Classifications threaten independent contracting

It’s no secret that Rhode Island’s economy has been struggling for years and that much of our woes are self-inflicted: High taxes and too much regulation have put a burden on businesses that have driven them to either initially open or eventually relocate across one of our borders.
I applaud the recent efforts by policymakers and thought leaders to identify specific ways to make Rhode Island competitive again. But just as we are aware of policies that are harmful to our business climate in Rhode Island, we need to be aware of – and push back on – federal policies that will hurt small employers here.
In Rhode Island we have nearly 24,000 small businesses, so protecting those businesses and the jobs they create must continue to be a high priority.
In recent years, the federal government has started to focus on the role of the independent contractor in the workplace and is undertaking a reclassification initiative. Whether we know it or not, most of us do business with someone who is classified as an independent contractor on a regular basis.
Hair stylists, truck drivers, real estate agents, writers and cab drivers are frequently independent contractors, meaning they work for themselves, pay for their own benefits and set their own hours. More than 7.4 percent of the U.S. workforce is comprised of independent contractors and many of them are parents, caregivers and semi-retired Americans who need a flexible schedule that they can control.
At a recent TechStars Summit, I learned about a study by Intuit that revealed more Americans want to work for themselves and that as much as 40 percent of the U.S. workforce could be independent contractors by 2020. This is especially true in the high-tech and IT fields and being able to work as an independent contractor is critical for those working in startups and for students looking for their first jobs. A business just starting up cannot afford to hire permanent full- or part-time employees, so it must rely on independent contractors until the business is able to generate enough recurring revenue to be able to afford to pay regular, permanent employees. Let’s face it; the increased federal scrutiny of independent contractors – and the reclassifications that will certainly follow – is bad for small businesses and the Americans who work as independent contractors.
Reclassification requires independent contractors and employees to keep extensive records and file regular reports with the Department of Labor. Bureaucrats then decide which independent employees should be considered employees and assess significant fines on those businesses that have treated them as independent contractors.
The reclassification initiative creates a paperwork nightmare for businesses – particularly small businesses that do not have a compliance department. Even worse, it dampens a company’s enthusiasm for hiring independent contractors since it may not be worth the extra paperwork and government scrutiny to hire someone on a contract basis.
As we look for ways to make Rhode Island more competitive and more attractive for business, we must not take our “eye off the ball” and let the federal government create anti-business policies that will make the United States less competitive on the global stage. Providing businesses, particularly small businesses, the ability to be flexible with their business model and their employees is a best practice that we cannot afford to ignore in state or federal policymaking. •


Ray Mathieu is the retired chief financial officer/managing director of Providence Equity Partners, in Providence.

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