Alignable Special Report: PRO Act is ANTI-Small Business & Its Timing Is Terrible
CEO EDITORIAL | DATA INSIGHTS | POLL RESULTS|
Just as small business owners are starting to feel more optimistic about surviving the COVID Crisis, certain legislators in Washington are plotting to crush them once again -- this time with what we’re calling the “PRO Act Virus.”
And we’re not being dramatic, we’ve collected the data and we’re highlighting the impact this bill could have on millions of small business owners. (See our findings below).
And based on the latest news reports, President Biden has shown his support for the PRO Act and intends to include it, or key elements of it, in his proposed $2.3 trillion infrastructure legislation. Negotiations around that legislation start this week.
Could the PRO Act be as dangerous to small business as the COVID virus?
What do we know?
This legislation is being driven by a select group of unions hoping to shift the playing field in their direction. They’re trying to turn part of a California law known as AB5 into national legislation.
If it becomes law, as was seen in CA, there’s a provision within it that severely impacts the earning power of freelancers and independent contractors who depend on contract work for survival.
In short, it will remove the Free from Freedom.
As Congress tries to keep this legislation under the radar and President Biden signals his support, we have decided we needed to understand the situation better and make sure our members were informed.
What does the PRO Act Do?
If it becomes law, the PRO Act would help unions build their ranks. Currently, there are 28 states with Right to Work laws in place. These laws give employees whose jobs are subject to union contracts the right to not have to join and pay the union. But the PRO Act legislation would eliminate that right and force these workers to pay union dues, making it easier for unions to form.
While this might not seem like the end of the world to small business, there's a provision within the legislation containing a simple formula which houses the killer virus for freelancers and independent consultants. It’s called the ABC test which is used to determine whether or not you can do work as an independent contractor for another business and the “B” condition is where the killer virus resides. The wording was taken from California’s AB5 law:
Under the ABC test, a worker is considered an employee and not an independent contractor, unless the hiring entity satisfies all three of the following conditions:
- The worker 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;
- The worker performs work that is outside the usual course of the hiring entity’s business; and
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
The Highly Controversial Part B
California further explains part B as follows:
Contracted workers who provide services in a role comparable to that of existing employees will likely be viewed as working in the usual course of the hiring entity’s business.
Part B is satisfied if services are not part of the hiring entity’s usual course of business:
- For example, when a retail store hires an outside plumber to repair a leak in a bathroom on its premises.
Part B is not satisfied if services are part of the hiring entity’s usual course of business:
- Here’s one of many examples that would fit this situation:
- When a clothing manufacturing company hires work-at-home seamstresses to make dresses from cloth and patterns supplied by the company that will thereafter be sold by the company.
Who’s likely to be adversely affected by this legislation?
Sadly, the answer really is -- “Who wouldn’t?”
Many different people, businesses and their communities would be hurt.
If passed, the PRO Act would pose several different barriers to employment, the overall business recovery, and prosperity, in general. Here are just a few examples of people and businesses that would be hit hard:
- Just about any solopreneur, including:
- Freelance reporters, producers, writers, photographers, editors or designers working for media companies who have in-house staffers who also fulfill these functions
- Freelance web designers and engineers working for companies to enhance their digital capabilities
- Freelance musicians working for a recording studio
- Independent truckers hired to help meet growing transportation demands
- Freelance marketers working to help companies of all sizes to grow and promote themselves
- And a wide variety of other independent contractors who help the small business economy to survive (and eventually thrive again).
- Young Parents -- Mothers & Dads, who require the flexibility of freelancing to work around their children’s needs and schedules. Daycare is often way too expensive for these young families.
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Small businesses trying to bounce back from the COVID Era by employing knowledgeable, affordable freelancers
- Most of these owners can’t afford another W2 hire, but can benefit greatly from a few talented freelancers helping them with efforts to repair or grow their businesses
- Struggling small business owners who, themselves, need part-time, flexible jobs or freelance projects to keep income coming in, to help support their main businesses and families
- Larger companies that want to support smaller companies and freelancers, reinforcing and expediting their recoveries for the sake of a better economy, which leads to increased consumer confidence and spending in countless communities.
- Local communities: if the tax base from freelancers and other small businesses is reduced, entire communities will suffer -- budgets for roads, schools, police/fire safety, and other community services will be slashed. Home values could drop soon after, as well.
Why would this be detrimental to all of these workers & many others?
Because this law means companies which hire independent contractors would now need to hire them as W2 employees.
And many, as was seen in California when AB5 passed, will simply choose to shut down their freelance work to avoid having to comply with the legislation or increase their full-time staff.
In addition, the legislation ignores the fact that many freelancers left W-2 work behind, because they didn’t want to be tied down to one company or because they simply wanted to be in control of their own destiny (aka Freedom).
What 11,000+ Small Business Owners Told Us
When it comes right down to it, the PRO Act injects a deadly virus into the American Dream of owning your own business, while also crippling the small business economy which is just starting to rebound from COVID’s devastation.
In researching this report, we read many posts on both sides of the legislation.
Then we ran a poll among small business owners to ascertain the potential impact of the bill.
More than 11,000 SMBs responded -- both independent contractors (ICs) and businesses who depend on them. Following please find a very-telling summary of the results.
Business Owners Depend On ICs To Meet Demand
Of 7,110 businesses who reported hiring contractors, 45% indicated over 25% of the time the work being done is also performed by in-house employees.
Business Owners Would Turn Away Work Rather Than Hire
The PRO Act would further damage the fragile Small Business Economy by forcing these businesses to turn away work.
The PRO Act Would Devastate Nearly Half Of All Small Business Owners
Our poll found that many small business owners depend on independent contractors to win business, manage their costs, and keep their businesses afloat. In fact, 45% of those polled said the PRO Act could put them out of business.
Majority Of Independent Contractors Anticipate Losing 76% or More of their Business
We asked independent contractors what percentage of their business would go away if the law changed and they had to be hired as W-2 employees instead of contractors.
Of 5,730 respondents, 61% indicated they would anticipate losing 76% or more of their business.
Top Reasons Why Work Will Go Away
- Companies won’t be willing to incur the added expense
- I don’t want to work for a company, I want to work on my own.
Freelancing is Critical for Surviving a Crisis
Of the 9,059 small business owners who responded, 73% indicated in one manner or another that having access to freelancers was critical for surviving the COVID Crisis.
For Many SMBs, Having Multiple Jobs Enables Survival
Of 11,606 small business owners, 37% reported having a side-hustle to generate extra income during the COVID Crisis, which helped them keep their main business afloat.
Summing It All Up
Given all of these findings from our poll conducted from 3/27 to 4/1/21, it’s abundantly clear that passing the PRO Act would truly kick the Small Business Economy when it’s down. Considering that 81% of all small businesses are solopreneurs, we’re not sure when the small business economy would ever bounce back. Even without the PRO Act, it could be a slow climb back for many businesses. This legislation is literally the last thing they need right now. Here are a few quotes from Lila Stromer of Lila Stromer Editorial Services, one of our members who brought this legislation to our attention. She puts it all into perspective for anyone who’s an independent contractor:
“There will be no small business recovery if independent contractors (ICs) can’t be hired by small or large companies out of their fear of breaking federal laws or facing high financial penalties. Who would take the risk? ICs usually have several clients simultaneously.”
But if the PRO Act never becomes law, the recovery could be very different, adds Lila: “There are 59 millions ICs, and if we are allowed to stay in business as we are now, we could continue to rebuild the economy rather than be put out of business. One study found that in 2020 ICs made up 36% of the workforce and made $1.2 trillion in earnings.”
So Where Does This Leave Us? Small Business Owners Need To Act -- NOW
Please contact your legislators to voice your concerns about the PRO Act. Here are some links to help you learn more about it and to aid in finding your legislators’ contact information.
Resources to Learn about the PRO Act
Articles About the Legislation - Understanding the Impact
In Favor of the PRO Act:
Against the PRO Act:
About the California Law: CA AB5
Contact Your Representatives
We really are stronger together and the more we all work together, the better our chances of squelching this legislation that we believe would be hugely detrimental to the Small Business Economy moving ahead.
Comments (1)
What is the status of the Pro Act now?