The PRO Act: Why You Should Care About It

The PRO Act may threaten the right to work as an independent contractor, freelancer, or consultant in America. The July 2021 Freelance Austin session was a nonpartisan deep dive discussion of this complex issue with a panel of experts.

The “Protecting the Right to Organize Act” or PRO Act is not a law yet but passed in the house and is on the Senate floor now. Whatever the bill’s fate, it highlights the growing push to reexamine the country’s decades-old labor laws. Motivation for the PRO Act came from abuse in the construction industry; it was common practice for 30 to 40 companies to hire employees to work on one building. It surfaced again amidst complaints from Uber drivers and similar “gig” workers.

Freelance pioneer, Emily Leach

EMILY LEACH

Freelance pioneer, Emily Leach, moderated our panel of experts. Emily has been an instrumental driving force and mentor for freelancers for nearly a decade and founded the Freelance Conference, Freelance Business Week, and The Freelancers’ Choice awards. Our panelists were Azariah Lehman, a Representative for Policy and External Affairs at iPSE-U.S, The Association of Independent Workers, and Chief Administrative Officer at iWorker Innovations; Gene Zaino, entrepreneur and founder of MBO partners who helps enterprises easily engage with self-employed professionals; and Matthew Mottola, CEO of  Venture L, a platform for freelancers to run their businesses and author of The Human Cloud about how the freelance economy is transforming work.

 

AZARIAH LEHMAN

GENE ZAINO

MATHEW MOTTOLA

 

 

 

 

 

 

 

We began with a quick overview of what the PRO Act is and why we should be concerned and then dove into a Q and A format.

Gene Zaino explained “In its current form the PRO Act deals with the definition of what an employee is. In layman’s terms, it has this concept of multiple joint employers.”

“For example, a big company, like General Electric Medical Devices could have their own employees and may have Accenture employees too at the same site. But it would consider all those workers as employees of General Electric because GE may be giving them direction and control over what they’re doing. That expands the ability for all those people to have the same benefits and for them to be organized in a union. Currently, you cannot unionize workers that are working across multiple companies.”

“One of the motivations behind the PRO Act is to avoid having a large company such as General Electric having several other companies doing work, alongside its employees, but all having different benefits. Freelancers are working among those individuals as well and would be included in the definition of an employee. They could also be part of the benefit structure and the organization by a union if they wanted to be.”

“What this means for freelancers or contractors, is that we could get wrapped into a situation where we could be defined as an employee when we don’t want to be.”

For years The PRO Act has been bounced around in the National Labor Relations Board (NLRB) within the White House. Unfortunately, each presidential administration can influence the NLRB and interpret different union rules and worker rules, and it changes politically from one administration to another.”

MATTHEW: “There’s also a timing thing. Why didn’t we bring this up 20 years ago or 50 years ago?  It’s because the technology we’ve seen behind the freelance economy has become extremely impactful. Right now, there are more than 50 million freelancers in the U.S., and all of a sudden, especially since the pandemic, we’ve seen a world where 90% of work can be done remotely.  Governments and tax departments don’t really know how to handle this yet. A lot of tech companies are already over half contingent but instead of having temp agencies do the staffing and pay taxes, there could be 50+ million individuals who may or may not be paying tax to the government.”

“We’re also in the midst of a massive technology shift and when the government is trying to understand, ‘What is this?’ they’re using Uber and all these gig economy companies as our benchmark for what we need to be regulating.”

“I would argue we’re also seeing a generational shift. Often the older generation will look at freelancing and say, ‘If someone’s not working for a company, they must have done something wrong, and we need to protect them.’ ” From a government perspective, we don’t really know how to handle a lot of people working for themselves. Globally other governments are trying to grapple with this as well.”

AZARIAH: “The “PRO” is kind of misleading: PRO actually means Protecting the Right to Organize. There’s a lot of different pieces to this and many of them have to do with giving more rights to labor unions, not protecting the rights of employees. For instance, one of the things they would have to do is turn over everybody’s information to the union, without your consent which is really unfair. Then they throw in the AB5 which is about independent contractors. It would be best to pull that out and deal with it as an independent workforce and leave all the other union stuff aside, but they’ve wrapped it up tightly together.”

“AB5 says if you’re contracting for a company that performs the same line of business as you, then you more than likely should be considered an employee. So, this unfairly ties independent contractors to this policy and labor movement which isn’t necessary, and it’s causing conflict. The AB5 has a test tied to it called the ABC test and this is most important for freelancers.”

EMILY: “Can you help us understand California’s AB5?  What it is, where it came from, and the correlation?”

GENE: “The PRO Act is really about redefining what the employee is for purposes of being able to group them together so they can be unionized. Included in that, they added this clause which California implemented in 2019, AB-5 which has a three-part ABC test for what is an independent contractor vs. an employee. AB5 takes this ABC Test and expands it to cover the entire Labor Code and Unemployment Insurance Code.”

What IS the ABC Test?
Under the “ABC” Test, the presumption is that a worker is an employee. The burden is on the employer to demonstrate the independent contractor status of the employee. To successfully show an employee is an independent contractor, an employer must demonstrate (via scrupulous documentation) that the worker satisfies all 3 criteria of the “ABC” test.  These include:

  • (a) the worker is free from control and direction in the performance of services; and
  • (b) the worker is performing work outside the usual course of the business of the hiring company; and
  • (c) the worker is customarily engaged in an independently established trade, occupation, or business.

GENE: “The B part means if you’re a contracted technology person and you’re working for a company that does technology, according to CA law, you must be an employee of that company. This B-part of the ABC test in California has been incorporated into the Pro Act, which means this will become a federal standard if passed. A few other states have already adopted it. If you take any professional services company that hires independent contractors, it becomes extremely vague and difficult to understand whether you are within the law or not, or where you’d have to be reclassified.”

“This means large companies using freelancers are concerned about a huge risk because if they classify workers incorrectly, they could face massive penalties including all of the back taxes that would have been paid as payroll taxes, and potential benefits. There’s even a shaming law where they would have to post, ‘I’ve misclassified the individuals, I’ve misused people.’ So large companies are saying, ‘I’m just not going to use independent contractors.’”

“I believe this is all about the money because there’s no one withholding your taxes. The government depends on you doing the right thing and filing your taxes properly, but they prefer large employers because they hold the corporate officers accountable. They’ll send them to prison for not sending your taxes to the government. When there’s a lot of people handling taxes on their own, the government doesn’t have the resources or systems to make sure you’re paying your fair share. And each state is in trouble then in getting its payroll tax, which is the number one way it funds the state.”

“Supporters argue ‘we’re helping people by giving them the right to organize,’ but in my opinion, it’s all about keeping you as an employee so that someone is taking money out of your paycheck for taxes every week without your control.”

EMILY: “Does this also impact companies in other countries? For example, if there is a company in Singapore who wants to hire a freelancer in the US – and the freelancer will be doing work that is part of their core business – does this law have any impact on that company?”

MATTHEW: “There’s a fundamental question here. Who will have the power, the platform, or the intermediary? Are we going to need major freelance platforms? Or are these individuals going to be their own businesses?

For the past 150 years, we’ve been run by a small group of people with power over a large mass of people. What’s really threatening is these 60 million freelancers in the world don’t need a platform. And what this bill would do, is it would not get rid of freelancers. It would get rid of the ability of freelancers to win enterprise contracts with large companies.”

AZARIAH: “This past year a lot of companies did not want to hire from overseas because of the immigration issues, and this takes away part of the worker pool. What’s left in the US are the existing technology experts. If those technology experts are contractors, but we have a very small supply, and a very high demand it would force contractors into a situation where they would almost have to become employees of those companies.”

MATHEW: “What I’m seeing globally is freelancers are foaming at the mouth to get US clients and they will go above and beyond to make sure they have good service and overdeliver. And so, if we tell our US workers, we’re going to treat you like California, the data says they’re going to go outside the US to hire freelancers.”

EMILY: “Can you define contractor according to the law? Some companies hire people for one-off projects – are they also considered a contractor? Also, does this A, B, C Test apply when working with small companies like an agency that might have just 15-20 people?”

GENE: “This is part of the problem. There are probably 100 different definitions seriously. Each state could have its own definition with different tax laws in each state. Workers Comp has its own definition. But in general, being an independent contractor means that companies are not controlling what you do–you’re absorbing profit and loss, you have some investment in your business, and you’re not working by the hour. You have some skin in the game.”

“I compare it to hiring a contractor for your home. You negotiate a fixed price, and they’re going to bring in their own tools. You agree to pay $10,000 deposit, then when the demo is done, you’ll pay another $20,000. Then for this other remodel portion I’ll give you another 50,000, and a final payment of $20k when the finish work is completed. That’s a real independent contractor relationship.

“But when you’re doing work for a company, and they’re paying you $75 an hour and you’re working 30 hours a week, that’s moving into the world of an employee, and there’s all this confusion. Now more work is digital you don’t need a lot of tools or have a lot of overhead and this is why the lines blur.”

“There are a lot of US studies analyzing freelancing and independent work showing that in every single category, the number one in job satisfaction was when people were independent contractors. This is the government’s own data, so as these rules come out that are discriminating against a work arrangement that people really want, that’s a big issue.

EMILY:  “Do any of you know, if California companies have actually increased hiring to do the work that freelancers can no longer do because of the AB5 law?”

MATHEW: “No. California companies said yes to the freelancing budgets, the freelancing budgets stayed the same or increased, but the difference is they just don’t hire California freelancers (heads up Austin!) so a lot of Californians are leaving and if they have an address outside California, then these other companies will hire them.”

EMILY:Do we have organizations speaking for freelancers trying to change this law?”

AZARIAH:The Coalition for Workforce Innovation is an organization promoting the independent workforce and attacking things from a legal perspective too. I’m also part of ­­­­­­­­IPSE-US, which is an association that advocates for the independent workforce. One of the reasons why independent contractors were included in the COVID relief package was due to our work. There are other organizations too–we’re all kind of in little pockets but we need to have a collective voice. As independent contractors, we’re non-aggregated on purpose so trying to get us all together on a purpose is very challenging.”

MATHEW: “We need to remember, this a marathon, not a sprint. My biggest fear is that we start to accept this as normal (i.e. freelancers union? No). I personally don’t think that will happen. One thing I will warn against is a very strong sprint of No-to-PRO and being very aggressive because we don’t want to look like the other side. Instead of pounding on talking points, we’re going to have to be very strategic and understand the implications in terms of this being a shift from you as an individual to a freelance marketplace. We need to make sure we understand that this is a long-standing sort of view on what we believe the world should look like.”

EMILY: “People have asked ‘what about the Freelancers Union?’ The Freelancers Union is supposed to be there to have these conversations and be the organization that stands up for freelancers, but I don’t see them doing it. In fact, they support the PRO Act. They’ve not stepped up the way that a group that has that length of time and as an organization with the mission statements they have in place to be outwardly vocal and educate people on what the PRO Act is or isn’t nor letting people know what they are or are not doing inside the Department of Labor. Could they be a fox in sheep’s clothes (that will profit from freelancers being forced into joining a union?)”

EMILY:  “Katherine asks, isn’t the whole tax issue bogus, given the fact that freelancers are paid via W-9, and the government knows how much you’re paid?”

“What I see is yes, some companies give you a 1099 but not all. And just because they issue a 1099 doesn’t necessarily mean that the IRS is tracking specifically to you, because there’s so many of us.”

GENE: “True–a 1099 is just a form. It doesn’t mean collection. Now we have the new infrastructure bill, and they talk about how they’re going to pay for it. The number one item is ‘we’re going to close the tax gap’ meaning closing the gap on the taxes they should have collected.”

AZARIAH: “On a state level, I see a very direct attack on small businesses due to this. Now, all of a sudden, these small businesses are being thoroughly audited from 2016 at the state level. The state is coming at them with the assumption that they are trying to defraud taxes, rather than with a good or neutral intention. They’re assuming apparently that we’re all very wealthy hiding money on a lot of islands.”

EMILY: “So how soon? I’ve heard that there was a little bit of movement on the PRO Act yesterday? Can anybody speak to that?”

GENE: “As of two days ago, it’s close, but they don’t think they will get enough votes because a lot of people are starting to understand this is not good especially in light of what happened in California with AB5. People up for election soon are realizing that their constituency is not going to like it if they support the bill. But certainly, anything could happen. What I’m hearing is that it’s not going to make it even if it’s put into the infrastructure bill, which is what they were trying to do.”

EMILY: “Note that doesn’t mean it will just fade away. Lobbyists and certain groups will try to find other ways to push it through and hopefully, that will mean lots of exclusions will be added for various types of professional freelancers versus ‘gig workers.’ If it doesn’t go through, this isn’t the end. It’s probably just the beginning because we’re more aware of it.

But how soon could the PRO Act be affecting us if it were to go through? And what should we be doing to stay financially stable as a freelancer? Any thoughts on those two?”

AZARIAH: “The government is trying to move a ship and we should be too. They have been talking about this since March and it keeps morphing.”

GENE: “I think the key is, and there are some senators who agree, we have to stop treating work as one size fits all. At MBO we’ve discussed a certification or license where people can say, ‘I want to be a self-employed person, I understand the risks, I agree to handle my own issues and benefits, and pay taxes quarterly – maybe I have to hire an accountant — but I want the freedom to work independently without having my client be afraid to use me. I mean, it’s that simple. About 15% of 50 million independent long-term contractors without benefits out there are getting abused and this PRO Act may protect them, but don’t put everybody in that bucket.”

MATHEW: “Let’s assume that this goes through, and then you’re going to have to scale your business. You’ll need to prep for a time when you have to become more than a freelancer and you’re taking over agency work. And so, whether this passes or not, you’re still going to have to take on larger projects, you’ll need to look more formal meaning potentially having an LLC, but more or less look like an agency would.”

“Secondly, consider diversification in your offerings and in the way you offer them, but also the countries that you offer them in. I’m huge on globalization…I don’t trust one country to protect me.”

You asked about how you can help. I want to highlight freelancers as much as possible because the way we’re going to win this is through hearts and minds. So, if you have stories about how freelancing has changed your life, especially showing that freelancing is a choice and a sustainable career path, please share it here: https://stories.workforceinnovation.net/.

If you have leaders that are hiring you, I’d like to highlight them as well on Forbes. So, email me here: Matthew@venturel.io.

AZARIAH: I’m not seeing anyone here that looks like a victim to me and that’s the picture that they’re painting of you. The stats that they’re using is coming mostly from platform drivers. That’s less than 1% of the entire total independent workforce in the US representing YOUR voice, so these assumptions need to be dispelled.

MATHEW: Let’s push this forward. Double down on your client relationships. Let them know that you will inform them as soon as you understand what it is we have to do, and you’ll help them navigate it and be in compliance.

EMILY:How do we get involved? And do we have a place to send people? We’ve talked about doing something with the Legion of Freelancers. Right now, this is just an email database where people can go and enter their emails, but it was built to help inform freelancers on what’s happening, what’s not happening, and where and how to take action. I’m running it and promise there’s no spam.”

Do we have a place for people to go at this point?

AZARIAH: The Coalition for Workforce Innovation has a direct audience with the Department of Labor; we also have IPSE which has a public-private partnership with the Department of Commerce. So, we have the inside way to talk to the people that needed to be talked to, but they need to hear from you and humanize this, and I encourage you to go to the Workforce Innovation site and record your real story whether it’s about how freelancing has helped you manage a health issue like myself, dealing with ADHD, or kids, or whatever the case may be.

MATHEW: Make sure you’re following and keeping up with your local senators and reps. A letter goes a long way and again share those stories with them.

EMILY: The Freelance Conference will be virtual on October 25, and 26.  I’m sure this issue will come up again for discussion.

MATHEW: Let’s challenge ourselves as an industry to take on more work. What I mean is, instead of just working with Emily, on just an article, what if you could take over the full marketing of that specific client? There’s a domestic coffee brand here in the US, and all their global marketing is happening through freelancers. This is a seismic shift that if the PRO Act comes in, they’re ruining our opportunity to innovate on a global scale. China and Asia don’t give two shits about what the US is thinking in regards to this. So the way we’re going to beat this long term is to be so damn good as freelancers that companies can’t live without us. Not to get too philosophical, but this is so much deeper than just freelancing. This is literally how do we compete at a global scale as a country and if we don’t have our freelance workforce, we don’t have what I would argue is our greatest engine for innovation and competition.

Audience question:

LISA: Related to the idea of licensing, which I think could be really helpful, couldn’t we ask them to do an I-9 for employment verification?

AZARIAH: This has been thrown around a lot. Let’s say you determine that you are an independent worker via a report, formal process, or form. Some independent workers are opposed to that because they feel like it’s a regulation or control and they don’t want everybody in their business. The other viewpoint says ‘we need that because it’s our protection as an independent worker, and that keeps us compliant, visible, and accountable.’ What’s wrong with that is companies are very concerned about misclassification. And I can tell you, most companies are quietly backing away until they see what’s going to happen. So, my thought is if they’re stepping back, maybe we should step forward.

So, I would put that question back to you, what do you think we should do? What do you think that’s reasonable?”

LISA: “I personally think it would be fine to have a standardized verification. It’s always best to go forward with ideas, outlining concerns and proposing how we would address them like agreeing to pay quarterly taxes and become an LLC or whatever is needed for that certification or license so it’s not a concern with each client.”

AZARIAH: “Yes. We have a tremendous number of top-tier companies coming to us saying, ‘Listen, how do we work with infinite contractors and make it aboveboard?’ And so I think the power is working with the companies and the independent workers together. What I’ve proposed, is we should write our own social contract and say, this is how you will work with us.”

MATHEW: “There’s a lot of software companies thinking about this. One of the major problems is we don’t want to be a marketplace; we do want to be a platform that enables you to scale your own business. And I’ve been contacted by many banks, and many financial institutions working on this and if freelancers come together, there’s a significant opportunity to use software to do what you’re talking about. It’s going to require all of us though: freelancers, the government, and the companies themselves.

From a company side, we have to grow in terms of how horrendous the marketplace and platform experience is. We have a long way to go in showing how good we are as freelancers and differentiating from the run-of-the-mill marketplaces. Most companies get stuck at $50,000, they want to spend $100 million on us. And to give you some data, the largest one was spending 100 million on freelancers followed by 50. Then the rest are fumbling around between $100,000 to 2 million. And it’s not the demand, the demand is there, it’s purely the actual process of working with us.”

AZARIAH: In closing, we just want to help fuel the movement and as freelancers, we need to really be more self-promoting. We’re usually so heads-down focused on what we’re doing that we forget to say, by the way, I’m pretty amazing. We don’t do that, and we need to.

At Freelance Austin, we couldn’t agree more! Help employers find you right now (and be impressed) by filling in your profile on our directory. The panelists would love to connect with you so reach out to them if you’d like to know more about how to get involved or hear about any new information.


FOLLOW AND CONNECT WITH OUR PANELISTS:

Azariah Lehman: azariah.lehman@iw-innov.com.
https://www.linkedin.com/in/azariah-l-6549b0177/
Specializing in policy, advocacy, and providing benefits to independent contractors including retirement solutions.

Mathew Motolla: Matthew@venturel.io.
https://www.linkedin.com/in/matthewmottola/
Helping clients spend up to $100m on freelancers both through Venture L and my own freelance consulting. Based in Miami.

Gene Zaino: info@mbopartners.com
https://www.linkedin.com/in/genezaino/
Making it easy for independent professionals to work with their clients…giving them the control to do the work they love the way they want to do it!

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