While nearly 60 million Americans try to adapt to an volatile economic environment, the freelance battle over regulations continue.
April 7, 2025
By: Bobby Casey, Managing Director GWP
Hard work versus smart work, that is the dynamic human beings have been grappling with since time in memorial. Smart work, in the end has given human beings immeasurable progress and prosperity! From the invention of the wheel and the many uses for fire to the internet and AI.
At times, smart work meant replacing human work with machine work, such as the cotton gin or the ATM, but where one occupation became obsolete, several more were created.
The assembly line was a boon for industrial work! That was indeed smart work. Human beings became so efficient at production through remodeling and technology, we got to a point where people could live off a single job and a 40-hour work week. This is no small thing considering people used to toil for much longer.
But it’s beginning to look like the 40-hour work week is no longer the smartest way to work. With all the economic instability and lack of loyalty between clients and businesses, there’s subsequently a lack of loyalty between employers and employees.
The future could very well be fractional, and that means more people operating in a freelance capacity rather than a full-time employment capacity. It’s what we’ve been calling a gig economy only where freelancers are white-labeled for positions in the company on a part-time basis.
The freelance battle has been brutal over the years. The strange thing about it is, their battle has largely been with law makers, not employers.
The Fractional Future
The gig economy really started to rev up leading into 2020 just before the pandemic hit. After the pandemic hit, it was thrown into high gear, with people picking up all sorts of odd jobs from ride-sharing to delivery services; largely out of necessity since many folks’ jobs were deemed “non-essential”.
The other component was working from home, which was veritably necessitated by all the “stay at home” mandates.
While I’m disgusted at the abject absence of ethics of the lockdown edicts, I loved seeing people traveling to other countries while working, and people eliminating their commutes while spending more time with family, and even people relocating to more affordable markets.
In the midst of all that chaos, there was a contingent of people who were exposed to a very desirable way of life.
There were people making a decent side hustle income too.
And while many jobs were put back after being taken away, the economic uncertainty lingered. It’s still lingering, if we’re being honest. With tariffs, regulations, and interest rates all in flux, it’s difficult for businesses to make long term commitments or decisions.
In the immediate future, however, businesses have work to be done. The cost of a full-time hire is expensive. Whatever the going annual rate is plus 15-20% in onboarding and overhead costs is nothing to scoff at, and really not worth it if the work isn’t steady.
The easiest solution is to hire a contractor. It’s cheaper than hiring someone full-time, and the freelancer can claim all the tax benefits of being a 1099 filer. Win-win!
With clients moving more fluidly from firm to firm, and their budgets waxing and waning, it makes sense that the demand for labor would follow suit, and freelancing is how many are adjusting to this new and evolving paradigm. Remember, losing one of many gigs is easier than losing your one and only gig.
What is essentially happening is, employees are positioning themselves as proprietors who rely on a certain flow of consumers. Multiple streams of income that are based on delivering on a specific scope of work. That’s the new “smarter way” through the freelance battle.
The regulations in place
There are a lot of employers who balk at remote work. They are sold out on the idea that coming into an office is the only path forward. And while there are those who will continue on that path, many are breaking away. Understandably, they don’t trust full-time work as a stable source of income, having likely been burned by a few lay-off waves in their time, and decide to just go the fractional route.
To each their own, but the government couldn’t just leave well enough alone.
California passed AB-5 in 2019, which redefines what a freelancer is and is not through what is called the ABC test:
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
- The worker performs work that is outside the usual course of the hiring entity’s business; and
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Transportation companies typically hire owner-operators on an as-needed basis. In the trade publication, Commercial Carrier Journal (CCJ), they write:
In April, California’s Ninth Circuit Court of Appeals ruled that the ABC test within AB 5 for determining independent contractor status in California should apply to the trucking industry, essentially banning the leased owner-operator model in the state. The court denied a request for a rehearing in June, then granted a stay to CTA to keep trucking’s exemption from the law in place until the case plays out in the U.S. Supreme Court.
This likewise affected writers, graphic designers, and many others. It was found that one in five freelancers were making six figures working in that capacity.
If it stopped there you could get mad and just say, “I’m leaving California then!” But in 2021, the PRO Act passed which is the national version of AB-5. It provide a now federal guidance for how to define a freelancer:
- Adopt an “economic reality” test to determine a worker’s status as an FLSA (Fair Labor Standards Act) employee or an independent contractor. The test considers whether a worker is in business for themselves (independent contractor) or is economically dependent on a putative employer for work (employee);
- Identify and explain two “core factors,” specifically: the nature and degree of the worker’s control over the work; and the worker’s opportunity for profit or loss based on initiative and/or investment. These factors help determine if a worker is economically dependent on someone else’s business or is in business for themselves;
- Identify three other factors that may serve as additional guideposts in the analysis including: the amount of skill required for the work; the degree of permanence of the working relationship between the worker and the potential employer; and whether the work is part of an integrated unit of production; and
- Advise that the actual practice is more relevant than what may be contractually or theoretically possible in determining whether a worker is an employee or an independent contractor.
The freelance battier is not the workers being exploited, as politicians would have you believe. It’s that people are negotiating their own value rather than accepting some boilerplate salary, the employers are saving on overhead, and the tax code is very conducive to this arrangement for both parties… and by conducive, I mean the tax revenues are lower. California claims $7 billion in tax revenues are lost to this “misclassification”.
The fight continues
And in an odd twist of irony, this whole thing comes full circle. Now, a California representative, Kevin Kiley, brought forward two pieces of legislation for the nearly 60 million freelance workers in the United States to protect them and their business clients from regulatory uncertainty:
The Modern Worker Empowerment Act amends existing federal labor laws to establish a clear and predictable test for determining whether a worker is classified as an independent contractor or an employee. The Modern Worker Security Act establishes a federal safe harbor that allows companies to voluntarily provide portable benefits to independent contractors without the risk of federal agencies reclassifying those workers as employees.
This is a huge chunk of the American economy getting jerked around more by the government than by their employers and clients. And this legislation could clear the path for fractional workers.
The issue of lost revenues due to freelance classification is like liberals getting mad that fuel tax revenue went down after they pushed electric cars on everyone. Politicians made the economic conditions hostile to steady reliable 40-hour work weeks.
Freelancing and a more fractional model allows for companies to save, and freelancers to net more. Rather than looking for ways to bilk them for more taxes through reclassification, they should be cutting spending. Austerity is long past overdue. The freelance battle is about economic freedom to acclimate to an ever-changing market.
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