New Contractor Rules: Promise or Peril for Gig Economy Platforms?

The Labor Department is due to release new rules governing the classification of gig economy workers. The platforms that rely on these workers say not much will change. The legal and regulatory outcomes remain uncertain, as the platforms are growing and the demand for side hustles is greater than ever.

New rules coming from the Biden administration bring some existential questions — and perhaps some existential angst — to the gig economy.

As PYMNTS reported this week, the new rules from the Labor Department mandate that employees who are “economically dependent” on a given firm would be entitled to more benefits, such as healthcare. That rule would make it harder to classify workers — including gig economy workers — as independent contractors.

The Biden administration’s classifications, due to take effect March 11, is likely to draw some challenges in the courts. As PYMNTS reported, a California appeals court said in March that Uber, Lyft and other companies can classify their workers independent contractors, and not as employees entitled to worker benefits and protection.

An Embrace of the Side Hustle

The shifting landscape comes at a time when gig work, as estimated by PYMNTS Intelligence, has become a key staple, and career choice, in the U.S. economy.

As detailed in “New Reality Check: The Paycheck-to-Paycheck Report — The Supplemental Income Edition,” a PYMNTS and LendingClub collaboration, 23% of consumers have a side job, and 17% have other types of supplemental income.

“Side jobs are the most common solutions for paycheck-to-paycheck consumers — 30% of these consumers with issues paying their bills and 26% without hold a side job. In contrast, only 17% of those not living paycheck to paycheck have a side job; 13% receive other sources of supplemental income,” the study noted in April.

In response to the Labor Department’s new rules, Uber said in a statement that the move would apply to traditional industries (and thus not to gig economy companies), “and that it is unlikely to result in any large-scale classification changes.”

DoorDash said in its own statement that not much is going to change, noting that “the average time Dashers spend on delivery across the U.S. is less than 4 hours per week, and 90% of all Dashers average less than 10 hours per week on delivery.”

Much still remains to be seen before March. If, as some of the platforms maintain, the Labor Department rule will not change the status quo, then demand and supply may continue to grow across the platforms, and their cost structures will not change much.

The peril? Structural changes may force a reckoning, where the platforms take on less supply, so to speak, as they contend with rising costs.

Consequently, they may hike prices: Uber said last fall that a proposed European gig worker law (which is still being hammered out) could trigger price increases of as much as 40%.