Young people think differently about their careers than their parents did. More than ever, they would rather work for themselves than for someone else. About 60 percent of today’s teenagers say they want to start their own business at some point.
This is great for America. Entrepreneurs play a crucial role in our economy. They solve problems, drive innovation, and create new jobs. They develop new businesses that are essential to our economic growth.
But a new rule just announced by the Biden administration will force these budding entrepreneurs into regular, 9-to-5 jobs they hate. Through a radical change to the Fair Labor Standards Act starting on March 11, it will essentially ban entrepreneurs who work as freelancers.
Besides destroying the dreams of entrepreneurialism for many young people, the rule will put a crucial source of income at risk for millions of current and future gig workers. For example, a recent study in Massachusetts projected that this sort of policy would result in the loss of 58 percent of all app-based jobs.
A group of freelance writers and editors has already filed the first court challenge of the rule.
California’s failed attempt at implementing this sort of policy should also be a red flag. The state reclassified gig workers as traditional employees a few years ago, and it led to job losses across the state. Even some small businesses like theaters and music venues had to close up shop. They could not afford to hire their freelancers full time, or the staff could not commit to a full-time job. Voters ultimately rejected the rule, with 58 percent of Californians voting to remove it.
Julie Su, who implemented California’s policy, now heads Biden’s Department of Labor. Although the Biden administration claims there are important differences between its rule and the failed California rule, the impact will be the same.
We must implement policies to support the freelance economy, which has made it easier for young people to find work on their own terms. These opportunities go well beyond the app-based platforms we all know like Uber and Lyft. Freelancers are essential to almost every sector of our economy, from accounting to customer service to software development. The most popular sector for freelancers is “professional, scientific, and technical services.”
These fields can be very promising for young entrepreneurs looking to chart their own path.
Advancements in technology have also lowered the barriers to entry for starting a business. With access to a nationwide or even a global market through the internet, young entrepreneurs can now launch startups with minimal upfront costs.
Freelancing is appealing to young workers — and older ones too — because it allows individuals to set their own schedules. They can work when and where they want to while balancing responsibilities such as parenting or caring for elderly family members, along with their work commitments.
Fifty-eight million Americans — about 36 percent of our workforce — currently identify as independent workers, according to McKinsey. And these workers contribute around $1.27 trillion to the U.S. economy each year.
Why would the Biden administration put these jobs at risk? Because they think these entrepreneurs will be better off in a traditional job with standard benefits and access to join a labor union. But that would also take away the autonomy they value most. The Bureau of Labor Statistics found that 79 percent of freelancers prefer their current arrangements over traditional employment that would also take away their flexibility.
Instead, the Biden administration and Congress should codify freelance work that lets young entrepreneurs remain independent while giving companies that hire them the option to extend benefits. We must change current law that makes it nearly impossible for companies to extend benefits to their independent contractors.
The easiest way to accomplish this would be to establish what I call Benefit Savings Accounts. They would let companies extend special benefit bonuses to their freelancers. Workers would then use these bonuses to pay for their own benefits on a tax-free basis. It’s similar to how companies can already pay for regular employee benefits as a tax write-off.
Creating Benefit Savings Accounts aligns with the interests of both gig workers and companies. For gig workers, it preserves their flexibility while offering a safety net of benefits. For companies, it allows them to attract and retain talent, promote worker loyalty, and contribute to the overall well-being of their workforce.
About 80 percent of gig workers say they want access to benefits like health insurance, and companies such as Uber are eager to provide them once we change policy to allow it.
As we continue to witness the evolution of the workforce, regulations must adapt to support the ambitions and needs of the next generation. Trying to force workers back into a one-size-fits-all model of what a career looks like is foolish. Instead, we should establish policy that both protects workers and helps our freelance economy — and innovation — flourish.
Karen Harned is president of Harned Strategies LLC. From 2002 to 2022, she served as executive director of the National Federation of Independent Business Small Business Legal Center.