Will New Tax Laws Mean More Independent Contractors? It Depends.

By Kristen Harris

Recent changes to US tax law have started a whole new round of conversation about independent contractors. The line of thought is that some of the provisions will cause many more people to leave their jobs and work independently. Is that true? Maybe. Like most things, it depends. 

First of all, let’s be totally clear...I am not an attorney, accountant, or tax law expert of any sort. This is purely my opinion and reaction to recent conversations and articles.

Now, back to the topic. Will these changes to the tax law create a whole new wave of independent contractors? While some provisions may seem to encourage it this trend is already happening, and I believe it will continue with or without government involvement.

When the Affordable Care Act was first proposed there was a similar level of conversation about how it would push many more people into being independent contractors. The theory was, if people had access to healthcare on their own, they would be much more likely to work for themselves instead of an employer.

The conversation around these tax changes is similar. One provision allows sole proprietors (in most industries) to deduct 20 percent of annual revenue from their taxable income. Some people believe these tax savings will entice employees to go out on their own. 

And, for some people, it might. For a certain person saving on taxes could be the tipping point, the last little thing that encourages them to start something on their own instead of being an employee. But, just like the ACA healthcare issue, I believe that someone who makes that choice was already considering it anyway. 

Rather than forcing people to become independent contractors, these tax law changes are just removing one more barrier that may have prevented someone from making that choice. I don’t believe it’s suddenly creating a flood of people starting their own independent businesses who never considered that option before. Starting and building a business is hard, it has to be something you actually want to do. And there are still other tax considerations, like tracking expenses and being responsible for both the employer and employee portion of the federal payroll tax. 

There has been a consistent shift to people working independently for years and that trend is likely to continue. Three key factors are driving this shift–employer choice, employee preference, and access to information–and they’re not going away.

Companies are evolving the way they build their workforce, and most use some percentage of non-employees (independent contractors, contract workers, SOW firms, etc) allowing them the flexibility to manage work in the way that is best for their business. On the other side, some people prefer to work independently for a variety of reasons–the ability to work on a variety of projects, flexibility in schedule and location, work/life balance, family considerations, or the ability to build a lasting business–just to name a few. The catalyst that has helped bring the employer and employee sides together is access to information. Many people can work anywhere, anytime.

Even jobs that involve some level of physical work or presence may have the ability to be independent due to information access (ride-share drivers, for example).

So, while the changes in tax law may make it easier or slightly more attractive to be an independent contractor, might encourage someone to go ahead and take that leap, I believe the trend towards more independent work will continue with or without government involvement. The more access we have to information, the more possible it is to have and be an independent worker. My two cents (earned independently).