Reclassifying Rhode Island’s independent workforce could cost the state millions

To prevent forced misclassification, lawmakers should propose reforms like portable benefits to allow workers to maintain their independence yet apply for benefits as needed

Workers across America — including Rhode Islanders — should be empowered to choose their destiny and work arrangements. But Rhode Island Senate Bill 430 takes a page from the controversial California Assembly Bill 5 law that displaced countless California freelancers from the workforce.

If adopted, a sizable chunk of the state’s small business workforce would see their independent status jeopardized by the onerous ABC test used to determine employment status.

SB 430 copies California AB5′s language nearly verbatim. The proposal states a worker is assumed to be an employee unless he or she fulfills the following three criteria:

(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;

(B) The person performs work that is outside the usual course of the hiring entity’s business; and

(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

California’s law was so disastrous, even the San Francisco-based Ninth Circuit Court of Appeals believes the law could be in violation of the Equal Protection clause of the 14th Amendment for exempting certain industries and not others. Why would Rhode Island want to replicate this very misguided law and upend one-person businesses?

Like other states, Rhode Island’s independent workforce is booming — especially post-COVID-19 pandemic. The majority of Rhode Island’s 218,000 independent workers — including over 85,000 self-employed workers — aren’t wholly misclassified. On the contrary.

Economic trends reveal workers nationwide are voluntarily trading 9-to-5 gigs for flexible work arrangements. That is also true in the Ocean State, where independent workers are proactively choosing flexible work in industries including transportation, warehousing, and real estate.

For instance, the state’s small business workforce, which is comprised of, in large part, freelancers, grew 18.3 percent since 2010 per the most recent U.S. Census Bureau’s Nonemployer Statistics (NES) data published in June 2022. Pre-pandemic, 77,000 freelance workers pumped $3.5 billion back into the state’s economy.

The bill’s supporters claim worker misclassification is rampant. A University of Massachusetts Amherst study even claimed 10 percent of Rhode Islander workers — or 19,359 individuals — in 2019 were wrongly misclassified as independent contractors, costing the state $25 to $54 million.

At first glance, these figures are appalling. But the bill’s supporters haven’t done their due diligence assessing the costs of forced classification. If 50 percent of Rhode Island’s freelance workforce were forcibly reclassified as traditional employees, it would cost the state $655 million — twelve-fold the cost of alleged misclassification. Comparatively speaking, forced reclassification poses a greater threat to the economy and worker well-being.

Actual instances of misclassification are already addressed by existing laws. And if workers desire to obtain benefits, health care, or otherwise, they need not be traditional employees to do so.

To prevent forced misclassification in Rhode Island, lawmakers should propose reforms like portable benefits to allow workers to maintain their independence yet apply for benefits as needed. Utah just pioneered this reform to allow worker benefits to follow workers, not employers. With a portable benefits system in place, forced reclassification efforts like SB 430 can be defeated.

As of December 2022, 27 percent — or 85,116 self-employed gig workers — of Rhode Island’s small business workforce engages in independent contract work. That should be celebrated, not undone by misguided policymaking that seeks to correct a non-problem.

Rhode Island lawmakers can’t claim they’re pro-small business yet support legislation that undermines over a quarter of the workforce.

Gabriella Hoffman is a full-time freelancer and senior fellow at Independent Women’s Forum.