The fact is you cannot sell your labor for a price you are willing to accept unless it meets government criteria. As an employee, you must receive minimum wage -- and be covered by Unemployment Insurance (UI), workers compensation insurance, and have taxes withheld. This is how our state and country disrespect individual enterprise. Let's consider how this affects the small businesses that hire most of the people in our land:
In a recent blog I railed against the Unemployment Insurance (UI) system because it reduces private sector jobs. The system creates a whole slew of perverse incentives, including these:
§ Businesses are more reluctant to hire an employee who might eventually become an unemployment claim that will raise UI tax rates.
§ Employers facing layoffs have an incentive to fire employees for cause so they avoid an unemployment claim. This damages the work record of the employee, making it harder to find a new job.
§ In 2009, legislation gave The Colorado Department of Labor and Employment (CDLE) expanded powers to investigate businesses for potential “misclassification” of employees. With the UI trust fund being $500 million in the hole, CDLE has reason not merely to audit for enforcement, but also to coerce businesses into paying taxes they should not owe.
Employees don’t see a deduction on their paychecks to cover unemployment insurance. Nevertheless, they pay for it. In a competitive labor market, a tax paid by an employer is money that could otherwise be used for employee compensation. Yet few of the employees who pay for UI taxes will ever receive the benefits. You only get benefits if you become unemployed “through no fault of your own”. Employers and CDLE both have strong incentives to prevent payment of benefits. The UI system is of limited benefit and is a drain on job creation and payrolls.
To me though, the worst part is that the government limits your right to provide labor. That is exactly NOT the purpose of government. Government’s role is to protect your property rights, including your right to sell your labor as you see fit. You might disagree with me about the value of unemployment insurance, but it is indisputable that it restricts liberties.
There is a class of people who are exempted from these restrictions: independent contractors and business owners. If you want to mow your neighbor’s lawn for money, or design a software system for him, you can become a business owner. Your neighbor won’t have to withhold taxes, buy worker’s compensation insurance, or pay UI taxes.
But there’s a catch. Colorado
In a recent audit, the auditor interpreted the rules to mean that if an independent contractor gets more than 50% of its revenue from one business, it could be reclassified as an employee and be subject to back taxes, interest and penalties. Such a ruling, were it applied universally, would be totally impractical. A new contractor could not go into business until it had secured at least two contracts, each for half of its business. An enterprise would be precluded from doing more than 50% of its business with its best customer.
The criteria are vague and arbitrary. They lead to abuse by the CDLE who are empowered by the 2009 legislation to enforce the criteria in any way they see fit for the purpose of supporting a UI system that reduces job creation, damages resumes, and robs individual liberties.
The legislature must change the law to loosen the restrictions on independent contractors. There is only one criterion that is not arbitrary and open to interpretation by unelected and unaccountable bureaucrats: the willingness of an individual to become subject to the risks of business ownership. By expanding the definition of independent contractor, more people will be able to opt out of the failed unemployment insurance system.
Searching for an income protection quote in an unsteady employment is somehow a necessity nowadays.
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