The State of Self-Employment in 2019
December 10, 2018
As the number of self-employed workers continues to grow—a new report pegs the total number at 57 million–freelance workers are becoming an increasingly integral part of the broader U.S. economy.
Self-employed workers and side-hustlers can find work more easily than ever before, thanks to technological advances and a growing acceptance of remote and contract workers by companies. “More workers every year continue to participate in independent work, and more companies continue to embrace independent workers for positions previously done by W2 employees,” says Rich Oakes, president of GigSmart.
Today’s freelancers report that they can often earn more money on their own than they would as staffers, and six-figure incomes are common. That may be why 70 percent of independent workers have chosen to go freelance, according to McKinsey. Still, while self-employment presents many opportunities, setting up shop still requires navigating a world of complexity, as laws and policies remain in flux, with many failing to keep up with the current economic reality.
Here’s a look at some of the biggest issues facing freelancers going into 2019:
New tax laws
In addition to lower overall tax brackets, the tax reforms passed at the end of 2017 could have a positive impact on freelancers as they file their 2018 taxes in the Spring of 2019 and on their earnings going forward. Most self-employed workers who operate through pass-through entities (which include S corporations and limited liability companies) and make less than $157,500 ($315,000 for a married couple) may qualify for a new 20 percent deduction on their qualified business income. “It was an 11th hour provision thrown into the tax bill to give small business owners the same tax cut as the big corporations,” says Keith Hall, a CPA and president and CEO of the National Association for the Self-Employed.
The deduction phases out for those earning more than that, and filers who are below those threshholds may take the deduction no matter what business they’re in. Freelancers earning more than that may want to consult with a professional for advice on what—if any—deduction they should take, and whether they’d be better off incorporating.
New health insurance options
While politicians continue to debate the Affordable Care Act, the Labor Department introduced new rules this year that may make it easier for some self-employed workers to get access to the health plans typically available only to large companies—without buying them on the exchanges.
“The whole idea of the new regulation is to make it easier for companies and individuals to work together to get the scale to not only leverage better prices from insurers and healthcare providers, but also to have the benefits flexibility that larger companies have when they negotiate with insurers,” says Kev Coleman, president of AssociationHealthPlans.com.
Under the new rules, large groups of workers and businesses in one industry or region can band together to offer members an “association health plan.” To qualify, freelancers must meet the membership rules of the association and work at least 20 hours per week or make enough income to cover the cost of premiums. If enough workers switch into association health plans, that could drive up the cost of both small business and individual plans, but the cost of association health plans could be up to $10,000 cheaper than individual plans, according to an analysis by Avalere.
A focus on benefits portability
Health insurance isn’t the only benefit traditionally offered by employers that freelancers need. More workers are looking for ways to recreate the benefit safety net provided by employers. While a federal bill aimed at promoting portable benefits died in committee last year, several state and local governments are also looking at ways to provide basic benefits like disability insurance, retirement savings plans, and paid leave to contingent workers.
Washington State Governor Jay Inslee, for example, signed into law a statewide family leave policy in 2017 that allows self-employed workers to buy into the system. Oregon offers a retirement savings plan aimed at small businesses who couldn’t afford to administer one on their own. Starting in 2020, independent workers will be able to participate.
More than 40 percent of freelancers say that the government isn’t doing enough to support flexible work via portable benefits, according to a recent report by Fiverr. “The anxiety over benefits is real,” says Olga Mizrahi, author of The Gig Is Up: Thrive in the Gig Economy, Where Old Jobs Are Obsolete and Freelancing Is the Future. “We want to know, especially when we have a family, that we have safety and security in healthcare, retirement, and disability.”
More opportunities for professional development
As more workers enter the freelance marketplace, competition for the best clients and projects remains strong. Successful freelancers know that one way to maintain a competitive advantage is to keep their skills sharp with continued education.
Seven in ten full-time freelancers participated in skills training the past six months, compared to fewer than half of non full-time freelancers, according to a recent report by Upwork. That’s even more striking, considering that most freelancers pay for their training themselves. Given that interest, expect to see more offerings in this area.
Continued challenges to worker classification
The debate over how companies determine whether their workers are contractors or employees appears poised to continue in 2019, with some even proposing a new classification for today’s freelancers that falls in between employee and independent worker.
“The nature of the relationship between the individual and the institution isn’t binary, and there are wide varying levels of dependence,” says Arun Sundararajan, a professor at New York University’s Stern School of Business and author of The Sharing Economy: The End of Employment and the Rise of Crowd-Based Capitalism. “There have been a wide variety of proposals for the creation of a middle ground between employee and independent worker.”
While well-meaning, such proposals could have unintended consequences, creating two gray areas between workers classifications, instead of the one that currently exists.
For now, the issue is playing out in the courts and state legislatures. While a judge in California issued a ruling this year that appeared to require companies like Uber and TaskRabbit to classify workers who use their platform as employees, a judge in Pennsylvania ruled the opposite. Meanwhile, lawmakers in some states have passed legislation specifically declaring that workers for such platforms are not employees of the platforms.
Potential political influence
Freelancers are 19 points more politically active than non-freelancers, and 72 percent said that they’d cross party lines to vote for candidates who support freelancer interests, according to Upwork. As the percentage of workers doing some freelance work, either on a full-time or part-time basis, continues to grow, policymakers may start to take notes of the constituency’s needs. New York City passed the “Freelance Isn’t Free” act giving additional contractual protections to freelancers in 2017, and a handful of other cities are reportedly considering similar measures.
The freelance economy appears poised to continue growing in 2019, not only in size but also in the scope of its influence in politics and the broader economy as a whole. More freelance workers—either part-time giggers or full-time solopreneurs—will lead to greater impact on the changing workplace and in the broader economy as well.