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Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations
b. Impacts to Tax Revenue and Public Assistance Some commenters asserted that the rule will either reduce tax revenue or increase public assistance. For example, some commenters pointed out that lowincome workers who are classified as independent contractors are often forced to rely on public assistance programs.
The UFCW cites a study finding 15
percent of platform workers in the San Francisco area receive some form of public support e.g. food stamps, housing assistance and 30 percent were on state public-access health insurance.184 This report did not, however, compare this finding with the extent to which low-income employees rely on public assistance. The Department notes that public assistance is available to low-income individual whether they are employees or independent contractors. An increase in independent contracting will not necessarily lead to increased public assistance expenditures. To the contrary, if independent contracting, even at a low income, is the alternative to unemployment or nonparticipation in the labor force, then it would reduce means-tested public assistance expenditures. Several individual commenters suggested that they would not be working at all but for independent contractor opportunities.
One commenter said, I am an independent contractor, i.e. business owner; I am self-employed. I would not be able to work in any capacity, other than self-employed. Another explained, I am 71 years old and cannot and will not take regular employment. Earning an income from my home is safer, more effective and more satisfying. As a final illustrative example, a woman explained that as a single mother trying to go back to school I have day and night classes.
Having a regular job during this time be sic very challenging to meet my school hours. Thus, making it easier for individuals to work as independent contractors may reduce the burden on public assistance. Furthermore, since this RIA focuses on the changes at the margin based on increased clarity of the classification factors, the concerns raised by the studies cited by these commenters would not necessarily apply to those this rule impacts.
Several commenters noted that taxpayers funded unemployment payments for independent contractors 184 C. Benner, E. Johansson, K. Feng, and H. Witt.
On-Demand and On the Edge: Ride-Hailing &
Delivery Workers in San Francisco May 5, 2020, https transform.ucsc.edu/on-demand-and-on-theedge.

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through the Pandemic Unemployment Assistance PUA program. SWACCA
noted that more than 11 million selfemployed individuals have received assistance from PUA.185 The nationwide response to the COVID19 pandemic was intentionally robust. PUA
assistance was funded by Congress in the CARES Act.
Several commenters noted that any shift from employees to independent contractors will result in lost tax revenue. Specifically, the Michigan Regional Council of Carpenters cites estimates of the loss in taxes in Michigan and other states due to misclassification.186 Notably, misclassified workers are not the same as independent contractors. In fact, this rule clarifies the classification of workers and is expected to result in fewer total cases of misclassified workers. The Department does not agree with the assumptions about the U.S.
labor market held by commenters to this rule that reference studies on the cost of misclassified workers. EPI estimated that the increase in workers classified as independent contractors will lead to a transfer of at least $750 million annually from social insurance funds. EPIs estimate is predicated on an assumption that eligibility for independent contractors to receive unemployment benefits will occur in future recessions. The unprecedented CARES
Act funded unemployment benefits through PUA for the first time in history. EPIs entire estimate rests on such unprecedented relief becoming commonplace, a view which the Department does not share. The Washington Center cites a study by Harvard Law Schools Labor and Worklife program that found that between 2013 and 2017, the state of Washington lost $152 million in unemployment taxes and the Federal government lost $299 million in payroll taxes due to worker misclassification in the state. 187 Again, worker 185 Unemployment Insurance Weekly Claims Report October 15, 2020, https oui.doleta.gov/
press/2020/101520.pdf.
186 D. Belman and R. Block, Informing the Debate: The Social and Economic Costs of Misclassification in the Michigan Construction Industry, Institute for Public Policy and Social Research, Michigan State University 2008, http
ippsr.msu.edu/publications/ARMisClass.pdf. F.
Carre, Independent Contractor Misclassification, EPI Briefing Paper 403 June 8, 2015, https files.epi.org/pdf/87595.pdf. O. Cooke, D. Figart, J. Froonjian, and K. Sloane, The Underground Construction Economy in New Jersey, Stockton University 2016, https
www.mcofnj.org/wp-content/uploads/2018/05/
Underground-Construction-Economy-SummaryJune-2016.pdf.
187 L. Xu and M. Erlich, Economic Consequences of Misclassification in the State of Washington.

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misclassification is erroneously compared to independent contractors.
Further, the majority of these estimates of lost revenue are due to an assumption that freelance workers do not report their full earnings, which is a criminal offense. A letter from seven Congressional Representatives cited a 1984 IRS estimate that misclassification cost the Federal government $3.72
billion adjusted to 2019 dollars, nearly 60 percent of which was from misclassified workers failing to pay income taxes and the remainder was due to failure to pay taxes used to fund social insurance programs. Once again, this comment failed to meaningfully explain how the studies it cites can be extrapolated across independent contractors.
The Department notes that certain employer required taxes, such as unemployment insurance and workers compensation, are not required for independent contractors, and thus the associated tax revenue will decrease if more individuals choose to work as independent contractors. However, the lack of transfer means that the worker keeps more money, which may be saved to provide for periods of unemployment. Additionally, these are transfer programs where the benefits are paid to the workers who pay into the program through their employers. Thus, if independent contractors are not eligible to participate in these program, government expenditures would also decrease. Therefore, providing unemployment benefit or workers compensation to independent contractors is generally not a cost to state and local governments. To demonstrate, consider unemployment programs, which are a type of insurance.
Reduced unemployment taxes are generally offset by reduced unemployment benefits. The only direct cost would be if workers who no longer pay into these programs continue to receive benefits. These direct costs are expected to be small.
Government revenue from other taxes, such as income and Medicare taxes, may go up or down as a result of this rulemaking depending on the total income of employers, employees, and independent contractors. However, a decrease in tax revenue due to a failure of some independent contractors to fully pay their required taxes is not a cost attributable to the Departments rulemaking revising the standards for independent contractor status under a Harvard Law School Labor and Worklife Program 2019, https lwp.law.harvard.edu/news/workermisclassification-washington-state-leads-millionsrevenue-losses-new-harvard-report.

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