Opinion

The Future of the Gig Economy Following California’s Prop 22

Over 57 million Americans currently work in a freelance role, contributing more than $1 trillion to the U.S. economy annually. Some organizations estimate that freelance workers account for up to 10 percent of California’s labor force, a state long considered the backbone of the gig economy. 

But a new ballot proposition has the potential to reverse a controversial 2019 California statute that requires businesses to reclassify gig workers as full-time employees. If the measure passes, businesses must prepare themselves for the impact that new employment classifications could have on their workforce in a post-COVID economy — not only in California, but nationwide.   

The “Exempts App-Based Transportation and Delivery Companies from Providing Employee Benefits to Certain Drivers” proposition (otherwise known as Prop 22) is on California’s general election ballot this week. The proposition was created in response to California Assembly Bill 5 (AB5), which went into effect on Jan. 1, 2020, and required companies that hire independent contractors to reclassify them as employees, with a few exceptions. As a result of the passage of AB5, many California companies let their gig workers go instead of taking on the additional costs of hiring them permanently and providing them with a full-time salary and benefits. 

If passed by voters, Prop 22 would reclassify app-based transportation and delivery drivers as independent contractors. It would also provide drivers with a health care stipend and pay them 120 percent of California’s minimum wage. A handful of companies have spent millions of dollars campaigning for the proposition to pass, and the proposal has divided gig workers, with some wanting benefits afforded to full-time employees while others prefer more flexible work arrangements. Regardless of the outcome, there will be implications for both gig workers and employers throughout the state, and potentially the country, should other states follow California’s lead. 

If passed, Prop 22 would allow businesses like Lyft and Uber to revert to their previous staffing structures that were in place prior to the passage of AB5. They would once again be free to utilize independent contractors instead of hiring drivers as full-time workers. This would give drivers the flexibility to work when they want and potentially save employers millions of dollars each year on salaries, benefits and associated costs.  

While reclassifying these app-based workers as independent contractors would make it more cost-effective for businesses to hire more workers, it also opens up employers to potential liability if they don’t fully comply with the new laws. Businesses will need to consider partnering with talent providers or legal experts to ensure that they are classifying their workers correctly and providing them with the compensation and health benefits that Prop 22 guarantees. If they fail to do so, employers could face financial and reputational damage to their organization.  

Businesses must also consider the effect that engaging more gig workers will have on their organizational structure. With an increased number of freelancers working unpredictable hours, it will be important that employers keep track of when and where these workers are deployed. Businesses will need to adopt technology that can quickly spot inefficiencies in staffing and deploy resources to where they are needed. Keeping a close eye on how part-time resources are being utilized will also help employers stay within their hiring budget. 

If Prop 22 fails and employers are unwilling to hire workers full time, combined with the high cost of living in tech hubs like San Francisco, qualified candidates may decide to leave California for states that offer more job opportunities. With more jobs to choose from, gig workers will want to work for the company that can provide them with the most appealing offer. 

The world is in the midst of a talent transformation and the gig economy is no exception. The status of independent contractors across the United States is likely to be influenced by California’s decision this week, which could have far-reaching consequences on businesses who utilize these resources. Employers should prepare themselves for either outcome of the proposition by investing in workforce management technology and most importantly, their own employer value proposition, to attract and retain talent in 2021 and beyond.  

 

Rebecca Henderson is the CEO of Global Businesses and executive board member of Randstad.

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