The blog of the Urban Institute
April 3, 2020

Will the Pandemic Encourage Policymakers to Implement Stronger Workplace Protections for Independent Contractors?

Shelly Steward, associate director of research for The Aspen Institute Future of Work Initiative, contributed to this post.


José is a self-employed hair stylist who rents a chair from a salon owner. His clients started canceling in early March because of COVID-19, and then, his state’s stay-at-home order meant a loss of all his revenue for the foreseeable future. With a high-deductible health plan he can barely afford, he told us he fears the cost of illness as much as its threat to his health.

The COVID-19 pandemic has exposed the stark reality of the precarious working conditions facing many people in nontraditional work, including gig workers, temporary and part-time workers, and independent contractors like José. The Urban Institute, The Aspen Institute Future of Work Initiative, and A Better Balance are collaborating on an initiative to strengthen protections for workers in nontraditional jobs. As policymakers take steps to help workers affected by the pandemic, we need to make sure we develop lasting solutions that help all US workers access workplace protections and benefits.

Why are independent contractors more vulnerable to economic instability?

Almost 10 million US workers are treated as independent contractors for their primary job. Some are traditional independent contractors, such as electricians, graphic designers, or dentists, and others are misclassified workers. Many are in low-wage jobs—in homecare, nail salons, construction, cleaning, and landscaping—held disproportionately by immigrants, women, and people of color.

Even before the COVID-19 crisis, many independent contractors faced financial insecurity. New data from the Urban Institute’s Well-Being and Basic Needs Survey show that despite the longest economic expansion on record, many hourly and self-employed workers were already struggling to make ends meet before the outbreak. About 44 percent of self-employed workers reported difficulty paying for basic needs such as housing, utilities, food, or medical care during 2019, compared with 21 percent of salaried workers.

Independent contractors are also among the least likely to access workplace benefits and protections, including unemployment insurance, paid leave, employer-provided health insurance, disability insurance, and workers’ compensation.

Online platforms have accelerated the shift toward precarious work by disrupting the traditional employer-employee relationship upon which many legal protections rely. Major gig-economy platforms, including Uber, Lyft, Instacart, and Postmates, argue that their workers are independent contractors and not employees. This means many companies do not contribute to unemployment insurance, workers’ compensation, or health insurance, and they do not believe they are responsible for ensuring minimum wage or antidiscrimination protections provided to employees.

The COVID-19 crisis has spotlighted the vulnerabilities of our systems, which deny independent contractors most workplace benefits and protections. In recent weeks, we have seen record increases in unemployment, which have hit workers in nontraditional jobs especially hard. The Freelancers Union reports that more than 80 percent of freelancers surveyed have each lost thousands of dollars because of COVID-19’s economic effects. And the demand for ride-hailing trips has declined by as much as 70 percent in some US cities.

What promising solutions are emerging?

Expanding access to unemployment insurance

Millions of people are filing for unemployment insurance, yet independent contractors are typically excluded by state requirements. But on March 27, Congress took a historic step to temporarily expand unemployment insurance to independent contractors in the Coronavirus Aid, Relief, and Economic Security Act stimulus bill. Under the Pandemic Unemployment Assistance provision, self-employed workers can receive state unemployment benefits and an extra $600 per week through July.

Expanded unemployment insurance for independent contractors provides much-needed relief to workers in the near term, but lasting changes are needed. In many states, gig and platform companies do not typically pay unemployment taxes, as do traditional employers. As a longer-term solution, unemployment insurance for true independent contractors could be funded by contributions from companies or individuals that hire them.

Tackling worker misclassification

Robust efforts to crack down on misclassification are also essential because gig workers can obtain traditional unemployment insurance, minimum wage and overtime protections, and antidiscrimination and other workplace protections and benefits if they are determined to be employees.

Around the country, we are beginning to see efforts to tackle misclassification. On Thursday, New York’s highest court ruled that couriers for Postmates, an on-demand delivery app, should be classified as employees, requiring Postmates to contribute to unemployment insurance for each worker. In California, A.B. 5 became effective on January 1, 2020, codifying for wage claims and unemployment compensation the “ABC test,” which presumes that workers are employees unless the employer meets a three-part test. Also in January, New Jersey passed bills substantially increasing the liability for misclassification.

Ensuring all workers are protected from discrimination

Independent contractors also face exclusion from most federal antidiscrimination laws, such as Title VII of the Civil Rights Act of 1964, which only covers employees. The Reconstruction-era statute, Section 1981 of the Civil Rights Act of 1866, prohibits discrimination in contracting based on race and ethnicity, but it does not protect against other forms of discrimination, such as sex or age discrimination, and it only allows claims of intentional discrimination. People of color, immigrants, women, and people with disabilities are overrepresented in many independent contractor jobs, which means that many workers in greatest need of protections are in jobs that offer the fewest.

An analysis recently published by A Better Balance found that some states are filling this gap. New York, Maryland, Minnesota, and Rhode Island protect independent contractors from discrimination in employment or contracting. California, New Jersey, and Washington provide some protections for independent contractors, and Pennsylvania provides protections for certain licensed contractors.

Now is the time to build lasting solutions for all workers

The COVID-19 crisis has drawn much needed attention to the gaps in workplace protections for millions of Americans in precarious jobs—many of whom, such as grocery delivery workers, are essential during this pandemic. As we recover and rebuild, our goal should not be to simply sustain our prior flawed systems, but to create long-term solutions that work for all Americans.

We need to ensure the pandemic does not deepen and reinforce inequality. The bipartisan support for providing unemployment insurance to independent contractors during this crisis provides a starting point, but we can go further to build lasting workplace and safety net protections for the millions of Americans who need it most.

Hair salon closure due to the coronavirus COVID-19 pandemic on March 25, 2020 in New York City. (Photo by Bill Tompkins/Getty Images)

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