California Gives Gig Workers a Break—But Just a Little One

Angelo Henry describes himself as "unemployed," but that isn't entirely right. Under California labor law, he's a self-starting freelancer. An entrepreneur.

A 25-year-old with a mechanical engineering degree from the University of Southern California, Henry is a semi-reluctant tenant at his mother's Pasadena house in search of full-time work. In the meantime, like an increasing number of Californians with four wheels and not enough cash, he’s a weekend chauffeur-for-digital-hire with Lyft and Uber.

"It's not ideal, honestly," he said. "It's just a means to pay my student loans, my bills, my credit card. And I have to pay my mom something too, because I can’t just live at home and not pay anything."

Henry said he earns $800 per month after accounting for gas and other driving expenses. The gig offers flexibility. No set schedules, no obligations, no demanding bosses. Also: no safety net. Henry is on his mom's health insurance plan, an option he'll have through the Affordable Care Act until his next birthday. But as for workers compensation, retirement savings, minimum wage, and sick leave? There Henry, along with one out of every 12 Californians, is on his own.

At least for now.

This week, Gov. Jerry Brown signed a new budget that will expand the state's earned income tax credit—one of the state's premier anti-poverty programs—to the self-employed. The credit is directed primarily at poor families with children. And gig workers like Henry now stand to benefit too, though in his case it will mean only an extra $60 for the year.

Financially speaking, that’s slim pickings. The most generous annual credit for a family of three kids or more is around $2,700.  But for a group that is often denied the income support programs, labor protections and other benefits regularly afforded traditional employees, that extra pocket change represents a significant political win. It’s one of a string of recent legislative efforts to redefine the legal status of independent contractors, provide gig economy workers with new rights and benefits, and introduce state-sponsored benefit programs for the self- or precariously employed. The expanded credit is the most successful push yet from lawmakers and advocates who want to remake the 20th century social safety net for the 21st century labor force.

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“We have a lot more activity in our economy in these ‘other’ categories, and we’re leaving those folks behind,” said Chris Hoene, executive director of the California Budget & Policy Center, a nonpartisan think tank. “Our traditional definitions of work basically exclude them from the types of support that we provide to other people.”

How many of these "other" workers actually exist?

According to a recent study from the Center for Labor Research and Education at the University of California, Berkeley, 8.5 percent of California's workforce falls into the category of “unincorporated self-employed." Many more Californians work odd jobs on the side—nationwide, an estimated 6 percent do that.

Despite all the attention to the boom in on-demand labor platforms like Uber and TaskRabbit, the study’s authors say they actually represent a tiny portion of the “gig economy.” To the contrary, the overall share of self-employed Californians has remained relatively stable over the last two decades.

Still, Silicon Valley’s economic influence—coupled with a decades-long decline in unionization rates, falling pension coverage, and rising health care costs—raises new questions about what workforce protections and benefits should look like for the "gig economy."

“We’re trying to figure this out before it comes a real issue,” said Assemblywoman Lorena Gonzalez Fletcher, chair of the Appropriations Committee. “I don’t feel like there’s been enough thought in a lot of circles about the economy that we’re creating and what that will do for the safety net of the state.”

The expansion of the earned income tax credit suggests one possible way forward.

By design, the credit provides additional resources to low-income Californians, while also encouraging them work. When introduced in 2015, the credit was restricted to wage and salary earners as a fraud prevention measure.

The new expansion, which extends eligibility to those earning up to $22,300, is expected to cost $140 million annually. Low income, self-employed Californians will be able to claim the credit when they file their income taxes next spring.

Gonzalez Fletcher agrees that expanding the credit to non-employees is a “really exciting” development. But, she argues, it shouldn’t necessarily serve as a model for how to provide independent contractors with financial security.

“It is an admission that we as a state are going to pick up the slack, that we’re going to supplement the income of the poor,” she said. “In doing that, what level of responsibility are we giving to these companies?”

Gonzalez Fletcher has instead introduced a host of bills in the last few years that would grant gig workers new rights and protections, largely at the expense of the companies that hire them. These include proposals to give independent contractors the right to collectively bargain, to expand workers compensation insurance to short-term day laborers, to re-classify professional cheerleaders as employees, and to force app-based services to provide a tipping option.

So far, the results have been mixed. The cheerleader bill was signed into law in 2015. Uber, which famously did not offer its users the option to tip, for a variety of reasons  announced a change of policy this month. But the collective bargaining provision was killed last year and the day laborer bill is currently idling in committee.

Gonzalez Fletcher attributes some of the uneven progress to the industry's cachet.

“They’re saying, ‘We have tech, we have innovation, we have Silicon Valley,’ and that’s all cool,” she said. “It’s not cool to be the skunk at the garden party.”

The Internet Association, a trade group that lobbies on behalf of sharing-economy titans like Uber, Lyft, Etsy, and AirBnB, responded to a request for comment by pointing to the association’s opposition letter to Gonzalez Fletcher’s tipping bill.

“The state should not be mandating business decisions of this kind in the first place,” the letter said. “This is especially true in the fiercely competitive internet-enabled sharing economy, where the market best dictates these decisions.”

“This proved true...with Uber's decision to accept gratuities,” communications director Noah Theran said in an email.

While the industry may not be keen on redefining the arrangement it currently enjoys with its workforce of independent contractors, some tech leaders have endorsed a new model of employer benefits. The aim: to cover independent contractors regardless of where they work or how many jobs they have.

“Maybe the old employer-employee negotiated benefit model is out of date,” said Hoene of the Budget & Policy Center, who suggests a "portable benefits" system might be more appropriate in an economy of freelancers. Rather than tying benefits to a specific job, he describes a “state-sponsored system that workers can port with them as they move from work to non-work, or from one kind of work to another.”

In practice, this might mean that a company would pay for the benefits of its independent contractors in proportion to the hours they work, or that the state might provide the benefits.

The lack of specifics has made the concept of "portable benefits" popular with a diverse group of labor policy wonks, tech industry leaders, and labor advocates. When Democratic U.S. Sen. Mark Warner of Virginia introduced a federal bill last May that would set up a portable benefit pilot program for independent contractors and other workers who don’t get benefits through their jobs, both Lyft and on-demand courier service Postmates backed the proposal.

But in Sacramento, efforts to sever the link between benefits and workplace haven’t taken off.

The state is developing a program to offer retirement savings accounts to workers who lack that option through their jobs. But the State Treasurer’s office, which hopes to launch that “Secure Choice” program by 2019, has yet to decide whether to allow self-employed Californians to opt-in. Meanwhile, a single-payer bill to provide state-funded health insurance to all Californians—employees, contractors, and the unemployed alike—passed the state Senate but stalled out in the Assembly.

Not everyone is convinced that the solution lies in transforming benefits.

"We need to create a situation where there is not an incentive to use independent contractors to get around labor standards and to avoid paying taxes," said Ken Jacobs, chair of the labor research center at UC Berkeley. Rather than reinvent California labor law, he said, state lawmakers should focus on ensuring that workers aren't being wrongly classified as independent contractors.

For all the focus on the gig workers of the tech industry, as he points out, these on-demand platform workers only make up about 1 percent of the labor force in most of California’s big cities.

As a whole, independent contractors are a broad mix of workers: lawyers and architects, day laborers and janitors, freelance artists and journalists, and, yes, rideshare drivers.

It's a mix that also includes Tonia McMillian.

McMillian, who has been operating a childcare center out of her home in Bellflower for the last 24 years, doesn't get paid through an app and doesn't find her clients online. But she is an independent contractor with an unstable salary—a growing concern for her now that she is approaching the end of her working years.

"I woke up one day and realized I have no retirement," she said. And if she gets injured on the job, "I can't get disability, I can't get workers' comp, I'm just on my own."

McMillian, who serves as treasurer at Service Employees International Union Local 99, a union of teachers and childcare workers in Los Angeles, applauds the expansion of the earned income tax credit. But with its income cap of a little over $15,000 for individuals without dependent children, she said the policy “is neither here nor there” for her.

That, she said, in a country that celebrates entrepreneurs, is a “shame.”

CALmatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.