A significant transformation within the American workforce has emerged in the wake of the pandemic, marked by a notable rise in freelance labour. According to data, more than half of individuals born after 1996 are now classified as self-employed, illustrating a departure from conventional corporate structures in favour of greater flexibility and autonomy. This shift has fostered a burgeoning “new American dream,” wherein many seek to redefine their professional identities outside of the traditional norms.
Despite the complexity of the tax landscape for freelancers, including mandatory quarterly IRS estimates, this trend shows no signs of abating. Many freelancers continue to depend on qualified accountants and CPAs to navigate these financial responsibilities, opting for professional guidance rather than reverting to full-time employment. However, recent regulatory developments threaten to disrupt this thriving sector. In late October, an Atlanta court upheld a Department of Labor (DOL) guideline from the Biden administration that reclassifies numerous freelancers as full-time employees. This policy aims to address longstanding concerns regarding inadequate benefits for self-employed individuals by compelling companies to hire their top freelancers, thereby extending employer-sponsored benefits.
Speaking to Accounting Today, experts have cautioned that this approach may inadvertently undermine the very nature of freelancing. The DOL’s guidelines could restrict the flexibility that freelancers currently enjoy in their work arrangements, posing significant risks to the gig economy. The ramifications of these changes could severely impact the ability of freelancers and their financial advisers to operate effectively within the existing business landscape.
The significance of freelance work extends beyond individual benefits, as freelancers contribute an estimated $1.27 trillion to the US economy annually. They play a crucial role in diversifying workplace perspectives and driving innovation across various sectors. Furthermore, freelancers often pay higher tax rates, including a self-employment tax of 15.3%, in addition to regular federal, state, and local taxes. This financial burden often leads them to rely on CPA services more than traditional employees, since freelancers face audits at three times the rate of their full-time counterparts.
While the DOL's intentions align with addressing the lack of benefits within the freelance sector, critics argue that the solution does not lie in prescriptive government regulations. Instead, advocacy for private sector-driven solutions is gaining traction. For instance, startups like Catch are emerging to provide affordable health, dental, and vision insurance tailored to the needs of freelancers, offering rates comparable to those found in corporate plans while preserving their independence.
With the gig economy now comprising approximately 40% of the US workforce—equivalent to 64 million individuals—there is an urgent need for the accounting profession to engage in advocacy efforts. Experts suggest that the profession should advocate for the repeal of the DOL's current regulations upon the new administration's inauguration. Regardless of the outcome, it is imperative that the accounting sector continues its efforts to promote pro-freelance legislation, particularly around self-employment tax reform.
As the dynamics of work continue to evolve, the interplay between the gig economy and the accounting profession is set to become increasingly important, prompting a reevaluation of existing regulations and fostering new approaches to support freelancers in their roles within the economy.
Source: Noah Wire Services