Within the next five years, as many as four in 10 workers in the United States are expected to be self-employed, due in part to millions of Americans joining the ranks of what is being called the “sharing economy.”
That’s the finding of a new labor market study conducted by Emergent Research that predicts that more than 7.5 million self-employed people will hold on-demand jobs by the year 2020.
It was also the subject of Capitol Hill symposium held last month that focused on the public policy ramifications of this new, emerging workforce. Hosted by the Kogod Tax Policy Center at American University, and sponsored by the Intuit Tax and Financial Center, the symposium featured several experts in tax compliance and small business policy. It also included two keynote speakers, Sen. Mark Warner and Rep. Peter Roskam, who are leading discussions on this trend in the tax-writing committees in Congress.
Participants focused on the different types of jobs being performed by on-demand entrepreneurs, their motivations for pursuing this work and their need for new tax and labor market policies. But as attendees heard from both Warner and Roskam, the U.S. tax code has not fundamentally changed in 29 years. And many offerings within this sharing economy were not even in development just 24 months ago.
And therein lies the challenge.
Both full and part-time entrepreneurs of every age and demographic are selling services via online applications that allow them to instantly and inexpensively connect with millions of consumers. These entrepreneurs offer everything from on-demand car sharing services to house cleaning to professional legal representation.
Entrepreneurs are choosing this new type of work for essentially five reasons.
- To be their own boss. They want to manage their careers on their own terms.
- To be an entrepreneur. They view sharing platforms as a stepping stone to a long-term business opportunity. These people want to test their ideas in the marketplace and potentially grow their businesses.
- To re-enter the workforce. They may have lost their job in the conventional workforce and have found new opportunities for jobs on sharing platforms.
- To achieve flexibility. They are part-timers who need flexibility in making their work schedules. These individuals have unpredictable demands on their time and are not in a position to take a job with fixed hours of employment.
- To make more money. These “side-giggers” are simply looking for a little extra cash. They typically already have one or more jobs – or may be retired — but are looking to supplement their income.
No matter what their motivation, these on-demand entrepreneurs share a common challenge – overcoming tax and reporting requirements that treat them as if they were conventional small businesses when they are not.
Additionally, on-demand entrepreneurs have unique financial needs, often comingling business and personal expenses in a single bank account, making expense management and deduction tracking burdensome. They typically get paid without taxes being withheld, often on a weekly basis, making it difficult to calculate their actual after-tax income. And finally, many are unaware of their obligation to make quarterly tax payments.
Beyond tax simplification, the symposium highlighted the pressing need for government to think creatively when assessing the legislative and regulatory needs of on-demand entrepreneurs. Particularly encouraging was the support of nonpartisan policy changes that could significantly improve the lives of these new entrepreneurs, including:
Clarifying what constitutes a “record” for Schedule C tax compliance. Today’s on-demand workers find customers and income at the touch of a button on a mobile device. Yet the Internal Revenue Service has a perceived preference for paper records to verify their Schedule C deductions. Clarity from IRS on the permissible use of electronic records would let these entrepreneurs spend less time managing paperwork and more time earning a living.
Enabling on-demand platforms to provide helpful guidance to entrepreneurs without triggering worker classification issues. Many platforms provide only limited advice to these entrepreneurs to avoid triggering employment regulations that would characterize them as employees. If government agencies clarify some of these murky regulations, more companies would be inclined to provide their contractors with the essential financial planning and tax reporting information they need.
Updating government programs to support the self-employed. When the Treasury Department initially piloted its myRA retirement savings product, it was only available to those who had traditional employers. The national launch, however, allows all individuals to participate, including those within the on-demand workforce. This highlights a great example of how government can ensure on-demand entrepreneurs have access to needed programs.
Technology allows the evolving sharing economy to be fast paced. Consequently, any and all policy changes should reflect this trend and provide for flexibility and innovation. The symposium highlighted many challenges affecting these emerging entrepreneurs and shone a bright spotlight on these and other much-needed policy recommendations. The work to address these issues should proceed at the same pace.