We Don’t Need Anti-Freelancer Laws: We Already Have a Third Category of Labor

If you’re a freelancer or small entrepreneur, or were considering making a move towards having your own ship, you’ve probably watched the fallout of AB5 in California with shock and horror.
I know I did, and not just because the law put a wrench in my plans of moving to California or maybe living the bicoastal dream. New Yorkers are staring down our version of AB5, S6699A, after freelance writers in New Jersey threatened to leave the state if similar bills passed. The Assembly bill in New Jersey died, but it came back like that box of rotten greens you can swear you already threw out. A similar bill is also being floated in Illinois, despite state lawmakers clearly witnessing the havoc AB5 has wreaked.
Many people who freelance are understandably freaking out. After all, these laws are going to literally kill disabled people who can’t work regular brick and mortar jobs, and force parents and caregivers to lose half their incomes in childcare expenses. We busted our asses to build our client lists, brands, and our own paths, and since it’s little coincidence that women are being predominantly affected? We’re being paternalistically told that a W-2 job is SO much better because of benefits we should be receiving on universal levels anyway, like healthcare and paid family and medical leave.
Worst of all? It won’t matter what state you’re in if the PRO Act (HR 2474) passes as currently written. There’s lots of fantastic and long-overdue things in the bill for employees, like being free from retaliation if you’re trying to unionize! But if you freelance/are entrepreneurial? We got a nice big middle finger because HR 2474 contains an even WORSE version of AB5, and it would be federal law.
Well, I’m freaking out but decided I need to take control of the situation. I was a practicing tax professional for 10 years, I literally wrote the book on game developer taxes, and did my Master’s thesis on worker misclassification before the term “gig economy” was used.
We have to organize and call our elected officials: but HOW do we communicate different solutions to them?

It turns out that we already have misclassification laws on the books, the problem is that they’re not being enforced in the Trump Dept of Labor, and a super-defanged IRS. We need to propose that these laws actually get enforced instead of more disastrous legislation like AB5 that uses outdated criteria like the ABC test from the 1930s.
People have also proposed creating a third category of labor — one that isn’t “employee” or “independent contractor” — that makes sense for a 21st century economy, instead of relying on outdated tests that essentially redefine who is an independent contractor.
But what they don’t know is that there already exists a third category: statutory employees.
What is a Statutory Employee?
A statutory employee is a worker who shares aspects of both independent contracting and employment, based on the nature of the work.
The worker basically has all of the same aspects and protections as an employee — can be eligible for benefits, workers comp, the ability to get unemployment, the right to unionize — but also gains the ability to write off business expenses on Schedule C just like a freelancer would, although the employer(s) also must contribute payroll taxes.
But don’t take it from me, take it from the IRS:

Don’t those conditions sound an awfully lot like Uber drivers and Postmates couriers? Let’s break it down further:
- Drivers, dog walkers, etc. are personally performing services, not outsourcing the work to other people the way that say, a freelance game dev like myself can farm out code or game assets.
- Except for things like phones and the car itself, no substantial investment is made — unlike many freelance writers who pour lots of money into things like building websites, attending writer conferences, and building home offices or renting coworking space.
- The services are being continually performed for the same company, or tiny group of Silicon Valley titans. Not the variegated amount of direct clients, agencies, and brokers that lawful freelancers most often have.
Statutory employee is so rare of a status though that people are only thinking of it now. I remember having maybe two questions about it on the Enrolled Agent exam, and when I wrote the test? We didn’t even cover it, that’s how rare the situation was. It’s also so rare that when I trawled the IRS statistics database, something I’ve been in MANY times over my decade-plus career, i couldn’t even find anything on how many taxpayers checked the statutory employee box on Schedule C.
At the round table deep within the fortress of the test prep company I contracted with, CPAs and EAs with far more experience than I all said that they rarely had any statutory employee clients, except one guy whose firm partner did a lot of truck driver taxes. It’s a status mostly used in trucking, nursing, and some sales jobs.
So why not amend this status to include app-based dependent services, instead of telling actual independent service providers they must be forced to become employees?
Redefining who is an independent contractor and who isn’t is a smack in the face to the autonomy and fantastic lives and incomes that many professional freelancers and small entrepreneurs have built. As AB5 has shown, attempting to use a test predating the Great Depression has completely brutalized the arts and created genuine accessibility issues not just for disabled entrepreneurs like myself: but for people who need the services of interpreters and translators, who are usually always independent workers— and by choice.
But by enforcing our EXISTING commonlaw independent contractor test with more robust DOL and IRS resources, and making strong use of the third labor category that already exists, we can address genuine exploitation without turning lawful freelancers into criminals and collateral damage.
Stop this anti-freelancer nonsense. We can build a more equitable society for employees and independent workers alike, and laws like AB5 and the anti-misclassification of the PRO Act are not how you do it. We have the protocols, they’ve just been buried under layers of wonkery all this time!
