America’s entrepreneurs and small businesses are the lifeblood of the economy, and independent contracting helps that blood to flow. Women are increasingly building their own enterprises to maximize flexibility, recognizing the potential to realize their career dreams while balancing family life.
But the Protecting the Right to Organize (PRO) Act stands poised to jeopardize the growth of women-owned businesses in America. The House-passed PRO Act, parts of which could be introduced into spending bills during the budget reconciliation process, could impact businesses if passed. It could also make already rising inflation even worse by reducing the independent contracting workforce, especially in states with large concentrations of freelance workers such as Arizona, Florida, and Virginia.
As infrastructure and spending plans work their way through Congress, lawmakers should do everything to ensure that workers’ choices are protected, and independent work can continue to power small businesses.
Women-owned nearly 13 million businesses in the U.S. in 2018 representing 42 percent of all firms. Overall, women-owned businesses, which generated just shy of $2 trillion in revenue, grew three times as fast as average firms. Women-owned businesses also employed 9.4 million workers.
Firms owned by women tend to be small enterprises both in headcount and revenue. In 2019, women-owned businesses generated average earnings of $142,900 compared to $1.4 million for all firms. Many of those businesses do not employ any workers, but typically, women-owned businesses employ fewer workers (0.7) compared to all firms (3.4). The average number of employees decreased from 0.8 in 2014 to 0.7 in 2019, suggesting that like other firms, women increasingly look to freelance workers to keep their business operational.
Online platforms and the gig economy have made it easier for workers to find flexible opportunities for work and more affordable for businesses to find talent. A number of women are engaging in freelance work.
Take Monica Wyman, a California florist who makes floral arrangements for weddings and special occasions. The sporadic and seasonal nature of her small business could not support hiring staff, but she contracted other mothers for events as the need arose. This model served Wyman, a mother of three and cancer survivor, well as she raised her children and battled multiple bouts of illness.
Women may start a business out of necessity because they can’t obtain employment or supplement their income. Many women start their own firms because the demands of caregiving responsibilities and health conditions require them to be able to set their own hours. Nearly half of independent contractors say they could not hold down traditional jobs because of their personal circumstances.
For these business owners, hiring independent contractors is an effective and cost-effective strategy. According to a pre-pandemic LinkedIn survey, 70 percent of small businesses hired a freelancer in the past and the majority of them planned to hire one in the future. Most of these small businesses said they needed expertise that they did not possess to complete a project, not because they were trying to dodge paying benefits.
Reclassifying millions of independent contractors—as proposed in the PRO Act—would impose significant costs for women in both situations. Workers lose the flexible opportunities that they depend upon and prefer over traditional 9 to 5 jobs. Small businesses would likely see interruptions to their operations and increased costs which they may pass onto their customers in higher prices—exacerbating already rising inflation—or force layoffs. When California passed AB5 legislation triggering widespread reclassification, news outlets, which hailed the bill, immediately laid off hundreds of freelance writers.
Researchers are beginning to quantify the hardship of the PRO Act’s mandatory reclassification. According to a new analysis from the American Action Forum, reclassification could cost $17 billion to $57 billion depending on the percentage of workers who would suddenly become employees of the companies that contracted them. For gig economy companies such as ridesharing and delivery service apps such as Uber, Lyft, Postmates, and DoorDash, their entire driver workforce would be reclassified as employees.
Some states will pay a heavy price under large-scale reclassification. Those facing the greatest costs include Arizona, Florida, Georgia, Nevada, North Carolina, Texas, and Virginia.
For example, Arizona has over 445,000 independent workers. If the PRO Act becomes law, the state economy is projected to lose $309 million if 15 percent of workers are classified, and $1 billion if half are reclassified. Virginia is home to half a million independent contractors and stands to lose $385 million if 15 percent of them are reclassified and nearly $1.8 billion if half are reclassified. No member of Congress should support removing employment choices of their workers and imposing significant costs on the small businesses as their state even as families grapple with rising inflation and try to recover financially from the pandemic. Nor should the administration use regulatory power to enact provisions of the PRO Act.
Independent contracting is critical for women who are both entrepreneurs and workers. It helps their enterprises to survive and thrive and workers to stay attached to the labor force. Congress can demonstrate they are pro-worker, pro-small business, and pro-woman by leaving independent contracting alone.