Je veux savoir à propos de…

Federal Register / Vol. 86, No. 86 / Thursday, May 6, 2021 / Rules and Regulations
khammond on DSKJM1Z7X2PROD with RULES

does not accurately reflect the Independent Contractor Rule or WHDs prior interpretations, because control over ones schedule is only one part of one factor in the analysis. The assumption that all workers converted to independent contractors would benefit from increased flexibility may be inaccurate.
These commenters then use these estimates to calculate the benefits to workers when employees are reclassified as independent contractors.
The commenters first calculate the value of each workers lost supplemental income, lost employment fringe benefits paid leave, health insurance, and retirement benefits, and net change in FICA Federal Insurance Contributions Act tax liability.193 They then calculate the amount that workers would capture of these employer cost savings using the average own-wage elasticity of 0.66.194
From that amount, they subtract the amount that they claim workers are willing to forgo for greater flexibility.
Comparing the net gains to the net losses, Farren and Palagashvili say that workers will receive a net benefit of $414. The Department believes that the commenters misapplied the estimate of elasticity when calculating this benefit, because they multiplied 0.66 by total reduced costs. The Department believes it is more appropriate to find the percent reduction in cost, and apply that percentage to total wages. When adjusting for this change in the analysis, it would result in a net loss to workers.195 Moreover, the short-hand term total reduced costs lumps together several types of impacts, some of which should not be used as inputs into the type of comparative statics analysis suggested by the commenters;
for example, although legal tax liability shifts depending on whether workers are employees or independent contractors, the size of the tax wedge is unchanged.
Additionally, the Mercatus Center noted that its estimates excluded one cost from EPIs analysis: The cost of additional paperwork that independent contractors must do. EPI estimated this cost would average $777, which 193 The commenters calculate a sum of $6,185
using data in EPIs comment: Heidi Shierholz, EPI
Comments on Independent Contractor Status, 56.
194 $6,186 0.66 = $4,082.
195 Assuming the bare minimum employer costs of wages plus cost savings listed $30,387, the Department calculates that of the cost savings, $3,251 would be passed along to employees. Even with the assumption that this amount would be paid to the independent contractor, and incorporating the flexibility benefits that the commenters claim independent contractors experience, it results in a net loss of $417 per worker.

VerDate Sep<11>2014

16:26 May 05, 2021

Jkt 253001

included an IRS estimate of an additional 13 hours of tax preparation, an average of half an hour a week of other, non-tax paperwork, and the cost of accounting and tax preparation software that independent contractors use. The Mercatus Center explained that it excluded these costs because these costs are required only for business expense deductibility purposes, and workers would not engage in such paperwork if their expected return were not positive. However, workers would not know if their return would be positive until after they spent this time calculating their deductible expenses.
The IRS estimate of additional time independent contractors spend on tax preparation is an average, so any independent contractors who do not spend extra time on taxes are already accounted for in that average. Moreover, only 13 of the 39 hours of additional paperwork estimated by EPI were taxrelated, and the Mercatus Center analysis did not account for the time spent on non-tax paperwork. The $777
in paperwork expenses that the Mercatus Center excluded from its analysis would outweigh its conclusion of $414 in average net benefits to employees converted to independent contractors. Even a somewhat smaller paperwork burden would result in a net loss to workers.
In sum, the Department believes that the Mercatus Centers criticisms of EPIs study overestimate the benefits to employees converted to independent contractors in the form of higher wages and greater flexibility, while underestimating the costs imposed on such workers. Though it remains difficult to quantify the costs and benefits of the Rule precisely, and the Department believes that the magnitude of the costs in EPIs analysis may be overstated, the Department nonetheless believes that the EPI estimate correctly concluded that workers affected by the Independent Contractor Rule would suffer a net loss.
One of the main benefits discussed in the Rule was the increased flexibility associated with independent contractor status. The Department acknowledges that although many independent contractors report that they value the flexibility in hours and work, employment and flexibility are not mutually exclusive. Many employees similarly value and enjoy such flexibility.
Commenters such as the Mercatus Center and the Coalition for Workforce Innovation CWI also claim that DOLs analysis does not include the value of workplace flexibility, and that evidence does not show that employees also have
PO 00000

Frm 00021

Fmt 4700

Sfmt 4700

24323

flexibility. The Department believes that employment and flexibility are not mutually exclusive, and many employees do have flexibility. For example, a 2016 study found that 81
percent of U.S. employers allow employees some flexibility in schedule.196 A 2019 USAToday article cites results from surveys indicating that a large percentage of companies offer flexibility and a large percentage of employees say that they have flexibility in their jobs.197
Some commenters assert that the Departments analysis ignores the component of the workforce that like being independent contractors. For example, the Financial Services Institute FSI says that DOL utterly ignores the possibility that true independent contractors exist and that independent financial advisors are proud to be their own boss.
Throughout their comment, CWI cites many surveys, some with questionable survey sampling procedures, showing that independent contractors like the flexibility of their work. For example, in opposition to the Departments withdrawal, CWI references a study on freelancing, which concludes that the freelance workforce contributes over a trillion dollars to the U.S. economy, freelance workers are highly skilled, and that freelancing increases earnings potential.198 The Department appreciates the importance of freelance work, but believes that comments such as these lack evidence to show that these opportunities were restricted before the Independent Contractor Rule.
Therefore, the withdrawal will not create further restrictions on independent contractor work beyond those imposed by existing guidance.
Existing freelancers who are properly classified as independent contractors will not be affected by this withdrawal.
Additionally, the data cited by CWI
showing that freelancing increases earning potential is limited to freelancers who voluntarily left their employer to become freelancers. This population could be different from workers who would have been reclassified as independent contractors because of the Independent Contractor Rule.
196 Kenneth Matos, Ellen Galinsky and James T.
Bond. 2016 National Study of Employers, 2017, https www.familiesandwork.org/research/
workplace-research-national-study-of-employers.
197 Paul Davidson, More employers offer flexible hours, but many grapple with how to make it succeed., October 20, 2019. https
www.usatoday.com/story/money/2019/10/20/
flexible-hours-jobs-more-firms-offer-variableschedules/4020990002/.
198 https www.upwork.com/i/freelance-forward.

E:FRFM06MYR1.SGM

06MYR1