With the election today and the economy barely showing signs of recovery, one of the most contentious campaign topics is which presidential candidate will “get America working again.” Both candidates are courting small businesses, but are overlooking the best representation of a “small business”—the self-employed.
Almost one-third of the country’s workforce is self-employed, and that figure is growing fast. With a growth rate of 14.4% since 2001, according to consulting firm Economic Modeling Specialists International, the self-employed represent one of the fastest-growing segments of the country’s workforce. Currently, 16.9 million people are self-employed in the U.S., with a five-year projection of 23 million, according to advisory firm MBO Partners.
This groundswell of independent professionals is contributing almost one trillion dollars in revenue to our economy, according to the firm. And yet, these professionals largely succeed out of resilience and ingenuity, rather than through government support. In fact, they are often disadvantaged by policies and regulations, facing challenges such as:
- Millions of dollars unpaid due to lack of legal protection: The average freelancer was unable to collect more than $4,500 last year, and eight out of 10 have faced nonpayment in their careers, according to the Freelancers Union. Yet the self-employed do not have the same wage protections as employees, and often have no legal recourse to collect payment.This is not just a hardship for freelancers, but also for the economy—the union also found that unpaid wages totaled $2.5 million last year (just among the 2,500 respondents of their survey); if expanded to the almost 17 million independent professionals in the U.S., that suggests approximately $17 billion lost each year. As a result, “city, state, and federal governments lose not only personal income tax, but also income that would inevitably be produced as these workers purchase more goods and services,” the report noted.
- More than their fair share of taxes: Once the self-employed manage to get paid, they then face double taxation since they’re considered both employees and employers. They pay not only the standard income tax but also a Self-Employment Tax of 15.3% on their net earnings, which is roughly equivalent to the combined contributions of employees and employers for Social Security and Medicare.
- Exorbitant health insurance costs: Perhaps the most emotionally charged of these issues is the high cost of buying health insurance as an individual. In addition to the often prohibitively high prices, the income used to purchase individual health insurance plans is taxed, whereas employees do not have the value of their employer-sponsored health insurance plans added to their taxable income.
Ensuring policy support for the self-employed has never been more important, as the driving forces behind the segment’s rapid growth are only expected to grow stronger. Advancements in Internet-based services and broadband access in particular are giving workers unprecedented flexibility in how, where and when they work, empowering more and more workers to embark on freelance careers. We’ve seen hours worked by independent professionals in oDesk’s online workplace increase more than eight-fold since 2009.
Yet a great deal of work remains to be done in order to ensure that our country’s millions of self-employed have the legal and governmental support they deserve. A number of groups, most notably the Freelancers Union and the National Association for the Self-Employed, are striving for the much-needed resources needed for the self-employed—such as access to health insurance, tax guidance and community support—as well as fighting for the rights of freelancers through legislative advocacy.
Moving forward, I urge policymakers to look closely at the issues affecting our nation’s self-employed. From issuing tax credits, to make individual health insurance more affordable, to establishing a route for legal recourse in order to protect earnings due, we need to be supporting and anticipating the importance of this segment of our workforce. In doing so, it won’t just be the self-employed that thrive—our economy will too.