Independent contractors and the new corporate welfare

Silicon Valley is a land of haves and have nots, but it’s also a land of the salaried and the independent contractors — the 1099 economy (gig economy, piecework economy, hustling economy, share economy, etc.) is booming and freelancers are the rock on which tech titans are built. They are modern-day disposable workers akin to the assembly line workers who made the Industrial Revolution what it was. They, too, were paid pittances for the purpose of vast industrial profiteering, and they had few to no employment protections. The labour movement changed that, addressing working conditions, creating tougher employment law, and building a better work landscape.

Now, the time has come for the 1099 economy to organise, as it is already starting to do, and one of the things it needs to address is the role it plays in corporate welfare.

Historically, people conceptualise corporate welfare as non-living wages paid to employees at locations like WalMart stores, who then have to go on public benefits — are sometimes actively encouraged to do so — to meet their needs because they aren’t making enough money. For their employers, it’s a win, because they pay low employment taxes as well as low overhead on staffing costs. For them, of course, it’s a huge lose, but it also dings the government, which has to step in and make up the earnings difference, without the benefit of the tax revenues that could help fund that. To make it worse, many companies get substantial tax breaks in the name of various activities like ‘improving the economy’ or ‘driving growth’ or some such. Thus, corporations don’t pay their fair share of taxes while they starve their workers, and the government has to bridge the difference between unsustainable wages and being able to afford housing, food, and other necessities.

This is even more exacerbated in the 1099 economy, which is a giant ripoff both for freelancers and the government. Many companies also actively abuse it, engaging in activities that may actually qualify as tax fraud — something I actually had to push an employer on once in order to extract a paycheque. Threats to report companies to the IRS, it turns out, are a highly effective way to get them to do what you want, because they know they’re in the wrong.

Here’s how it works, for those who haven’t worked as independent contractors: In a theoretical world, a company needs a given service — say, consulting for a project. That company outsources this service because it doesn’t make sense to keep a full-time staffer with the needed skills, because it’s a one-time need, etc. Let’s say you’re a company moving offices and you want to make sure the new offices are accessible, so you hire an accessibility consultant. You agree on a fee with this person, that person invoices you, and you in turn file the infamous 1099, a tax form reporting what you paid. Critically, you do not pay employment taxes for this person, you don’t put into SSI/SSDI, and you don’t retain any liability. If that person is injured while working for you, it’s not your problem. It’s a risk-free, disposable worker. People who do this are typically known as consultants when they command substantial amounts of money for their services, or freelancers when they’re being paid a pittance for their work.

That person in turn has tax liability. First, she’s self-employed, so she has to pay the employment tax that you would have paid. Then, she has to pay tax again, because she earned money. So she pays taxes twice, because the government wants to extract its pound of flesh from those earnings, and it doesn’t care if that money comes from one person or two people. Meanwhile, she’s not getting the paid time off, health insurance, retirement, and other benefits that your company offers, because she doesn’t work for you: She was a contracted employee. You, in other words, just saved a buttload of money, which is exactly what you intended.

In Silicon Valley and lots of similar economies, people rely heavily on independent contractors to do everything from delivering your groceries to writing the articles you read on your favourite websites. These people may be hired directly or through third-party firms, but either way, their ’employers’ are saving lots of money on them. They’re also skirting the law, because technically, someone doesn’t count as an independent contractor if that person is doing regular work for you with established expectations. Someone who writes a Friday column, for example, is no longer an IC: She has a regular task and an expected deadline. Likewise, anyone who handles invoicing, payroll, or other tasks related to money isn’t an IC, but a lot of companies put editors on IC status.

This is terrible on its face for contractors, who really get exploited this way. It’s also terrible for the government, because it’s another form of corporate welfare. Many ICs struggle to pay their taxes because they don’t make enough money, and many also live close to the poverty line and in a pretty precarious financial state. They also tend to rely heavily on government benefits like SNAP, TANF, and so forth. In this case, the corporate giants they perform services for bear absolutely no financial responsibility for the burden they’re creating for the government — and they’re celebrated for being innovators building a new creative climate. A climate of creative accounting, perhaps.

ICs shouldn’t be blamed for being trapped in this system. Morals, like ‘exposure,’ don’t pay the rent, sadly. The people to blame are the companies who exploit them, because they don’t get called out for it and they don’t get a closer look from the government agencies that should be monitoring their activities. So long as the government lets the issue slide, it’s going to be picking up the slack, and I’m not talking about the popular corporate chat client.

Image: WOCinTechChat, Flickr