Friday, January 18, 2013

"Self-Employed": The New Wage Slaves

There has been a lot of media coverage in the last few years regarding the plight of American workers in our troubled economy, particularly union members being denied the terms of their contract, or companies firing their entire staff and then hiring people back at much lower wages, or employees losing their retirement benefits.  There is also the issue of jobs being sent overseas where the employees will gladly work long hours, 7 days a week, for a small fraction of the pay, which has certainly had an impact on job seekers here in the U.S.  But something that you hardly ever hear about is the growing number of "self-employed" individuals and the situation that they face.

There are currently about 22 million "self-employed" workers in the United States and the number is increasing.*  What does "self-employed" really mean?  The term usually brings to mind "business owner," although this is not often the case.  In fact, most "self-employed" people are "independent contractors."  A "contractor" differs from an employee primarily in that they receive no benefits (paid sick days or vacations, health insurance, retirement, etc.) and, importantly, that they pay the employer's as well as employee's share of taxes!  "Contractors" are also responsible for their own liability and Workers' Compensation insurance, if any, and are not eligible for unemployment or disability benefits if they lose their job, regardless of how long they have worked there.  Why would anyone choose such a job?!  As more and more employers have figured out that they can use the system to their advantage, fewer "real jobs" with benefits are available, and people will take whatever they can get in an attempt to make a living.

Out of desperation, I recently applied for a transcription "job" and the "Independent Contractor Agreement" included the following provisions:
"The Company shall not be responsible for withholding taxes with respect to the Contractor’s compensation hereunder. The Contractor shall have no claim against the Company hereunder or otherwise for vacation pay, sick leave, retirement benefits, social security, worker’s compensation, health or disability benefits, unemployment insurance benefits, or employee benefits of any kind."

This is not at all unusual; in fact, it is standard policy nowadays in many fields, including transcription, construction, and various phone services such as the psychic line that I contract with.**  Essentially the "contractor" agrees to sign away all of the ordinary employee benefits and to pay the taxes that would normally have been paid by the employer in the past.  In the early 1990s when I worked in transcription and psychic jobs, they were "employee" positions, and they also paid considerably more than the very same contract "jobs" do now.

The IRS has relatively strict criteria as to what constitutes "self-employed."  In theory, according to the rules, a "self-employed" person is by definition his or her own boss, setting their own hours, contracting with whomever they choose, whenever they want, and performing their services in whatever manner they see fit.  In reality, however, most employers ignore the rules and get away with it.  The "contractor" is often treated the same as an employee, in that they are required to be at work at a certain time, put in a specified number of hours and perform the same job as an employee would - the only difference being the compensation, taxation and lack of benefits. 

Minimum wage, overtime and other employee protections do not apply; most contracts pay by the piece or project rather than by the hour.  For example, when I am working for the psychic line, I may sign in for a 4-hour shift but I am only paid for the minutes that I am actually speaking with a client, so if I only receive 15 minutes of calls, that is what I will be paid for those 4 hours.  Likewise in transcription, I can be scheduled for a day's work but may only get an hour of pay depending on the work that actually comes in.  As I write this I am logged in to both the psychic line and the transcription job and have had only a few minutes of work from either of them.  I will be very luck if I make $20 today.

When evaluating whether or not a person is really "self-employed" versus a de facto "employee without benefits," a key question to ask is:  Who gets the profits??

Capitalism is based on the exploitation of labor, whereby wealth is created.  If I am working as an employee for somebody else, I am supposed to be paid an agreed-upon wage (at least minimum wage, according to the rules), while the employer, who has made the investment and bears the expenses of running the company including insurance and employment taxes, benefits from the fruits of my labor and keeps whatever profit is made.

If, on the other hand, I am truly "self-employed," then the profit should be mine!  For example, I own 2 businesses:  a yoga studio and a cleaning/design company.  Whatever profit is generated by these companies (which thus far has been very little) belongs entirely to me.  Therefore it is appropriate that I pay the employer's share of taxes and take care of my own insurance, etc., since I am, in fact, my own boss - unlike my other 2 "jobs" where I put in the hours for a pittance while the owner of the company makes huge profits off of my labor.

The current system of employing "independent contractors" gives the employer the best of both worlds:  He gets to keep the profits while the "contractor" pays the employer's share of taxes and other expenses.  Needless to say, this is a very sweet deal for employers - no wonder it has become so popular!

And a word about taxes:  People often misunderstand or overestimate the benefits of tax deductions for self-employed business expenses, which are mistakenly believed to be "taken off your taxes."  Expenses are, unfortunately, not deducted from our taxes; rather, they are deducted from the income on which we are taxed.  For example, let's say on Schedule C my business expenses were $5000 and my income was $20,000; I will then be taxed on the net profit, which is $15,000.  I am not saving $5000; rather, I am saving whatever percentage of $5000 is taxed, which will be 15.3% for Social Security plus 15% for income tax = 30.3% = $1515.  So my taxes will be $1515 less than they would have, but I am still out the remaining $3485 of expenses.  Note, the "self-employed" person making only $15,000 a year (barely above poverty level) is paying 30.3% taxes, the same rate as an "employee" who makes more than 10 times as much!

Another thing which many people are not aware of is that Social Security is only taxed on the first $113,700 of income.  Therefore it puts a greater burden on the working poor and middle class, constituting a much bigger percentage of our income, especially the "self employed," who pay double (both the employee and the employer half of Social Security).

So, the vast majority of the "self-employed" in America, those who are not actual business owners but merely "contractors," find themselves rapidly sliding into poverty despite working long hours with all the responsibilities, and none of the benefits, of employees.  Why isn't anybody challenging this?!  Actually, a big construction firm in North Carolina was taken to court over the "contractor" status of their employees last year - and won.  Since the "self-employed" do not have unions, there is absolutely nothing we can do about it.  Now, I know somebody is going to say, "Nobody is forcing you to do this; why don't you just get a real job?!"  If "real jobs" were available, we would.

* People Are Beginning To Realize Self-Employment Isn't All It's Cracked Up To Be - Business Insider

** I work as a "psychic" in lieu of being able to practice psychology due to licensing restrictions, yet another factor preventing many Americans from being able to make a decent living in their field.

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