Friday, September 9, 2011

The Shift Towards Self-Employment: America’s New Economy


By: Jennifer Hice on Thursday, August 25, 2011

America’s independent workers, otherwise known as the country’s small business owners, freelancers, contractors and consultants, account for approximately 31 percent of the total labor force in the United States. Not only are the contributions of this ever-expanding group of individuals essential to rebuilding the nation’s economy, their ability to thrive is contingent upon much-needed changes to current legislation. At present, federal and state labor and tax laws favor big business and tend to place heavy burdens on the backs of America’s small business owners. Given the obvious necessity for small businesses to succeed, why then are the more than 40 million Americans who are currently self-employed struggling to stay in the black, even when business is booming? Simply stated, it’s time to repeal the outdated regulations that continue to stifle their growth and hold them back!

First and foremost, it is important to understand that as a nation, we are functioning within an extremely obsolete employment system, one that finds its roots in the 1930’s, a time in which companies were forced to offer healthcare, pensions and other benefits in order to retain its workforce. Today, this outdated system is hindering more Americans than it is actually helping, and a growing number of small business owners and up-and-coming freelancers are left unprotected, overtaxed and unable to thrive. Within the past decade, the United States has experienced a massive shift towards self-employment within its workforce, a trend which suggests that the country’s economy is becoming more mobile and decentralized. In fact, close to one-third of the country’s workforce is now comprised of self-employed freelancers, contractors and consultants. While the nation’s workforce structure has changed dramatically, its federal and state laws regarding matters of business have remained the same. Dated legislation has left the self-employed, a sizable segment of the U.S. economy, unable to take advantage of crucially important protections and benefits routinely enjoyed by “traditional” employees working for larger corporations.

At 42 million-strong and growing, the nation’s freelance workers have the unique ability to influence important legislation essential to their success. Their ability to thrive is contingent upon necessary changes to tax and labor codes, which are currently impeding their growth. The self-employed are, in effect, bearing all costs and risks that were previously shouldered solely by larger companies. Consider this scenario: Amy and Christy are both accountants, both of whom have earned the same undergraduate degrees and certifications necessary to provide the same services to their clients. However, Amy is employed by a large accounting firm, while Christy, who was recently laid-off due to corporate budget cuts, is now self-employed and offers her services as a freelance consultant. According to the IRS, consultants like Christy earn, on average, about a third less than people in similar positions employed by larger companies. In fact, the self-employed contractor, Christy, is responsible for paying both the employer and the employee portions of Social Security and Medicare taxes, totaling approximately 15 percent of her total income. Moreover, as an independent worker, she is unable to receive unemployment insurance or file for worker’s compensation. Worse still, Christy is taxed as if her small company was a medium-sized business, yet she cannot write-off health insurance premiums or other reasonable business expenses that larger corporations deduct with ease. All the while, Amy, still offering the same services at the same level of skill, enjoys the protections offered by her corporate employer, complete with affordable health coverage, a tax-exempt 401K retirement savings plan, as well as many other benefits associated with her employment. What incentives, assurances or protections does Christy have to ensure her ability to remain solvent or even make it out of the red all together?

In an economic climate that no longer revolves solely around an employer and its employee, America’s independent, self-employed community desperately needs the same basic securities currently offered to large businesses. For example, freelancers must be able to buy unemployment insurance in order to stabilize their income. They must also have a way to legally protect themselves from late or unpaid payments from clients. Most importantly, they MUST have access to affordable healthcare. In fact, this particular need is the subject of one of the largest and seemingly most insurmountable hurdles for America’s self-employed community. Freelance workers are often unable to afford staggeringly high healthcare premiums, and even now, despite the promise of healthcare “reform,” access to quality, reasonably priced coverage continues to elude the average contract employee.

So, what can be done to ease the burden currently placed on the backs of America’s self- employed? Well, for starters, Congress should restore the Small Business Jobs Act that was passed in 2010. The legislation, which expired at the end of last year, allowed freelancers to fully deduct the amount of their healthcare premiums, before assessing Social Security and Medicare taxes. Additionally, it would be wise to amend labor laws in order to provide consultants with legal recourse through which they can pursue issues of non-payment for services. Such an amendment would provide much needed relief for freelancers, shifting the burden of proof away from them and on to the company from whom they did not receive payment. Moreover, it would be wise to encourage cities to postpone or even eliminate unincorporated business tax for contractors, especially during the beginning stages of their new business venture.

It is clear that the economic future of this country rests in the hands of its small business owners, its entrepreneurs and its up-and-coming self-employed communities. This self-starting group currently generates the largest source of new job creation in the nation today. In fact, their positive influence on the job market will only continue to rise in the coming years. Supporting and strengthening their ability to function and thrive is paramount to economic recovery. More importantly, helping small business owners and freelancers build a strong and viable foundation for their start-up businesses will ultimately allow them to grow, creating more jobs along the way. The strength of America’s capitalistic system is based on the premise that anyone with a good idea and a willingness to work has the opportunity to succeed! To those who are currently self-employed, know that you are a catalyst for change. Defeat the odds and continue to save this nation’s economy, one successful small business at a time!