legrandangle-lgm

Post-pandemic, a dramatic shift in the American workforce has led to an explosion of freelance work.

More than half of people born after 1996 are self-employedwhere we leave the corporate ladder behind and strive for flexibility, autonomy and a “new American dream.” Even more complex tax requirements, such as the addition of quarterly IRS payments on estimated income, have not blunted the movement’s momentum, with freelancers choosing to hire qualified CPAs and accountants to help carry the burden rather than returning to full-time employment. But in a chilling twist for these resilient freelancers and their trusted financial advisors, new regulations from the Department of Labor now threaten to irreparably damage the gig economy.

A court in Atlanta at the end of October ruled in favor of a DOL directive from the Biden administration that reclassifies many freelancers as full-time employees. The rule, which seeks to solve the problem of substandard working conditions that has long plagued self-employed workers, does so by forcing companies to hire their most productive freelancers so they can receive employer-sponsored benefits. However, by limiting freelancers and employers to a work style they don’t entirely want, the DOL’s legislative folly threatens to completely destroy the freedom to freelance. So it is imperative that CPAs, accountants, and other tax professionals work together with freelancers to implore the new administration to firmly withdraw these guidelines.

The crucial impact of freelance work

For millions of Americans, freelancing is the ticket towards economic and geographical independenceand a way to ensure a level playing field and promote diverse perspectives on the labor market. None of these benefits can be easily replicated in a full-time work environment. From freelance writers broadening the perspective of publications to creatives transforming an organization’s brand, these workers bring new energy to companies every day, in addition to contributing $1.27 trillion in annual revenue for the American economy.

Freelancers also contribute more to taxes than the average employee, with the addition of a 15.3% self-employment tax to finance Social Security and Medicare to the normal federal, state and local tax rates paid by all full-time employees. To offset these costs and help navigate the complexities of what constitutes a deductible business expense, freelancers will often turn to a professional CPA. This is an especially crucial step, as freelancers are too three times as often as full-time employees. So even as full-time workers with only W2 returns have ditched their tax advisors for online options like TurboTax, the gig economy has become an unexpected lifeline for the dwindling accounting profession.

Better solutions for freelance benefits

Despite the DOL’s misguided approach, the agency joins freelancers in believing that the lack of benefits is one of the most pressing issues facing freelancers today, one of the reasons why health insurance premiums are a deductible business expense on Schedule C. Without access to employer-sponsored plans, freelancers are left to fend for themselves put together a health insurance package or put together their pension fund. They miss it completely many of the most notable benefits enjoyed by full-time workersincluding sick leave, parental and maternity leave, paid vacation, a 401(k) match, and even a steady income from month to month.

However, the accounting profession should join the freelancers and beg the next government to let the private sector solve these problems, rather than government crackdowns. Startups like it Catch are already developing solutions for some of the biggest pain points of freelance work, including expensive health, dental and vision insurance. By acting as an administrative partner for self-employed people, Catch offers insurance rates comparable to those of a business package, but for freelancers. However, in stark contrast to the DOL’s proposal, freelancers also retain their independence. If a startup can strike a balance between offering affordable benefits to freelancers while also allowing them to operate independently, it’s certainly not too tall an order to require the DOL to do the same.

An action plan for freelance advocacy

Almost Last year alone, 40% of the entire US workforce, or 64 million Americans, did freelance work. This is a figure worth celebrating, not just for gig economy workers, but for every sector that benefits from a thriving freelance community, including accountants and tax professionals. However, if the DOL rule remains on the books as written, the number of freelancers could decline dramatically in the coming years. Given the emerging, symbiotic relationship between the gig economy and their tax advisors, the accounting profession must intervene.

Taking action starts with lobbying the new administration for an immediate repeal of the DOL’s current rule on Inauguration Day. Regardless of success or failure, however, the accounting profession must recognize that its advocacy efforts are only beginning. Given the growing impact of the gig economy on accountants’ bottom lines, the profession should build on its momentum and push for pro-freelance legislation in the coming years, especially in support of self-employment tax reform efforts.

As written, the Biden administration’s DOL rule clouds the definition of freelance employment, so that most independent contractors could potentially be reclassified as employees. Such a comprehensive proposal is not worth the risk, and the accounting profession should join freelancers in calling for an immediate withdrawal in favor of a more pragmatic approach to freelance work. If you stand idly by, you risk negating the positive impact a thriving gig economy has on the American economy and its citizens.