A comprehensive government report on the contingent workforce made public two days ago revealed surprising data about independent contractors, finding that 85% of independent contractors “appeared content with their employment type.” Perhaps even more unexpected is that significantly more independent contractors (57%) were “very satisfied” with their jobs than those who held standard full-time employment (45%). These and other statistical conclusions, which seem to counter viewpoints expressed by many legislators, government regulators, and commentators that wish to curtail the use of independent contractor arrangements in favor of employment relationships, were contained in a report released to the public two days ago by the U.S. Government Accountability Office (GAO), an independent, non-partisan governmental agency.
The report, entitled “Contingent Workforce: Size, Characteristics, Earnings, and Benefits”, was issued on April 20, 2014 and made public 30 days later on May 20, 2015. It analyzes all types of contingent workers, from employees who work for temporary agencies to independent contractors and self-employed workers. The report includes a number of specific empirical conclusions that focus on independent contractors, as discussed below.
The GAO’s Principal Findings Regarding Independent Contractors
1. Independent contractors may comprise as much as 10% of the entire U.S. workforce. The report notes that according to the U.S. Bureau of Labor Statistics (BLS), 31% of the entire U.S. workforce worked in alternative employment arrangements, which are oftentimes referred to as the “contingent workforce.” (Table 3) The report described the “contingent workforce” as a mixed group of (1) agency temps, (2) direct-hire temps, (3) on-call workers and day laborers, (4) contract company workers, (5) independent contractors, (6) self-employed workers, and (7) standard part-time workers. The first four categories comprise what the report refers to as “core contingent workers” – all four of those categories totaled 5.6% of the workforce. Independent contractors were found to comprise 7.4% of the total U.S. workforce while self-employed workers amounted to 4.4%. Both of these categories of workers, who are typically issued Form 1099s, comprised slightly under 12% of the workforce.
The report acknowledged that “Labor experts have not reached consensus on which arrangements represent contingent work.” The GAO Report therefore reports on data not only from the BLS study but also from other reliable sources of information about the contingent workforce. One such source, as noted in the GAO Report, is the General Social Survey (GSS), a study that was conducted by the University of Chicago and released in March 2015. The GSS found that just over 16% of the workforce was comprised of independent contractors and self-employed workers. Thus, extrapolating from these two studies suggests that independent contractors alone may account for as much as 10% of the entire American workforce.
2. Independent Contractors are more satisfied with their work arrangements than regular full-time employees. Four types of contingent workers were asked “Would you prefer a different type of employment?” (Table 12) Approximately 50% of agency temps and on-call/day workers said they wanted a different type of work. In contrast, under 10% of independent contractors and self-employed workers responded that they preferred a different type of work. Conversely, whereas less than half of all temps and on-call/day workers said they would not prefer a different type of working arrangement, the GAO found that “more than 85% of independent contractors and self-employed persons appeared content with their employment type.”
In perhaps the most revealing statistic in the entire report, the GAO compared job satisfaction among non-contingent (traditional) employees and selected types of contingent workers. It found that 45% of regular full-time workers were “very satisfied” with their jobs, whereas 57% of independent contractors were “very satisfied” with their working arrangement – a 25% higher job satisfaction rate for independent contractors. (Table 13) Likewise, fewer independent contractors said they were “Not at all satisfied” or “Not too satisfied” with their jobs than did regular full-time workers (8% vs. 9.5%).
These conclusions seem to undercut the popular notion by most commentators and many state and federal legislators and regulators that independent contractor status is contrary to the welfare and best interest of most 1099 workers including on-demand workers in the sharing or “gig” economy. This presumption is based on the fact that workers in non-traditional working arrangements do not have job protections enjoyed by traditional employees, such as workers compensation and unemployment benefits, overtime pay and minimum wage, eligibility for employee benefits, the right to unionize, and the right to be free from discrimination in the workplace. Nonetheless, the GAO Report seems to empirically rebut this presumption and the notion that workplace dissatisfaction is rampant among contingent workers. Even the four types of working arrangements that comprise the category labeled as “core contingency workers” had a relatively low job dissatisfaction rate of under 20%.
3. Most independent contractors and other contingent workers regard their fringe benefits as “good.” The relatively low job dissatisfaction rate among independent contractors and even among the four types of core contingency workers seems to be influenced in large part by yet another finding that runs counter to popular thinking: that contingent workers are unhappy about their level of fringe benefits. The GAO Report finds that while fewer contingent workers than full-time standard employees “agreed that their fringe benefits were good,” 61% of independent contractors said their fringe benefits were good and 63% of the core contingency workers were satisfied with their fringe benefits. (Table 11). This result suggests that the definition of “fringe benefits” may be elusive and depend on the respondents’ point of view. Contingent workers as a whole, including independent contractors, may well regard a flexible work schedule and the ability to choose or reject work engagements to be as valuable a fringe benefit as regular full-time workers regard paid vacation and sick days.
4. Independent contractors are more likely to be older, male, White non-Hispanic, and college-educated than those who hold standard full-time jobs. The GAO provides an extensive statistical analysis of the demographics of the contingent workforce including independent contractors and compares them to traditional full-time workers. (Enclosure IV) Here are a few notable demographic findings:
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Whereas the average age of full-time regular employees is 41, the average age of independent contractors is 46.
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While only 2% of regular full-time workers are over 65 years of age, over 8% of independent contractors are of over 65; similarly, over 27% of independent contractors are age 55 and above, whereas just over 14% of regular full-time workers are over 55.
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Men are far more likely to be independent contractors than women.
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White, non-Hispanics are far more likely to be independent contractors than Blacks, Hispanics, and “Other non-Hispanics.”
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Educational levels of independent contractors roughly mirror the educational levels of full-time regular employees.
5. Contingent workers including independent contractors are found in virtually all industries, but some industries have more contingent workers than traditional employees. According to the GAO Report, the following industries were found to have more contingent workers than traditional employees: construction; administrative services; educational services; arts, entertainment, and recreation; building and grounds cleaning and maintenance; construction; and transportation and moving of commercial goods. (Table 22) These industries where contingent workers are more prevalent are among those that the U.S. Department of Labor and state workforce agencies have targeted for investigations of workplace misclassification.
The GAO Report Does Not Address Misclassification of Independent Contractor as Employees, But the Need for Independent Contractor Compliance Is More Pressing Than Ever
Unlike past GAO reports that have dealt with the contingent workforce including independent contractors, this report barely mentions misclassification. Yet, it has been our experience during the years we have been publishing this blog that many independent contractor relationships are not structured, documented, and implemented in compliance with federal and state independent contractor laws.
Those companies, governmental bodies, and non-profits that use independent contractors to supplement their workforce, and especially those ever-increasing number of on-demand companies in the sharing economy that are based on an independent contractor business model, all too often overlook the need to stay well ahead of curve when it comes to independent contractor compliance. Even the most sophisticated and well-known enterprises have been caught in the ongoing crack-down on companies that have allegedly failed to comply with an array of different independent contractor laws. Such companies as FedEx, Uber, Lyft, Macy’s, Microsoft, Google, and Lowe’s are just a few of the many businesses that have been targeted by class action lawyers and government regulators for having allegedly failed to structure, document, and implement their independent contractor relationships in compliance with independent contractor laws.
As more fully described in the 2015 Update to our White Paper, those businesses that are reliant on independent contractors can meaningfully enhance their independent contractor compliance or minimize or eliminate independent contractor misclassification liability. One methodology is IC Diagnostics™, a comprehensive proprietary process for companies seeking sustainable, practical, customized solutions to the risk of misclassification exposure. While this new GAO Report indicates that an overwhelming number of those individuals in independent contractor positions are content with that type of work arrangement, that does not mean that a company’s independent contractor relationships will pass legal scrutiny. To achieve that result oftentimes requires a dedicated corporate resolve to restructure, re-document, and/or re-implement a company’s independent contractor relationships in a state-of-the-art manner consistent with applicable state and federal laws.
