minimum wage,
paid leave, and safe workplaces.
Instead of following the law, gig platforms have worked in
State legislatures across the country to change the law around
their models. More recently, after mounting reports of horrific
on-the-job incidents, assaults, and working conditions, gig
platforms have begun to propose what seems on the surface to be
generous new supplements to workers' income.
As they funneled millions into campaigns for portable
benefits, they are continuing to push for special laws to
support their business practice of misclassifying workers as
independent contractors. In California, for example, gig
platform companies spent over 200 million dollars on
Proposition 22, a ballot measure that forced gig platform
drivers to be classified as independent contractors.
In exchange, gig platform companies established portable
benefits that are weak replacements for health insurance, paid
leave, and other essential benefits. Even these watered-down
benefits are inaccessible for most applicable workers. In a
2021 survey of 531 California drivers, only 10 percent reported
receiving a health care stipend, which, I might add, only
covers 82 percent of the cost of a Bronze Plan in the ACA
marketplace.
If corporations with multi-billion-dollar valuations are
truly interested in improving the lives of their workers, they
can start by ending the practice of misclassifying their
workers as independent contractors. Unfortunately, a consistent
lack of profitability suggests that misclassification is not a
coincidence, but a core principle of gig platforms' business
model.
Our policy choices shape workers' rights and conditions of
employment. Congress can strengthen and modernize protections
for American workers while also promoting innovation.
Misclassifications are not an innovation. Finally, I would like
to make one last point. This Subcommittee should be focused on
improving workers' protections.
This is the fifth time that this Subcommittee has met this
Congress, yet four of the five hearings have focused on how
Congress can tilt the scale in favor of corporations to allow
them to improve their bottom line on the backs of workers. We
have had no hearings on abusive child labor violations. We have
had zero hearings on wage theft, which robs workers of billions
of dollars every year.
That is billions with a B. According to the Economic Policy
Institute, Americans lose more from wage theft than all
robberies, burglaries, and motor vehicle thefts combined. We
have had zero hearings on how to protect workers from unsafe
conditions such as heat or deadly airborne viruses. These are
the issues that we should be focused on, and not how we can
deny Uber drivers access to affordable health care, or a
reliable retirement plan, or unemployment insurance, or
employment training, or overtime, or paid leave.
My colleagues on the other side of the aisle also have us
in a race to the bottom. For the sake of workers and our
economy, I hope that this will be the last hearing where the
basic rights of workers are ignored. With that, Mr. Chair, I
yield back.
[The statement of Ranking Member Adams follows:]
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Chairman Kiley. Pursuant to Committee Rule 8-C, all
Committee members who wish to insert written statements into
the record may do so by submitting them to the Committee Clerk
electronically, in Microsoft Word format by 5 p.m. after 14
days from the date of this hearing, which is April 25, 2024.
Without objection, the hearing record will remain open for
14 days after the date of this hearing, to allow such
statements and other extraneous material referenced during the
hearing to be submitted for the official hearing record.
I will now turn to the introduction of our distinguished
witnesses. Our first witness today is Ms. Kristin Sharp, who is
the Chief Executive Officer of the Flex Association, located
here in Washington, DC.
Our second witness is Ms. Gabriella Hoffman, who is a
Senior Policy Analysis for the Independent Women's Forum Center
for Economic Opportunity, located in Winchester, Virginia.
Our third witness is Dr. Katie Wells, who is a Postdoctoral
Fritz Fellow at the Tech and Society Initiative at Georgetown
University here in D.C.
Our final witness is Dr. Liya Palagashvili, who is a Senior
Research Fellow with the Mercatus Center at George Mason
University, located in Arlington, Virginia. We thank the
witnesses for being here today, and look forward to your
testimony.
Pursuant to Committee Rules, I would ask that you each
limit your oral presentation to a 5-minute summary of your
written statement. I would also like to remind the witnesses to
be aware of their responsibility to provide accurate
information to the Subcommittee. I will first recognize Ms.
Sharp.
STATEMENT OF MS. KRISTIN SHARP, CEO, FLEX ASSOCIATION,
WASHINGTON, D.C.
Ms. Sharp. Chairman Kiley, Ranking Member Adams, and
distinguished members of the Subcommittee, thank you for the
opportunity to appear before you today. My name is Kristin
Sharp, and I am the CEO of the Flex Association, the voice of
the app-based economy.
We represent America's leading rideshare and delivery
companies, DoorDash, Grubhub, HopSkipDrive, Instacart, Lyft,
Shipt and Uber. We believe in creating opportunities for people
to live, work and run their businesses on their own terms. The
app-based economy is an opportunity economy. It is enabled
thousands of restaurants and merchants to grow and compete in
today's economy. It better prepared them for the future.
For consumers, the app-based industry has brought
unparalleled savings, choice and convenience. For workers, it
is an opportunity to be your own boss. Being your own boss is a
powerful thing. Whether you are a single parent, a student, or
a recent retiree, app-based innovations provide additional
opportunities to earn money with flexibility and control over
your time and earnings.
We are still a young industry, but one that is quickly been
embraced by millions of Americans. Last month, Flex released
the first ever app industry economic impact report. The top
line, the industry contributed more than 212 billion dollars in
GDP last year.
As we look to the future our mission at Flex is to ensure
that app-based innovations continue to deliver for American
consumers and workers, which is why we are excited to spend
time today discussing a portable benefits system.
One key way to support independent workers is to facilitate
their access to portable benefits. Benefits tied to the person,
rather than the job. Independent work, outside of traditional
employer, employee relationship is not new. In fact, Upwork
estimates that 64 million people earned freelance income last
year alone.
Technology like apps have made accessing freelance work
easier than ever. At the touch of a button for anyone who wants
to open the app. This work offers a level of autonomy not
possible in a traditional job. An app-based worker, you do not
have to log on for a specific amount of time, or at a
particular time, or even a particular place.
You can multi-app, or earn through more than one company at
a time at your own discretion. In short, you can work as much
or as little as the market allows, when, where and if you want,
in ways that make sense for your life and personal obligations.
That flexibility and scalability is what people like about this
work. It is what drew 7.3 million active drivers in 2022 alone.
Data bears this out. 90 percent of app-based workers say
flexibility is why they choose to drive or deliver. Workers
value flexibility so much that a majority say they would choose
to keep their flexible schedule, rather than received a 50
percent pay bump with a fixed schedule.
The common thread is that app-based work is overwhelmingly
additive, and nearly two-thirds of app-based earners spend 15
or fewer hours per week earning. Why do traditional W-2
employees have better access to benefits? First, Federal and
State employment laws are partly to blame.
Misclassifying a worker as an independent contractor, even
unintentionally can trigger liability. Companies choosing to
provide independent workers with benefits under the wrong
circumstances, could open themselves up to substantial legal
risk.
Second, conventional workplace benefits are tied to the
employer rather than the worker, so people have to change them
every time they change jobs. This model just does not work for
independent workers. Last summer, Flex released a set of
principles to guide portable benefits development.
To work well, portable benefits must be flexible, so that
workers can choose the kinds of benefits they need. Portable,
so that contributions are tied to the worker, so that they can
accrue from more than one income source and proportional to
their earnings.
Any potential Federal portable benefits framework will take
time. In the meantime, states are experimenting with ways to
support independent workers. Just last week for instance,
DoorDash launched a new portable benefits pilot program in
partnership with Pennsylvania Governor Shapiro, in the hopes
that it can serve as proof of concept.
Utah is following suit. In conclusion, Congress can support
State efforts by clarifying that a company's contributions to a
portable benefits program authorized by State law, cannot be
used as a factor in determining a worker's labor classification
status. Companies looking to improve the status quo, and
enhance independent work should not be penalized for their
creativity.
Members of the Subcommittee, we appreciate your dedication
to entrepreneurship and American ingenuity, and we look forward
to working with you on policies that make sense for the 21st
Century economy. Thank you, and I look forward to your
questions.
[The Statement of Ms. Sharp follows:]
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Chairman Kiley. Thank you very much, Ms. Sharp. I will now
recognize Ms. Hoffman.
STATEMENT OF MS. GABRIELLA HOFFMAN, SENIOR POLICY
ANALYST, INDEPENDENT WOMEN'S FORUM CENTER FOR
ECONOMIC OPPORTUNITY, ALEXANDRIA, VIRGINIA
Ms. Hoffman. Chairman Kiley, Ranking Member Adams, and
members of the Subcommittee, thank you for the opportunity to
participate in today's hearing to explore portable benefits
access for independent contractors. My name is Gabriella
Hoffman, and I am a Senior Policy Analyst with the Independent
Women's Forum, Center for Economic Opportunity.
We are a nonprofit organization that advances policies that
enhance people's freedom, opportunities and well-being. My work
has chiefly focused on exploring opportunities for independent
contractors. I am also an award winning freelance writer, a
media strategist who has personally benefited from independent
contracting opportunities.
Today 64 million Americans partake in full-time, part-time,
or occasional freelance work. It is estimated that half the
workforce are 86.5 million individuals who will partake in
flexible work by 2027. These workers overwhelmingly desire to
maintain their independence, and do not self-identify as
traditional W-2 employees.
Nevertheless, regulators frequently target these
individuals using worker classification tests, intended to
force them back into employee arrangements, alleging they do
not have access to benefits like health insurance. They believe
they know what is best for these workers but let us put that
hubris aside.
To deter forced reclassification while preserving worker
flexibility, policymakers should create a voluntary portable
benefit systems that decouples benefits like health insurance
from traditional employment. The Journal of Economic
Perspectives shows that 80 percent of self-employed U.S.
workers would support a voluntary, portable benefits program.
While some self-employed workers forego benefits, like
health insurance, many do secure coverage on their own, or get
coverage through spouses and family members. About 25 percent
of freelance workers do not possess health benefits, but could
be open to obtaining them through a voluntary portable benefits
program.
Given the success of portable benefits for employees, the
model could be replicated for independent contractors and gig
workers considering benefits. States are already adopting the
portable benefits model for freelancers. In March, 2023, Utah
became the first State in the U.S. to create a voluntary
portable benefits plan for independent contractors and gig
workers.
The law states that portable benefit planned contributions
are voluntary and cannot be used to determine an individual's
worker classification status. Utah is not the only State
exploring portable benefits for independent contractors.
Similar proposals have been introduced and debated in
Massachusetts, Minnesota, New Jersey, Virginia, West Virginia,
and Wisconsin.
In 2022, Washington State established a portable benefits
program for rideshare drivers who are independent contractors.
Following the disastrous rollout of California's ABC test, that
forcibly reclassified most Golden State independent workers as
traditional employees, Californians supported a ballot measure
to allow rideshare drivers to keep their independent status,
while enjoying access to limited benefits.
Federal lawmakers have similarly mulled creating a portable
benefits grant fund to incentive states, localities and
nonprofit organizations to experiment with the portable
benefits models. If the government refuses to modernize
benefits, the free market is fully capable of developing and
revolutionizing a voluntary, portable benefits program.
In 2008, the Freelancer's Union, established the first ever
portable benefit system for freelancers under the Freelance
Insurance Company to offer benefits. Last week, financial
technology company Stride, announced the establishment of a
pilot portable benefit savings account program, Stride
contributions for DoorDash drivers in Pennsylvania.
Independent contractors are their own best negotiators, and
are fully capable of securing their own benefits without the
threat of forced reclassification into W-2 employee status. To
further unleash our economy's economic potential, policymakers
must bring labor and tax law into the 21st Century to ensure
all workers, not just employees, can have access to and pay
into a benefits program should they choose.
During my time as a full-time freelancer, I was empowered
in my work, and fully capable of obtaining benefits on my own
accord without entities mandating choices. Flexibility and
freedom are primary motivations to enter independent contractor
work arrangements, but freelancers like me, regardless if they
are full-time, part-time, or occasional freelancers, should not
have to choose between independence and security benefits like
basic dental, health and vision coverage.
More American workers will make the jump into flexible work
arrangements if they know they will have some security with
respect to benefits. I thank the Subcommittee for the
opportunity to testify today, and your willingness to educate
the public about making portable benefits a viable option for
independent contractors who desire them.
[The Statement of Ms. Hoffman follows:]
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Chairman Kiley. Thank you very much, Ms. Hoffman. I now
recognize Dr. Wells.
STATEMENT OF DR. KATIE WELLS, POSTDOCTORAL FRITZ
FELLOW, TECH AND SOCIETY INITIATIVE, GEORGETOWN
UNIVERSITY, WASHINGTON, D.C.
Dr. Wells. Thank you, Chairman Kiley, Ranking Member Adams,
and members of the Subcommittee for this opportunity to
testify. My name is Katie Wells, and I am a Postdoctoral Fellow
at Georgetown University. For 8 years, I have investigated the
working conditions and policy campaigns of the largest gig
economy companies in the U.S.
Last year, I published a report about the instant delivery
industry, as well as a book about Uber. Today, I will address
the shortcomings of new portable benefit proposals. True
portable benefits are substantial programs that are maintained
across jobs like social security, unemployment insurance, and
paid family leave.
The new portable benefit proposals put forward by gig
companies are different. They are restricted to specific
sectors and negligible in size. The new DoorDash pilot program
that we have begun to hear about offers drivers who work a
certain amount on its platform alone a tiny subsidy of 4
percent.
This means a driver who earns $2,000.00 in a month will
receive $80.00 in benefits. While gig companies and their
associations promote this program as a policy innovation, in
reality it is two things. One, an inferior contribution for
workers, and two, a public giveaway for corporations. New
benefit proposals are a distraction from the ongoing problem of
worker misclassification, which denies workers actual benefits.
What is often lost in debates about misclassification, is
it is not just the workers who lose out. The public and our
government lose out too. Gig companies amass billions of
dollars in valuations but avoid even the most basic
contributions to social programs. During the pandemic, the
Federal Government created an emergency assistance program for
tens of millions of American gig workers.
The gig companies did not contribute a dime, leaving the
Federal Government with an 80 billion dollar bill. In
interviews with hundreds of Uber and Lyft drivers, Instacart
delivery shoppers, elderly care workers, and app-based nurses,
I have seen firsthand the costs of misclassification.
This year, I met Ashley, a 31-year-old certified nursing
assistant, or CNA, in Pennsylvania. For 2 years, Ashley has
worked in nursing homes through ShiftKey, a new platform that
classifies her as an independent contractor. On ShiftKey,
Ashley can technically set her own rate and bid on shifts, but
to actually win shifts over peers, she has had to lower and
lower her hourly rate.
It is a race to the bottom. Ashley is also required to pay
$6.00 in fees for each shift, as well as annual bills for drug
tests and vaccines. She is uninsured and receives no paid sick
leave. As she puts it, ``You get treated differently because
you are not an employee.'' Ashley's working conditions would
not be improved with the kind of portable benefit proposals put
forward by gig companies.
To make matters worse, labor platforms like ShiftKey are
part of a massive lobbying effort to exempt themselves from
labor standards. As I document in my new book, Uber has been at
the forefront of this decade-long and nationwide campaign to
minimize regulation of gig companies.
Since 2017, Uber and its peers have won legislation already
in 34 states to preempt municipal law. Gig companies are
aggressively pitching proposals like portable benefits to
soften the image of their exploitative business. Portable
benefits are a new strategy to fortify an old model of worker
misclassification and tax avoidance.
These new, so-called benefit plans hurt app-based labor
platforms like ShiftMed and Gale that play by the rules and
rightly pay into social security and employment insurance and
paid family leave. ShiftMed and Gale offer their healthcare
workers both the flexibility to choose their shifts on an app
and the protections they deserve as American workers.
It is unfair and impractical for these companies to have to
compete with companies like ShiftKey that shirk their
responsibilities to workers like Ashley. Thank you.
[The Statement of Ms. Wells follows:]
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Chairman Kiley. Thank you. Our final witness is Dr. Liya
Palagashvili, you are now recognized for 5 minutes.
STATEMENT OF DR. LIYA PALAGASHVILI, SENIOR RESEARCH
FELLOW, MERCATUS CENTER AT GEORGE MASON UNIVER-
SITY, EPHRATA, PENNSYLVANIA
Ms. Palagashvili. Good morning, Chairman Kiley, and members
of the Subcommittee on Workforce Protections. It is an honor to
testify before you. My name is Liya Palagashvili, and I am a
Labor Economist at the Mercatus Center at George Mason
University.
I study the independent workforce, and the changing nature
of work. My research on flexible benefits for independent
workers has motivated State legislative reforms over the past
year, as we heard in Utah, and I would like to share some of
those insights with all of you.
My testimony today focuses on legalizing independent
contractor's access to fringe benefits, and this is beyond what
the gig economies are doing with portable benefit solutions
across states. My three key points are one, independent
contractor lives would be enhanced if they had access to
benefits.
Two, states are experimenting with various portable
benefits models so that workers are not forced to choose
between structured employment with benefits on the one side,
and flexible work without benefits on the other side. Three, a
Federal policy can provide a safe harbor for State and local
experimentation with these portable benefit systems.
On my first point, it is a rare change when your research
so closely connects to your personal life, so before I dive
into the subject matter, I would like to share a brief story.
In January 2020, my father who is sitting right behind me
actually, lost his work. He had been a driver his whole life,
even before coming to the United States.
The U.S. company he had been contracting with told them
they are moving away from an independent contractor model to an
employment based model. My father was offered a position to
become a full-time employee of the company. Now, what did he
do? He actually turned it down.
He continued to remain without work until he found an
opportunity to be an independent contractor again. What my
father's story illustrates is that regardless of worker
classification policies that may tip the scale in one direction
or the other like the Department of Labor's recent Independent
Contracting Rule, or what happened in California with Assembly
Bill 5.
There will still be millions of U.S. workers who will
continue to engage in independent contracting, or self-employed
work just because they want to. For some, like my father, being
a contractor rather than an employee gives him some freedom to
work on side projects and side businesses. For others it is out
of necessity. Some workers have disabilities or life
circumstances that hinder their participation in the labor
market.
For the vast majority of independent contractors, as found
by the IRS tax records on this, and especially those on app-
based delivery and transportation platforms, being a contractor
rather than an employee is simple about the opportunity to make
side income, or engage in side hustling.
The question before us is how to address the challenges
confronting millions of independent contractors who will choose
to remain self-employed regardless of the broader worker
classification debates. This brings me to my second point,
where portable or flexible benefits reforms can be monumental.
One of the key challenges today is that regulations
restrict organizations from providing independent contractors
with benefits. If an organization were to provide benefits to
their independent contractors, it would risk that worker being
reclassified as an employee. This discourages companies from
providing benefits to independent contractors.
That means our current regulatory framework does not
provide an option for workers to have access to both
independent jobs, and to benefits. This is why states are now
beginning to experiment with various portable benefits models.
Last year, Utah passed a bill that removes the presence of
benefits as a factor in worker classification tests, as we
heard already.
Other states are experimenting with other solutions like
tax credits for independent contractors and so forth. As we
heard again just last week, with the backing of Pennsylvania
Governor, the platform company DoorDash launched a first of its
kind portable benefits program, making contributions to workers
flexible savings account managed by the benefits company
Stride.
These are just a few ideas of how states are implementing
reforms to help all workers, not just employees, better step
into the future. Now my third point is the vital role that
Federal policy can play to help legalize access to benefits for
independent contractors.
This past year I co-led the Utah Flexible Benefits Working
Group under the leadership of Utah Senator John Johnson. One of
the key takeaways was that the biggest barrier to flexible
benefits implementation in Utah was fear from the Federal
level.
Companies were discouraged from providing benefits to
independent contractors in Utah, regardless of the new State
law because they could still be penalized by agencies like the
IRS and the Department of Labor.
Therefore, Federal policymakers should create a safe
harbor. A policy would need to explicitly State that no Federal
agency can use the presence of benefits to determine whether a
worker is an independent contractor or an employee. Thank you.
[The Statement of Ms. Palagashvili follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Kiley. Thank you very much for your testimony.
Under Committee Rule 9, we will now question witnesses under
the 5-minute rule. I will recognize the Representative from
Illinois, Ms. Miller for 5 minutes.
Mrs. Miller. Thank you, Chair Kiley, and thank you to all
of our witnesses for being here today. Ms. Hoffman, as noted in
your written testimony half of the U.S. workforce is expected
to be freelancing by 2027. As an independent contractor
yourself, can you explain what is so attractive about
independent work?
Ms. Hoffman. I would be happy to, Representative Miller,
and thank you for your support of the independent contracting
lifestyle. Independent contracting, freelancing, however you
call it, contingent worker, kind of work relationships, they
have been around for a long time. It is not just a new mode of
work. They have actually been around for, I think, since the
inception of the country.
People have worked independently. I learned about
independent contracting from my father, who is a general
contractor, and he runs his own business. I am from California
originally; we saw what California policies did. In Virginia,
where I live, it is much more attractive.
I started to do freelancing seven and a half years ago,
almost 8 years ago, because I was partly interested in doing
it, and then I took a job I did not like, and I figured I have
to dig myself out of a bad opportunity, work my way up, and
within 3 years of starting independent contracting, I was able
to really make it.
They say women usually take about 3 years to achieve some
modicum of success in freelancing, and once you do, you can
charge forward. For me, I saw a lot of success being a full-
time freelancer. It has changed a little bit. I do it more on a
part-time basis now these days. You are empowered, you have
control of your work.
You can work with multiple people. You can make a lot of
money. You can work with--for me it is about working with
incredible clients. I get to travel the country. I get to film
and speak and do stuff in conservation, hunting, fishing,
wildlife, lots of different issues as well.
You are just empowered. To lose that ability to not have
flexibility to choose who you work with, how to work and your
earnings, could be very detrimental to the future of this
workforce, and especially as you mentioned. In my testimony,
the fact that the economy is naturally the markets are
dictating this shift to a flexible work arrangement.
For the government to not welcome that, but rather to
inhibit that, would stifle so many people's livelihoods as we
see not only in California, but all across the country. I like
to extol the benefits because I have personally been on the
receiving end of it.
I have encouraged people to go into freelancing when they
have really been on some kinds of the sorts of being displaced
from the workforce. It is an alternative. If you do not like
your W-2 arrangement, you would want hybrid. More and more
people, young people especially. I am a millennial and I talk
to Gen Z'ers, millennials, and for them, this is the way that
they want to work.
Having a portable benefits option could compel more and
more of them to consider this, especially if they are unsure of
the kind of safety net, or the kind of opportunities to have
some security from a W-2.
A lot of people do not like working traditional jobs these
days, and having flexibility through IC work, or even gig work
is going to really just revolutionize the workforce more, and
keep young people happy and wanting to work, instead of being
displaced or having unemployment.
Mrs. Miller. I agree. Ms. Hoffman, also we have heard today
that workers are misclassified as independent contractors
instead of employees. Are efforts to reclassify self-employed
individuals as employees, is that helpful to these workers,
especially when survey after survey shows the vast majority do
not wish to lose the flexibility that working as an independent
contractor provides?
Ms. Hoffman. You are absolutely correct, Representative
Miller, and efforts to forcibly reclassify independent
contractors who self-identify, but also Americans also perceive
to be truly independent contractors. It is a losing issue. It
does not matter how you vote, where you lean politically.
More and more people have recognized that if you force
people out of these arrangements, that they voluntarily,
happily, and would be more than willing to maintain and
protect. If you force those people out of work arrangements,
they will be completely distraught, and they do not want to
move back to something that is more constricting, or something
that is not so desirable for their lifestyle.
At Independent Women's Forum, we work with a lot of women
who are caretakers, they have you know, health needs.
Personally, I have a friend in Virginia who is a fishing
industry influencer, and she has health issues. She said if she
was still in a traditional W-2 employee work relationship, she
would not be able to set aside time for her health needs.
I have seen first-hand through my friend's circle. We
talked to a lot of women, and personally speaking too, you rid
of that flexibility option by forcing people back into this
under the guise of fighting misclassification. That would
totally upend the economy and people's freewill.
The cost of forced classification is tenfold sometimes, and
depending upon the State that you look into. Rhode Island, I
did some inquiry into that, their efforts to forcibly
reclassify Rhode Island independent contractors, gig workers,
back into W-2 employees could be twelvefold the cost of
fighting so-called misclassification, so I do not think these
efforts are worthwhile.
Mrs. Miller. Thank you, Ms. Hoffman. Thank you for your
testimony. It is very helpful.
Chairman Kiley. I will now recognize the Ranking Member,
Ms. Adams for 5 minutes.
Ms. Adams. Thank you, Mr. Chairman. I do want to ask some
questions. Thank you all for your testimony. Dr. Wells, you
testified that Uber and other platform companies treat their
workers as independent contractors, yet they continue to
exercise employer-like control over them.
Can you speak to some of the ways that the on-demand
platform companies exert this kind of control?
Dr. Wells. Sure. Thank you. Gig companies across the
spectrum continue to dictate how and when work is done, despite
touting the flexibility of their industry. Gig-based companies
direct workers' interactions with customers, detail even what
vehicles might be appropriate for the job, supervise and
evaluate their workers basic driving habits in ride-based
economies, like how fast they brake, how often they speed.
These industries, apart from Uber and its focus on driving,
exert significant control over termination and promotion. The
worker I described, Ashley, if she canceled a shift she was
less likely to get good bids for the next week. This industry
sets all fair rates, they penalize workers for refusal of work,
and most importantly they hide the details of pay, so workers
really struggle to figure out what exactly they will be
compensated.
Ms. Adams. Okay. I was going to ask you about the income,
and how they described the conditions of their work and their
ability to earn a decent income.
Dr. Wells. Yes. One worker said to me it is a system of
smoke and mirrors. Another said it was a mirage that they were
ever able to achieve financial stability. I think what is
important for us to know about gig work is that it includes
opaque pay structures, with things like tip baiting and
promotion baiting, and most importantly, this thing called
personalized pay.
On the same day at the same hour in the same workplace, two
workers can be paid vastly different amounts for the exact same
work, so that old adage of equal pay for equal work, it goes
out the window.
Ms. Adams. All right. Let me move on and ask you, you
mentioned a legislative strategy that you say Uber developed in
Washington and took on the road to communities across the
country. What is that strategy and the high investment of these
companies in this strategy? For example, gig platforms invested
more than 200 million dollars in the California Prop 22
campaign, and they have invested even more in Massachusetts.
Uber has only reported an annual profit once in 15 years of
existence.
Dr. Wells. Yes, after a 31 billion dollar loss with Saudi
and Soft Bank money. The legislative strategy that Uber has
taken on the road and then exported to these other industries
is to break the law, convince customers that the law is unjust,
and then change the law.
Ms. Adams. Wow. How is it that these companies have the
resources for this investment when according to what is
publicly reported about their finances, it sounds like they are
mostly money losing enterprises?
Dr. Wells. They may well be. I think it has been undecided
whether they are profit creating, but what is important to keep
in mind is if they do create a profit, it has been created
through the unfair system of misclassification, which does not
pay for the real cost of labor.
Ms. Adams. Wow. Okay. Well, thank you very much for
answering those questions, and thank you for your work. I
appreciate it. Mr. Chairman, I yield back.
Chairman Kiley. The Representative from Wisconsin, Mr.
Grothman is recognized for 5 minutes.
Mr. Grothman. Okay. First question for Ms. Sharp. If we
reclassify, and this is clearly the goal of some people.
Reclassifying independent contractors as employees, what affect
will that have on them? What things will they perhaps not like
about that reclassification?
Ms. Sharp. Yes. Thank you very much for your question,
Congressman. I think first and foremost, it is important to
recognize that there are fundamental differences between being
an independent contractor and having control of your own time,
and being a traditional employee.
Unlike a traditional employee, an app-based worker, and any
independent contractor can decide how long they want to work,
whether or not they want to work. The frequency with which they
work, and whether or not they work for a competitor, or another
income source at the same time. None of those things are true
in traditional employer/employee relationship.
I think that it is also really critical to recognize that
90 percent of app-based workers say that one of the key reasons
they do the work is for flexibility. They like the fact that
they have that kind of entrepreneurial control over their time
and the scalability of their income that can go up and down at
their discretion.
Mr. Grothman. Or for people who like freedom, right, a
little more freedom, that sort of person.
Ms. Sharp. It is an industry of people who are pursuing
their financial goals, who are working around their personal
obligations, and who are overwhelmingly opting into this
industry, even when there are 9 million traditional jobs
available.
Mr. Grothman. Yes. If we switch to some of these more
portable benefits we are talking about today, what would the
millions who work for the type of area which independent
contractors are the norm, DoorDash, Lyft, Uber, that sort of
thing, how would they view the ability to get portable
benefits?
Ms. Sharp. Well, I think they view it as the best of both
worlds, sir. They would be able to maintain their flexibility
and freedom and independence, and they would be able to at the
same time accrue benefits of their choosing from more than one
income source.
Mr. Grothman. Okay. Ms. Palagashvili, let us see if we get
that right. Probably not. In your testimony you say that most
independent contractors are already W-2 employees somewhere
else, but they choose to work as independent contractors on the
side. First of all I didn't know, is that true?
Ms. Palagashvili. Yes. According to IRS tax records, which
is on the IRS website, a study that they did, most independent
contractors in the U.S. have full-time W-2 jobs, and they use
independent contracting as a side income. This is especially
true in the app-based world where almost all, I should say or a
vast majority, of app-based workers use the app-based economy
and for side income side hustles.
Mr. Grothman. I could really see why somebody who already
had one job, would really desire flexibility in that second
job, so really if they had a traditional W-2 sort of job, that
would probably be almost impossible, huh?
Ms. Palagashvili. That is correct, and that is part of the
problem, right? If you survey these workers, most of them say
well, I already have a W-2 job, or I already have something
else that I am doing. I want this as side income or a side
hustles. For those workers being employees, either as part-time
or full-time employees doesn't make sense.
Again, for those who are making it a side income. There
might be some workers who you know are full-time working
independent contractors who want to be employees, but that is
not the case for the majority of the workforce. That is the key
emphasis. The majority of the workforce, especially in the app-
based world are supplemental earners who have full-time jobs
elsewhere.
Again and this is, by the way, IRS tax records, Economic
Policy Institute, Progressive Leaning also found that when you
think social security data, that these self-employment
opportunities tend to be side income, not part of the main
jobs. Thank you.
Mr. Grothman. Okay. One more quick thing for Ms. Hoffman. I
want to get all three of you in here. California's AB5 reduced
self-employment by about 11 percent in California. Despite the
law's intent to push more people into traditional employment,
AB5 led to a four and a half percent drop in overall
employment.
Is the administration's Independent Contractor Rule likely
to have similar effects here or nationwide?
Ms. Hoffman. Congressman Grothman, yes. IWF believes that
the Independent Contractor Rule, which was just finalized could
have a similar deleterious effect, and we are going to be
studying those effects very shortly.
Mr. Grothman. Okay. Thank you.
Chairman Kiley. The Chairwoman of the Full Committee, Dr.
Foxx is recognized for 5 minutes.
Mrs. Foxx. Thank you Mr. Chairman. Dr. Palagashvili,
according to your written testimony our current regulatory
framework does not provide an option for workers to ``have
access to both independent jobs and to benefits.'' Could you
discuss State efforts to remove barriers for workers to access
flexible or portable benefits?
Ms. Palagashvili. Thank you for your question,
Representative. As I mentioned, the key thing is that
independent contractors cannot legally access benefits without
there being a tax or reclassification risk. What states are
doing, like Utah for example passed this last year, is they are
removing the presence of benefits as an indicator, as a factor,
for whether a worker should be classified as an independent
contractor, or an employee.
I want to mention again that states are doing this, and
despite them doing this, there still needs to be a Federal
policy to allow the sort of growth of portable benefit
solutions at the State level, precisely because companies and
workers are still under IRS and DOL determinations.
The IRS explicitly states this on their website. If we see
the presence of benefits to independent contractors, that is a
little checkmark for the employee side, so that exists. These
sort of policies like what states are doing in Utah, are
removing that presence of benefits for determining whether a
worker is an employee or an independent contractor.
Mrs. Foxx. Thank you. What more could be done at the State
level to encourage companies to offer portable benefits?
Ms. Palagashvili. That would be the first. It is a small
step, but it is necessary because again it is about legalizing
access to benefits for independent contractors. States could
also work on different tax credits, or tax incentives, both for
independent contractors, and companies. Things like this can be
done at the Federal level as well.
Other things that states are thinking about are association
health plans, so that independent contractors can band together
and buy health insurance. At lower risk pool, and therefore
lower pay premiums that they would have to pay for health
insurance. Again, the key thing is kind of this barrier that
exists, both at the State level and at the Federal level.
As I mentioned in my testimony, this is regardless of the
broader worker classification debates. All it says is if
Federal policy can remove the presence of the benefits factor,
that would at least help unleash access to benefits for
independent contractors, thank you.
Mrs. Foxx. Thank you. Ms. Sharp, as has been discussed here
today, app-based delivery and transportation platforms offer
maximum flexibility and allow individuals to work on their own
schedule. What do app-based independent contractors value more,
flexible work schedule, or having access to benefits?
Ms. Sharp. Thank you for the question, Dr. Foxx. I think
that in truth as we have discussed, flexibility is a key and
critical reason that people are doing this work, and it is one
of the things that motivates people to do the work. We have so
many stories of people who have personal health issues,
children with cancer, children with autism, and they need to
work around doctor's appointments.
We have talked a little bit already about the fact that
many, many workers are doing this to supplement a full-time
job, to combat inflation, or to earn extra income and get ahead
on their financial goals. To clarify a little bit, some of the
points that have come up earlier, 80 percent of workers in the
app-based industry work fewer than 20 hours a week, and 60
percent work fewer than 10 hours per week, doing app-based
earning.
It is a tool that people use to get ahead in their
financial goals. That said, if they can keep that flexibility
and also have an opportunity for benefits that accrue to them
based on that earning, that is the best of both worlds.
Mrs. Foxx. Do you think Congress should keep these workers
preferences in mind when considering changes affecting
independent contractors?
Ms. Palagashvili. Absolutely.
Mrs. Foxx. Thank you. Ms. Hoffman, some estimates put the
total number of American independent workers at over 70
million. Speaking as someone who performed independent work
yourself, will you discuss why flexible benefits might be
attractive to those currently working as independent
contractors?
Ms. Hoffman. Thank you, Representative Foxx. Yes. As
independent contractors when you are, let us say, maybe facing
some health issues, or you just want to have more security
portable benefits could be a feasible option for you. Having
gone through the Obamacare Marketplace, which I do not find to
be very portable, personally speaking, having limited options.
A truly portable benefit system would allow more choice,
more offerings, lead to cheaper healthcare options, and plans
that are more customizable.
Mrs. Foxx. Thank you. I yield back, Mr. Chairman.
Chairman Kiley. Mr. Burlison is recognized for 5 minutes.
Mr. Burlison. Thank you. I yield my time to you, Mr.
Chairman.
Chairman Kiley. Dr. Wells, do you support reclassifying
independent contractors as employees against their will?
Dr. Wells. I support independent contractors for the gig
economy being reclassified. Not all independent contractors
everywhere are misclassified, certainly not. Absolutely we know
that in the gig economy, companies like Uber, Lyft, ShiftKey,
ShiftMed, CareRev, a whole host of companies are not treating
their workers fairly.
Chairman Kiley. Okay. Let is just return to the question.
Do you support reclassifying independent contractors as
employees against their will?
Dr. Wells. For those workers that work in the gig economy,
absolutely.
Chairman Kiley. You do? You support reclassifying them
against their will?
Dr. Wells. Well, we do not have evidence to show that it is
against their will. We know workers choose----
Chairman Kiley. We do not. Okay. You have a couple living,
breathing independent contractors right here, Ms. Hoffman,
Dr.----
Dr. Wells. Not for the gig economy. She does not work for
the gig economy.
Chairman Kiley. Excuse me, excuse me. Thank you. Dr.
Palagashvili's father, right behind you there, they say they
prefer being independent contractors. Do you think you should
be able to--the government should force them into the
employment of someone else against their will. You support
that?
Dr. Wells. I believe that Uber drivers, I believe that
ShiftKey nurses, I believe that a whole host of Papa, elderly
care workers, should be given both the flexibility to pick
their own shifts, as well as the protections they deserve. We
know that those two things are not incompatible.
Chairman Kiley. Okay. You just told us on the record that
you support reclassifying them against their will, so I guess
that you know, raises the question why do you think you know
what is best for someone like Ms. Hoffman, or Dr.
Palagashvili's father who is sitting behind you, better than
they know what is best for themselves?
Dr. Wells. We know that the gig economy has a turnover rate
of about 6 months because, though workers are attracted to the
flexibility it offers, it does not deliver. Workers end up
leaving this because they choose stability over the promise of
flexible scheduling. If workers could have both flexible
scheduling and stability in financial earnings, they choose it.
Chairman Kile. Do you have any response to that, Ms. Sharp,
this idea that Dr. Wells believes she knows what is best for an
independent contractor like Ms. Hoffman, more than she knows
what is best for herself?
Ms. Sharp. 83 percent of people who work in the app-based
industry would recommend the work to friends and family. To me
that says that this is work that is satisfactory and is
something that people want to do. 77 percent of people in our
10,000 person study, not a 41 person study, say that they
prefer being an independent contractor.
More than that, there are particular stories of people who
do this because it works for them and their families. I have a
story from Maryland. I am a single father raising my daughter
with cerebral palsy completely by myself. These jobs allow me
time for my child and help me be financially secure and pay my
bills.
How can we say that we want to take away that kind of
choice and flexibility from people who have looked at the cost
benefits themselves, and opted into this kind of work?
Chairman Kiley. Not only that, but now that we are trying
to pursue policy solutions that will in fact make sure the
benefits are available as well for folks who choose to make
that choice, suddenly there is opposition to that as well,
which kind of goes to show you what was this really about to
begin with.
I wanted to touch on another topic because you testified
earlier that we need a safe harbor because currently Federal
law can look at the provision of benefits to independent
contractors and use that as a basis for forcibly reclassify
them as employees.
Just to make sure I understand your testimony correctly,
you are saying that employers who choose to extend benefits to
independent contractors, or states that put programs or
incentives in place to do that, can effectively be punished and
held liable for doing that. Is that right?
Ms. Sharp. Well, potentially. There is a rather ambiguous
six factor test that is not limited to just those six factors
at the Federal level. Because of the lack of certainty, there
is not clarity for workers or companies in what it would look
like if they were to take pilot programs, or experiment with
new approaches to benefits.
Chairman Kiley. Sure. The solution there is to say okay,
you choose to extend benefits to those who are independent
contractors. That is not going to factor into the analysis.
That would be the solution?
Ms. Sharp. Well sir, I think you rightly pointed out in
your opening statement that we are in a new world, and we are
looking at how to help people who are working in a different
way than the traditional way do it. Because of that we are
experimenting with what that could look like.
Having more certainty, and more ability to do that kind of
experimentation and get those lessons learned is really
critical in helping support these entrepreneurs.
Chairman Kiley. Great. Thank you very much, and I now
recognize the Ranking Member of the full Committee, Mr. Scott,
for 5 minutes.
Mr. Scott. Thank you, Mr. Chairman. First, I just want to
go through what is at stake here. There is a difference between
independent contractors and an employee. Dr. Wells, does an
independent contractor get the minimum wage that employees get?
Dr. Wells. No.
Mr. Scott. Overtime?
Dr. Wells. No.
Mr. Scott. Unemployment insurance?
Dr. Wells. No.
Mr. Scott. Worker's comp?
Dr. Wells. No.
Mr. Scott. If the State has mandatory sick leave, if you
are not an employee, do you get that?
Dr. Wells. No.
Mr. Scott. Do you get OSHA protection?
Dr. Wells. No.
Mr. Scott. Get the right to join a union?
Ms. Wells. No.
Mr. Scott. If somebody wanted to work, do you support
forcing someone to take the minimum wage if they wanted to work
for less than the minimum wage. Would you allow the employer to
pay less than the minimum wage if the employee wanted to?
Ms. Wells. No.
Mr. Scott. Okay. Just checking. Now, some of this seems
like we are talking theory and not really something that would
take place because it seems like this portable benefits would
only work if you have got a misclassified employee, who is
actually an employee, and the employer is trying to get him
some health insurance, notwithstanding the fact that they are
really an employee and should be getting it anyway.
I mean, if I called an independent contractor, like a
plumber, how would the portable benefits work?
Dr. Wells. Like a plumber?
Mr. Scott. Yes. If I called a plumber, do I get to add to
pay 1 day's health insurance?
Dr. Wells. Pardon me?
Mr. Scott. Would I get--could I pay 1 day of his health
insurance?
Dr. Wells. That is a great question.
Mr. Scott. If he is really an independent contractor, I
mean the price that I pay, he is on his own because he is
independent. Now, we have heard a lot about flexible benefits.
Is there any barrier right now to an employee working flexible
benefits, like telework and setting their own schedule. You can
still be an employee. Is that right?
Dr. Wells. Absolutely. Increasingly, we see evidence of it.
Mr. Scott. That would depend on if the employer said no, 9
to 5 and you have got to show up. If you insist on more
flexibility, then you find somewhere else to work. Is that how
it works? Okay. Now, we have heard about this checkmark about
if you get health insurance, that little checkmark for getting
health insurance does not determine that you are an employee,
does it?
OK. Now, are there any barriers to providing health
insurance to independent contractors? Right now, if you are an
employee, you get health insurance and it is an expense to the
business, but it is not income, taxable income, to the
employee. If you are an independent contractor and the employer
paid the independent contractor health insurance, would the
employee get the income exclusion?
Dr. Wells. I am not a labor lawyer, and I am not sure about
that answer.
Mr. Scott. That is not within this jurisdiction. That is
over in Ways and Means, but I think the answer is no. If you
are not an employee, you do not get that benefit. How would you
get health insurance if it is really an independent contractor
and you are paying a contract price. Where is the health
insurance? That is the problem that I see with this thing.
If they are really independent contractors, they are
independent and they are on their own. You set a contract price
for the job, you pay the price, they get their own health
insurance. If they are an employee, and if this thing only
works if you are working with the same employer like an
employee, they are trying to get you health insurance, and they
cannot keep you without providing health insurance because you
will go somewhere else and get health insurance.
Now, if you are misclassified as an independent contractor,
compared to a business that is playing by the rules and
classifies somebody correctly as an employee, what would the
employer save?
Dr. Wells. The employer would save 20 to 40 percent of the
cost.
Mr. Scott. By misclassifying someone as an independent
contractor?
Dr. Wells. Yes. It is highly profitable for companies to do
so.
Mr. Scott. They do not have to pay minimum wage. They do
not have to pay overtime. They do not have to pay unemployment
compensation. They do not have worker's comp. They do not have
to pay any of that. They save a lot of money by misclassifying
people. Thank you, Mr. Chairman, I yield back.
Chairman Kiley. Ms. Hoffman, yes, you are a former
Californian I think, correct? An independent contractor. You
are very familiar with the law AB5 that was passed in
California. Is that right?
Ms. Hoffman. Yes.
Chairman Kiley. You probably remember as this was being
debated the basic argument was sort of the one that the Ranking
Member just presented, saying well, independent contractors are
only going to get this benefit and that benefit. We need this
new law to force them into an employer/employee relationship,
and then suddenly they will have those benefits.
Is that the way it worked out in your experience, studying
what happened in California? Did this law suddenly just deliver
a windfall to all independent contractors in the State? Is that
what happened?
Ms. Hoffman. You are absolutely correct, Chairman Kiley. It
was intended to specifically go after gig workers, and then it
eventually encompassed all independent contractors, those who
identify as contingent workers, regardless of if they are self-
employed or part-time, or occasional freelancers. That was the
intention. It was to find an easy target, and then with
unintended or perhaps intended consequences, it was wide
sweeping, and it reached all different kinds of professions,
journalists, florists, so many different, too many professions
to list.
You saw that a lot of people. A sizable share of
California's workforce, independent workforce was displaced
because of AB5's implementation. California's economy is still
suffering as a result of that law to this day, and we will not
know the full effects.
Liya has done exceptional research on that, but we will see
some catastrophic effects from that still following in the
years to come.
Chairman Kiley. I mean we saw hundreds of professions
right? Where right away, as soon as the law was signed even
before it even took effect. Not only did they not suddenly
receive a whole menu of benefits, they lost their ability to
work entirely. Dr. Palagashvili, did you yourself write the
study?
Ms. Palagashvili. Yes. That was me. I published the AB5
study that--yes.
Chairman Kiley. Can you tell us about that?
Ms. Palagashvili. Yes.
Chairman Kiley. Your study really documented in an
empirical way everything that we have been observing.
Ms. Palagashvili. Yes. I just wanted to clear up a
misconception, so we tend to assume that when we pass these
laws, like California's AB5, or greater regulations that make
it more difficult to be an independent contractor, that
companies will automatically reclassify all those contractors
into employees. That is a misconception because companies have
three options, right, under our new regulation.
Option No. 1, reclassify contractors as an employee, right?
That is the one that everyone seems to want. Option No. 2, they
determine that I am a magazine, and I do not want to hire Ms.
Wells as a photographer, hypothetically speaking here, Dr.
Wells, excuse me, as a photographer for the magazine.
They might decide that I do not want to work with this
contractor because it is no longer legal under the new
regulation. Then option No. 3 is they redefine the agreement,
so that it is now legal under the new law.
Everyone is assuming that all companies will do option No.
1, reclassify all independent contractors as employees. Now we
studied this using the Bureau of Labor statistics, and the
Census Bureau's current population survey, and looked up what
happened in California post AB5, because it is a natural and
curious question to see did more workers become traditional W-2
employees post AB5.
What we found is that for affected occupations, we do not
find consistent evidence that those workers became W-2,
traditional W-2 employees. What we find instead is significant
drops in self-employment, again for affected occupations. What
that means in the story between the photographer and the
contractor company is that many organizations looked at their
relationship with the contractor, realized it is a sporadic or
regular contract.
It does not make sense to bring them on as a full-time or a
part-time employee, or in some cases maybe they asked the
worker, like my father's situation, do you want to be an
employee? He said no. As a result, what we see is drops in
self-employment for affected occupations, but we do not find
consistent or robust evidence of increases in traditional W-2
employment for affected occupations.
That goes contrary to the wishes of lawmakers, and again,
it goes back to the scenario that there are three options,
right, that companies, organizations can do with contractors
that they work with. We--by assuming that they are going to do
the best intended option, that is just one, that is not a
realistic situation or scenario.
As an economist, we have to analyze all considerations, all
scenarios, and that is what we did with the study, looked at
what actually happened in California post AB5. Thank you.
Chairman Kiley. Even if we accept every premise of the
argument we have on the other side, that there is a tradeoff
here, and that we, the government, needs to fiat the decision
for workers, it still does not--our actual experience with it
does not vindicate that argument because workers are not
receiving benefits in many cases, they are losing the
livelihoods entirely. Is that right?
Ms. Palagashvili. That is right. We do not find consistent
evidence that traditional W-2 employment increased in
California post AB5, which means that the workers did not get
those intended benefits that they were supposed to.
Chairman Kiley. Thank you very much. I will now recognize
the Ranking Member for a closing statement. It looks like we
have Ms. Stevens. Are you ready to go?
Ms. Stevens. The gentlelady from Michigan is ready to go.
Here we find ourselves at another Education and Workforce
Subcommittee hearing talking about the plight of independent
contractors. I will just say this, and certainly want to get
the folks chiming in. Appreciate the expertise, the research,
that is represented on this panel, as well frankly, as the
lived experience of some of you.
Americans are all just trying to get by. Right? Trying to
live the American dream. Trying to live to fight another day,
put food on the table. We know that credit card debt is over a
trillion dollars, that going to the grocery store is oftentimes
a frightening experience for individuals. Just as it has been
to fill a prescription.
When I think about the responsibility that all of us have
here as Members of Congress to create a fair and equal society
that delivers day in and day out for the American people, I
think about the role that our agencies play in helping to
achieve some of the guarantees of retirement, of being able to
pay for medical bills, and have affordable insurance.
Dr. Wells, I particularly love for you to just re-chime in
here, chime in yet again, on some of your research in terms of
the gig economy and gig workers because I get it. A lot of
people who are participating in the gig economy, they need that
flexibility, and we have legislation now in the Congress that
is focusing on a 32-hour work week.
I have yet to talk to my former Chair, Ranking Member here,
Mr. Scott, about that legislation. That legislation represents
people who want flexibility, who need flexibility. We had a 40-
hour work week, grinding it out because it was one income
households, now it is dual income households, and you add in
children to the mix, and you add in some of those doctor's
appointments.
That flexibility to earn extra wages is, I believe, really
important and that is something that we see with the gig
economy. Then we start to look at it, and where did the pay
force go in terms of being able to pay into social security,
pay, you know, into your future. I just wonder who is holding
the bag because we all know that in addition to the over a
trillion dollars of credit card debt that Americans are
holding, the staggering lack of savings for retirement is so
real.
I was just wondering if you could kind of speak to some of
these realities that your research has uncovered, and how the
system that we have right now might not be benefiting people
for their future that's oftentimes arriving faster than we
realize. Thank you.
Dr. Wells. Thank you. Yes. I would like to say that workers
do want benefits, before I answer this, they want benefits and
they also want flexibility, and those two are not incompatible.
The issue of scheduling flexibility is often held up as a red
herring. Employees can have scheduling flexibility, but they do
not have to trade in worker protections to have it.
We know that shift workers in hotels and manufacturing
plant workers, manufacturing plants, in hospitals, all of these
cases they have shown us, and warehouses, that workers can both
choose the flexibility to take their dad to dialysis, their kid
to its IEP meeting, you know, and take care of themselves,
while also not giving up the worker protections that we have
built as a country together.
The problems of wage stagnation, credit card debt, student
debt, underemployment are real, and I think it is no
coincidence that since the Great Recession we have seen the
rise of associations like Flex, that have taken advantage of
this real need on the part of Americans who do not have savings
to try to avoid financial disaster.
Workers need extra income because of wage stagnation. They
need it because they have taken on staggering amounts of human
debt. These jobs are not the answer, and the $80.00 portable
benefit plan that would be offered to a gig worker in
Pennsylvania who earns $2,000.00 a month on DoorDash, is not
going to prevent that worker from any kind of financial
disaster.
Ms. Stevens. Thank you, and I yield back.
Chairman Kiley. Thank you very much, and I will now
recognize the Ranking Member for a closing statement.
Mr. Scott. Thank you, Mr. Chairman, and thank our witnesses
for being with us today. A priority on the Workforce Protection
Subcommittee must always be protecting workers. This seems to
somehow be lost as a majority of the hearings we have had on
this Subcommittee so far focused on ways to continue to squeeze
workers in favor of helping unscrupulous employers' bottom
lines.
As more and more companies look for ways to save money,
there is a troubling trend of shifting away from direct
employer-employee relationships, where you have all of the
protections of the employee relationship, to outsourcing with
subcontractors and using what are claimed to be independent
contractors.
Workers should not be forced to choose between voluntary
portable benefits and guaranteed benefits, which employees are
entitled to, such as minimum wage, overtime, worker's comp,
unemployment compensation, OSHA protections, and the right to
join a union.
It is possible that workers can be protected by fundamental
labor standards and still have flexibility. Now providing some
of the benefits of being an employee to compensate for the
damage done by a worker being misclassified is not enough. We
of course, the determination of when someone is an employee or
an independent contractor, is-always going to be complicated.
There are going to be people close to the line.
it is not solved by promoting a plan that really does not
work for really true independent contractors. Furthermore,
there is really no barrier under present law to provide health,
pension, and other benefits to people, independent contractors,
except if they are really independent, it is logistically
complicated.
Policy choices shape worker's rights and conditions of
employment. We should be strengthening and modernizing
protections for American workers, while also promoting
innovation. I hope we can do this in our next hearing, and I
yield back.
Chairman Kiley. Thank you very much. I want to thank all of
our witnesses for your testimony. I think the basic question
here is are we going to look backward, or are we going to look
forwards? The Department of Labor in this administration seems
intent on moving us backward and trying to force millions of
American workers against their will, into an arrangement that
they have chosen to forego, and that is out of step with their
line of work, and the nature of the modern economy.
On this Committee, we are trying to look forward. We are
recognizing that you know within a few years we could well have
half of the American workforce doing independent work of some
kind. We are asking how can we support those choices? What
policy levers are available to provide those workers with a
greater sense of personal security? Access to portable benefits
I think is a really important step in helping to usher in that
future.
We had a really startling admission today from the witness
designated by the minority, who is essentially offering the
line of the radical Biden labor department when she testified
on the record that she supports forcing independent contractors
to become employees, forcing them to work for someone else
against their will, even if that is not what they want.
Nothing could be further from what we are trying to do and
accomplish on this Committee. We believe in supporting workers.
We believe in empowering workers. That is why we respect the
decision of workers to be an independent contractor, or to be
an employee, and it is also why we want to assure that if they
make the decision to be independent contractors, they have
access to benefits to support themselves and their family as
well.
As a matter of fact, when you shift that paradigm to where
the benefits follow the worker as opposed to being attached to
a particular employer, you empower them in a further way
because then they can make career decisions in a way that best
suits their needs, their talents, as opposed to you know,
having their entire benefits tied to one particular employer.
I think this has been a really helpful hearing. Maybe the
most important one we have had so far this Congress. I think we
have some great steps to take moving forward. I am going to be
working on legislation related to the issue that several
witnesses have discussed, to make sure that we can support
State efforts to provide portable benefits by assuring that
there is not a perverse effect then of that being used to kind
of punish hiring entities who extend such benefits by saying
that now they are going to be held liable for misclassifying
their workers.
This sort of safe harbor provision I think is a really
important, it is a modest, but important step. Then more
broadly, I am looking forward to working with colleagues on
both sides of the aisle on the larger questions of how we can
help to usher in access to portable benefits for every
independent contractor in America.
I think we had supportive comments to an extent from one of
our colleagues on the other side of the dais today. We have
bipartisan legislation actually, that started in the Senate
that is along those lines.
I think there is a lot of common ground to work on here, to
work with here, and I am excited about the opportunity we have
to support both the freedom of workers to direct their own
career paths, and the security to be able to support themselves
and their family.
Without objection, there being no further business.
Mr. Scott. Mr. Chairman?
Chairman Kiley. Yes.
Mr. Scott. I ask unanimous consent to enter into the record
two letters, one from the National Employment Law Project,
NELP, on the need for caution regarding the development of
portable benefits. The second is a comment letter from the AARP
in support of the Biden administration's Independent Contractor
Rule, which elaborates on the importance of protecting older
Americans from misclassification.
Chairman Kiley. Without objection.
[The information of Mr. Scott follows:]
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Chairman Kiley. There being no further business, the
Subcommittee stands adjourned.
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[Whereupon, at 10:16 a.m., the Subcommittee was adjourned.]
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