Employer practices

New Protections Needed for Contractors and Temporary Workers as Companies Continue to Outsource Labor

Archana Pyati January 26, 2021

A recent Urban Institute report puts forth several policy proposals aimed at strengthening workplace protections and benefits for a growing segment of the labor market: independent contractors, temporary workers, and others in nonstandard work arrangements. The report was coauthored by the Aspen Institute Future of Work Initiative and A Better Balance.

Since the mid-20th century, employers have increasingly relied on nonstandard arrangements to shed costs and shift liability and risk to workers, upending traditional employment relationships. The rise of the “fissured workplace” has been accompanied by a decline in unionization and other formal mechanisms for worker power. Although measuring the prevalence of nonstandard work is difficult, an estimated 15 million workers—10 percent of the workforce—rely on nonstandard arrangements for their main source of income, according to the May 2017 Contingent Worker Supplement to the Current Population Survey. Other sources suggest an additional 10 to 15 percent of workers earn income from such arrangements to supplement more traditional work.

Most workers in nonstandard arrangements lack access to a baseline of workplace protections, benefits, and other forms of economic security tied to employment status, the authors note. In fact, some employers misclassify employees as contractors to avoid costs associated with employment. The COVID-19 crisis has also highlighted a lack of basic workplace protections for essential workers, many of whom work in nonstandard arrangements with low pay and no benefits.

The report articulates specific challenges faced by independent contractors and temporary workers and proposes specific policy solutions to address them, drawing upon insights from roundtables with representatives from nearly three dozen labor and worker advocacy, research, and philanthropic organizations held in January and March 2020.

Key challenges and solutions for independent contractors

Independent contractors are excluded from federal and state antidiscrimination laws. When contractors experience discrimination or harassment on the job, they have little recourse because federal and most state laws were designed to protect employees. Contractors are also ineligible from filing complaints with the federal Equal Employment Opportunity Commission or, in many cases, parallel state and local agencies. Solutions include creating protections specifically for independent contractors or expanding existing antidiscrimination laws to cover them. States have pursued each of these routes, but state laws vary considerably in their scope. The federal Bringing an End to Harassment by Enhancing Accountability and Rejecting Discrimination (BE HEARD) in the Workplace Act would extend employee protections from harassment and discrimination to independent contractors.

Independent contractors must contend with late payments or nonpayment for work. A 2017 survey of self-employed and independent contractors revealed that 36 percent reported not being paid on time and 27 percent reported that they were not paid in full in the previous year. Independent contractors aren’t covered by wage and overtime laws and must seek enforcement through contract law, a tool that may be out of reach for many workers, particularly those with low-incomes. Solutions could be modeled on laws, including those enacted by New York City and Minneapolis, guaranteeing contractors a written agreement with their hiring entity to pay them on time and in full or face penalties. These agreements could also protect contractors against retaliation.

Independent contractors lack paid sick days and family and medical leave. In the US, paid sick days and family and medical leave are not rights universally guaranteed to workers who are employees, let alone independent contractors. The Families First Coronavirus Relief Act offers refundable tax credits to self-employed workers who need time off for certain coronavirus-related needs, and this model could be extended beyond the pandemic. Alternatively, the proposed Family And Medical Insurance Leave (FAMILY) Act would integrate self-employed workers into larger social insurance programs by including them in risk pools with employees to provide income replacement for periods of leave, building on similar state laws. Portable benefit structures—like those enacted by the City of Philadelphia to cover domestic workers with multiple employers—and adjusting pay to account for paid time off are other policy tools.

Key challenges and solutions for temporary workers

Temporary staffing agencies engage in discriminatory practices as a business model. Many temporary staffing agencies engage in discrimination and occupational segregation by complying with client preferences for workers of a certain race, color, sex, age, national origin, or disability status. These decisions have outsize effects on Black and Latinx workers, who make up a disproportionate share of temp workers. Requiring staffing agencies to report demographic data on the workers they place with host companies and mandating host companies to provide temporary workers the same workplace protections given to direct-hire employees could address this problem. Audit studies (PDF) can also document discriminatory placement by staffing agencies.

A lack of accountability by staffing agencies and host companies exacerbates temporary workers’ economic insecurity. Temporary workers can occupy a second-class status in the workplace—sometimes for years—because host companies are disincentivized from converting them to permanent employees. Solutions include holding staffing agencies who directly employ temps and host companies jointly responsible for enforcing workplace protections for temp workers. A bolder path could be comprehensive legislation guaranteeing equal pay for equal work for temp workers and curbing abuses such as letting workers languish in long-term temporary status. Statewide models include Massachusetts’s Temporary Workers Right to Know law (PDF) and Illinois’s Responsible Job Creation Act.

Temporary workers face a new frontier of workplace insecurity and bias through app-based shift work platforms that use algorithms to hire and evaluate. New app-based staffing platforms such as Wonolo and Bluecrew match workers looking for shift work with companies seeking hourly labor. Yet these platforms can obscure how decisions are made and to whom workers can appeal unfair decisions. Furthermore, the use of algorithms in job assignments can reinforce bias and discrimination. Solutions include greater transparency and information to regulators, consumers, and workers about the decisionmaking power of algorithmic systems. Proposed federal legislation would require apps employing algorithms to conduct risk assessment of biases in such systems.

Learn more:

Reimagining Workplace Protections: A Policy Agenda to Meet Independent Contractors’ and Temporary Workers’ Needs (research report)

“Reimagining Workplace Protections for Independent Contractors” (fact sheet)

“Reimagining Workplace Protections for Temporary Workers” (fact sheet)

Recording of virtual panel discussion featuring advocates for independent contractors and temporary workers (event)