RELEASE: New CAP Report Outlines State and Local Strategies to Raise Wages and Secure Benefits for ‘Gig Economy’ Workers

Washington, D.C. — A new report from the Center for American Progress outlines steps that governors, mayors, and other state and local elected officials can take to raise wages and secure benefits for workers in the gig economy, while ensuring that high-road companies that provide decent jobs can thrive without being undercut by those who fail to meet minimum standards for their workers.

The report suggests that American workplace laws leave gig workers unprotected and, too often, earning low wages. Cities and states can raise standards for independent contractors by creating a wage threshold for all independent contractors; creating platforms and protections to deliver needed benefits to workers; and providing a pathway for workers, companies, and government to negotiate for industry-specific wages and benefits. These recommendations are designed to reduce the incentives for companies to illegally misclassify their employees by reducing the cost difference between independent contractor and employee status.

“This gig economy is often described as the ‘future of work.’ Too often, gig economy jobs are insecure, low-wage, and do not offer the host of protections and benefits that Americans need to get by in our economy. As the gig economy grows, policymakers must ensure that gig jobs are good jobs,” said Karla Walter, director of employment policy at CAP and co-author of the report.

“Not only do we know that gig economy workers have few protections, but research has shown that they can make highly variable earnings and sometimes earn very little, putting gig workers in precarious financial positions. These workers need to ensure that they can earn enough and a steady income to support themselves and their families,” said Kate Bahn, economist at CAP and co-author of the report.

In developing the recommendations outlined in the report, the authors spoke with worker advocates, innovative businesses, and legal experts with the goal of raising wages and standards for independent contractors broadly; providing these workers universally needed benefits as well as a say in obtaining nontraditional benefits; and ensuring that the system would be practicable for participating companies. These recommendations include:

Creating a wage threshold. Companies should be required to certify that they pay at least 111 percent of the state or local minimum wage to any worker classified as an independent contractor with no employees of their own. This proposed threshold is calculated by adding to the minimum wage the average cost of employer-provided legally required benefits—which is about 11 percent of pay, according to the Bureau of Labor Statistics. The wage threshold could rise in tandem with any increases to the state or local minimum wage or inflation. Currently, this would be equal to $8.05 per hour in cities and states without a minimum wage set higher than the federal level. In locations with a $15 minimum wage, for example, the contractor wage threshold would be $16.65.

Provide workers with needed benefits. Executives of gig economy companies increasingly report interest in supplying benefits to their workforce, but traditional systems that deliver benefits through a single employer do not make sense for contract workers juggling multiple jobs. Moreover, too often policy solutions offered in this space afford workers paltry benefits or require them to sacrifice their right to pursue claims of misclassification in exchange for benefits. State and local policymakers should focus on reforms that allow benefits delivery to happen through the government or at the industry level and, when possible, require companies to contribute to benefits. Policymakers can make such reforms either by expanding existing safety net programs to include independent contractors or creating new portable benefits programs that specifically target gig economy companies. In Washington state, for instance, State Rep. Monica Stonier (D) will introduce legislation this session requiring gig companies to contribute to a portable benefits fund that would provide contributions to health insurance, paid time off, retirement, and workers’ compensation.

Allow companies and workers to work together to negotiate needed benefits. State and local policymakers should create wage and benefits boards for industries or occupations that rely heavily on independent contractors. These boards would bring together representatives of workers, businesses, and government to set minimum standards for industries and occupations. The work of these boards could complement the minimum wage and benefits policies above. For example, industry- or occupation-specific wage standards could be higher than the floor set by across-the-board minimums in order to account for worker skill levels or business costs.

Click here to read “Raising Pay and Providing Benefits for Workers in a Disruptive Economy” by Karla Walter and Kate Bahn.

For more information or to speak with an expert, contact Allison Preiss at apreiss@americanprogress.org or 202.478.6331.