Could a Tax Fix the Gig Economy?

A group in New York is calling for a fee on all gig-economy transactions in order to provide workers with benefits like paid sick leave.

Drivers protest at Uber offices in New York (Seth Wenig / AP)

Sohail Rana has driven passengers around New York City for 25 years, first as a taxi driver, then for black-car companies, and now for Uber. He works around 60 hours a week and has no plans to stop working, partially because he can’t afford to stop. “I have no health insurance, no retirement, no other benefits, so I have to keep working,” he told me. When he gets sick, he goes to the emergency room, and loses pay because he’s not working. Recently, he began volunteering with the Independent Drivers Guild, an affiliate of the Machinists Union, to help figure out a way for drivers like him to get some sort of benefits. “As a human being, if you start a job, you want to work where you can get a pension one day, a 401(k), health insurance,” he told me. “Getting paid if you are sick or have to take time off—those are all basic needs.”

Rana is one of the 23 million Americans who work in the gig economy are making money but missing out on the other standard benefits of having jobs: health care, primarily, but also paid sick leave and worker’s compensation as well. While there are a handful of gig-economy platforms (they are not technically employers) that have started to offer ways for the contract workers who use their sites to get benefits, the efforts are paltry at best., which connects families with caregivers like nannies, said last year that it would levy a transaction fee on payments that would provide up to $500 a year for workers to use for health care, transportation, or other expenses. But $500 doesn’t go very far towards covering medical expenses for a year. Uber is working with Aon, an insurer, to allow drivers to pay a certain fee per mile, in exchange for which they will receive medical coverage and disability payments in the case of an accident while working. But the Uber program is optional and requires drivers to pay out-of-pocket, which together reduce sign-ups. The platforms are skittish about providing real benefits to workers, because they worry that doing so will result in their being required to classify the workers as employees, rather than independent contractors, which would put them on the hook for more tax liabilities and various labor regulations.

That’s why some workers’ groups are pushing for something bigger—legislation that charges a fee on gig-economy transactions, and then put money into an independent fund that would provide what are known as “portable benefits”—benefits that a worker accrues by working that she can access even if she moves from job to job. “With 5 percent of every transaction, we could get workers access to a whole suite of benefits,” Andrew Greenblatt, the executive director of the Benefits Fund for the Independent Drivers’ Guild, which represents more than 45,000 for-hire drivers, including Uber and Lyft drivers, in New York City, told me. “I don't think companies are going to take the lead on this, they are too skittish about being viewed as employers. But I do think cities and states can take the lead on this very easily.”

The Independent Drivers’ Guild is in talks with elected officials in New York City to introduce a bill that would levy a transaction fee on rides in order to provide benefits, Greenblatt said. Similar legislation is being discussed around the country. Earlier this year, legislators in Washington introduced a bill that would require businesses that hire independent contractors to contribute funds to benefit providers to be used for worker benefits. A similar bill could be voted on this fall in New Jersey. A bill backed by the home cleaning and repair start-up Handy in New York state would have levied similar fees on services, in exchange for keeping workers classified as independent contractors. In May, Senator Mark Warner of Virginia and Washington Representative Suzan DelBene introduced a bill in Congress that would issue grants for pilot programs to experiment with creating new types of portable benefits.

“An economy based on micro-employment requires the accrual of micro-benefits,” wrote Nick Hanauer, a Seattle venture capitalist, and David Rolf, the president of SEIU 775, which represents home-care workers, in a 2015 issue of Democracy Journal. They proposed what they called a Shared Security System, which is essentially a set of mandatory universal benefits that employees accrue via automatic payroll deductions regardless of their employment relationship.  Rolf helped craft the bill introduced in Washington State.

Gig-economy companies often support these bills because they want to make working through their platforms more appealing, said Al Fitzpayne, the director of the Future of Work Initiative at the Aspen Institute. A 2015 statement calling for “a portable vehicle for worker protections and benefits” was signed by the co-founders of Lyft, the CEO of Handy, the CEO of Instacart, and the co-founder of Sherpa Share, for instance.  In a booming economy, workers may be in more of a position to choose full-time jobs rather than gig-economy jobs, and will be more likely to do so if it means access to benefits that would otherwise be costly. “The big picture solution is the legislative solution,” he told me. Indeed, some of the only benefits for gig workers outside of those in construction and Hollywood have come from state- or city-wide legislation. In 1999, for instance, New York state passed a law requiring black-car companies to levy a 2.5 percent surcharge on rides, the proceeds of which are put into a pot called the Black Car Fund that pays drivers workers compensation if they’re hurt on the job. It also pays out a death benefit of $50,000 to the families of workers killed on the job.

Lyft did not respond to requests for comment about the proposed legislation. An Uber spokesperson said that the company is “broadly supportive of improving flexible work options and modernizing worker protections at both the state and federal level.”

Some progressive groups haven’t focused on how to provide benefits for gig economy workers because they have been putting their energy toward the question of whether workers should be classified as employees or independent contractors, Andy Stern, the former president of the 2.2 million–member Service Employees International Union, told me. Controversy over the Independent Drivers’ Guild is a case in point: Many workers’ groups criticized the formation of the guild last year because it stopped short of being a union, which meant it had less negotiating power with ride-sharing companies. But arguing over workers’ status obscures the fact that these workers need benefits, Stern argues. “By being so politically pure, we sometimes shoot ourselves in the foot,” he said.

More and more Americans are working in these type of gig-economy jobs. Between 2005 and 2015, the share of workers engaged in “alternative work,” meaning they were on-call workers, temp workers, contract workers, or freelancers, jumped from 11 to 16 percent, according to a paper by Lawrence Katz, an economist at Harvard, and Alan Krueger, an economist at Princeton. They calculate that 60 percent of net job growth in that time was due to the rise of independent contractors, freelancers, and contract-company workers.

Yet legislative solutions may leave some of these workers behind. If progressive cities like New York City and states like Seattle and New Jersey pass laws giving benefits to gig-economy workers, a patchwork system will emerge in which workers in some cities are better protected than others. This dynamic already exists, to some degree, around the country. Certain cities have passed higher minimum-wage ordinances, for example, while in other cities, conservative state legislators have rolled back efforts to increase the minimum wage. In St. Louis, for example, because of a new state law, the minimum wage will be rolled back to $7.70 from $10 an hour, even though the city had tried to raise it to $10. The minimum wage in San Francisco, by contrast, is $14 an hour, meaning that people flipping burgers on the coast could make nearly twice as much as those in St. Louis. “There’s been this attempt to re-govern the market from below in cities where there’s enough of a base to pass these laws,” Janice Fine, a labor law professor at Rutgers, told me.

Of course, this dynamic of workers being protected in some places in the country and not others has played out throughout American history, but this history also indicates that state- and city-level efforts may someday make their way across the country. In the 1870s, for example, states like Massachusetts passed factory health and safety laws and established teams of inspectors who would enforce the laws, while other states dallied on passing such laws. But Massachusetts’ actions led to a movement nationwide. As a U.S. Bureau of Labor investigator, W.F. Willoughby, wrote, “A movement at first grows slowly, but as State after State adopts similar measures the pressure upon others to do likewise becomes stronger.” Such influence may not be as strong in the polarized America of today, where states often have opposite visions about the role of government in protecting workers. And even if states still do influence each other on matters of protecting workers, progress could take a while: After Massachusetts passed its law, other states followed, but no national laws protecting factory workers were passed for nearly half a century.