To explore how Governors and state leaders may better understand and support the on-demand workforce, in 2018 the National Governors Association Center for Best Practices and the Institute for Work & the Economy, with support from the Annie E. Casey Foundation and Walmart, accepted a bipartisan cohort of states into the State Collaborative Consortium to Understand and Support the On-Demand Workforce (the Consortium): Alabama, Colorado, Connecticut, Hawaii, Illinois, Maryland, New Jersey, Pennsylvania and Virginia.

In the context of emerging technologies, increasing automation, and rapid globalization, national and state policymakers often focus on skills, education and training when considering how to best prepare for the ‘future of work.’ It is, however, equally important to understand how policy, legal frameworks and corporate structures can affect or incentivize specific work arrangements and how those work arrangements impact workers – particularly in light of the increasing shift toward on-demand work. By focusing on these issues as part of their broader economic and workforce development strategies, Governors can enhance their state’s economic competitiveness and increase access to economic opportunity and financial stability for all workers in their state, including those engaged in on-demand work.

On-Demand Worker

Any worker who does not receive a W-2 tax form for some or all of their compensated work, such as entrepreneurs and the self-employed, as well as workers whose income is reported on a W-2 form but whose schedules and places of work are unpredictable and episodic.

The Current Legal Protections and Opportunities to Support American Workers framework presented below describes existing legal protections and opportunities for states to shape policy to benefit all workers, including on-demand workers. The framework is based on the Consortium’s work over the past two years, including the development of an ontology of characteristics and classifications of the on-demand workforce as well as recommendations for understanding and supporting the on-demand workforce, and is organized around four key categories of worker-employer relationships, each with their own legal protections:

Traditional Employee – Full-time, salaried workers who receive a paycheck and whose income is reported on a W-2 form.

Shift/Temporary/Seasonal Employee – Workers who receive a paycheck and whose income is reported on a W-2 form but whose scheduling, terms and conditions of short-term or temporary employment, are episodic and determined by the entity that pays them.

Dependent Non-Employee – Workers who whose income is not reported on a W-2 form and whose scheduling, terms and conditions of short-term or temporary employment, are episodic and determined by the entity that pays them.

Incorporated Entrepreneur – Workers who have established a legally incorporated businesses and who have a primary goal of growing the business into an ongoing enterprise.

Key
 

Workers in this category benefit from this type of protection or support under the law. Ellipses indicate additional information is available; click the box to view.

 

Some workers in this category benefit from this type of protection or support under the law. Ellipses indicate additional information is available; click the box to view.

Workers in this category do not benefit from this type of protection or support under the law.

Protections To On-Demand Workers

Most workplace benefits are tied to formal and (often) full-time employment, leaving many on-demand workers without the types of protection that workers with formal employment agreements enjoy. Workers in formal employer-employee relationships are guaranteed certain protections, stability and working conditions under federal regulations, including the Civil Rights Act of 1964, the Fair Labor Standards Act of 1938, the Age Discrimination in Employment Act of 1967 and the Occupational Safety and Health Act of 1970. However, those protections do not extend to those who are not classified as employees. In some cases, they do not cover part-time or temporary employees, either. This absence of protections and benefits may leave independent, part time and temporary workers in precarious financial, safety and legal circumstances. States can explore how they can provide on-demand workers with opportunities to achieve stability and security and create a more level playing field so that employers can benefit from the flexibility of on-demand work.

Legal Protection or Institutionalized SupportTraditionalShift/Temporary/Seasonal EmployeeDependent Non-EmployeeIncorporated EntrepreneurOpportunity to Expand Protection or Support (click to view)
Hourly minimum wage protections




Expand existing minimum wage requirements or equivalent to more workers.
Consistent and predictable work schedules




Require that workers be given adequate notice of their schedule.
Workers compensation




Create a workers' compensation equivalent for on-demand workers.
Unemployment Insurance




Expand access to unemployment insurance to on-demand workers.
Employer sponsored healthcare, retirement and paid leave




Expand access to benefits to on-demand workers.
Recourse for legal challenges




Establish an entity to which on-demand workers can report questionable activity and receive legal counsel.

Legal And Administrative Clarity For On-Demand Workers

Persistent lack of clear rules, regulations and oversight for the on-demand economy makes enforcement of and compliance with existing laws more difficult. Certain actors may benefit from this lack of clarity, to the detriment of on-demand workers. As result, states may look to fairly and clearly enforce existing laws as well as provide new guidance to make clear the definition of “employee” for purposes of determining whether workers are entitled to the benefits and protections of formal employees.

Legal Protection or Institutionalized SupportTraditionalShift/Temporary/Seasonal EmployeeDependent Non-EmployeeIncorporated EntrepreneurOpportunity to Expand Protection or Support (click to view)
Consistent enforcement of worker classification




Audit state processes for enforcing worker classification and develop clear guidelines for determining classification.
Clear expectations and documentation of tax obligations




Provide on-demand workers with official documentation that clarifies their tax obligations.
Fair and unbiased hiring and work scheduling




Require greater transparency and independent evaluations of worker information and employment algorithms.

Mobility And Development Of On-Demand Workers

The growth of the on-demand economy poses new challenges for traditional education and training systems. Over the past several decades, workers have faced an increasing economic burden for training and education that could exacerbate existing disparities among populations and geographies. Many barriers that all workers face in achieving career mobility and advancement are especially burdensome for on-demand workers. Addressing these barriers for all workers can support a more dynamic workforce where workers have the ability to advance and move into and out of the type of work that they prefer.

Legal Protection or Institutionalized SupportTraditionalShift/Temporary/Seasonal EmployeeDependent Non-EmployeeIncorporated EntrepreneurOpportunity to Expand Protection or Support (click to view)
Affordable opportunities for reskilling and upskilling




Support and incentivize participation in lifelong learning.
Regulatory system that promotes job mobility




Reduce barriers to work such as occupational licenses and noncompete agreements.
Opportunities to enhance entrepreneurial skills




Support programs that provide entrepreneurial opportunities and skill development.

Related Resources


Establish an entity to which on-demand workers can report questionable activity and receive legal counsel.

States could set clear guidelines for what constitutes discrimination and retaliation for on-demand workers. Then, they can provide services that advise on-demand workers about options for recourse when such events occur.

The US Equal Employment Opportunity Commission enforces federal laws that make it illegal for most employers to discriminate against employees based on race, color, religion, sex, national origin, age, disability or genetic information.

The US Equal Employment Opportunity Commission enforces federal laws that make it illegal for most employers to discriminate against employees based on race, color, religion, sex, national origin, age, disability or genetic information.

Expand access to benefits to on-demand workers.

Washington recently launched a new public Long-Term Care Insurance Program to help workers offset the costs of long-term care. The program is funded through a payroll tax but self-employed workers are able to opt-in by paying the full premium.


Establish non-employer based, portable healthcare, retirement and paid-leave benefits systems that all workers can opt into.

The Affordable Care Act requires that employers provide health insurance for some employees, including some who work on a part-time or shift basis. Some employers also offer other benefits like retirement and paid leave to employees.

The Affordable Care Act requires that most employers provide health insurance for full-time employees.

Expand access to unemployment insurance to on-demand workers.

Pandemic Unemployment Assistance (PUA) temporarily expands eligibility to unemployment insurance to some on-demand workers. States could consider exploring opportunities to continue unemployment insurance benefits for those workers beyond the expiration of PUA.

Employees who meet their state's work and wage requirements are eligible to receive unemployment insurance if their employment is terminated through no fault of their own.

Employees who meet their state's work and wage requirements are eligible to receive unemployment insurance if their employment is terminated through no fault of their own.

Create a workers' compensation equivalent for on-demand workers.

The New York State Workers’ Compensation Board (WCB) launched a new Virtual Hearing Center (VHC), a digital adjudication platform that allows participants in a workers’ compensation hearing to attend the hearing remotely.


Create a workers compensation system that all workers can opt into.

Employees are protected by the Occupational Safety and Health Administration workplace safety requirements and can file to receive workers compensation benefits through their state office in case of a job related illness or injury.

Employees are protected by the Occupational Safety and Health Administration workplace safety requirements and can file to receive workers compensation benefits through their state office in case of a job related illness or injury.

Require that workers be given adequate notice of their schedule.

The Oregon Legislature passed the Fair Workweek Law, which requires certain employers to give their employees an estimate of how many hours they will work each week throughout their employment and at least two weeks of notice in their work schedule.


Require that all firms give adequate notice to workers of when they are required to be at work.


Full-time employees generally work consistent schedules and receive consistent compensation. Non-exempt employees are guaranteed over-time pay under the Fair Labor Standards Act.

Expand existing minimum wage requirements or equivalent to more workers.

The New Mexico Legislature passed a bill that expanded the state minimum wage and overtime laws to domestic workers, who had previously been exempt.


The New York City Taxi and Limousine Commission set the net minimum hourly wage for these drivers at $17.22. This net wage is required to take into account the cost of operating and maintaining their vehicle; it is set higher than the local minimum wage of $15 to account for the additional tax burden that on-demand workers face


Require all firms to pay all of their workers a minimum hourly wage.

The Fair Labor Standards Act requires that all employees are paid at least the federal minimum wage.

The Fair Labor Standards Act requires that all employees are paid at least the federal minimum wage.

Require greater transparency and independent evaluations of worker information and employment algorithms.

State leaders could experiment with regulations aimed at requiring independent validation of performance or customer ratings.

Provide on-demand workers with official documentation that clarifies their tax obligations.

To provide more documentation and clarity for on-demand workers, Vermont and Massachusetts have lowered the threshold for receiving a Form 1099-K from $20,000 to $600.


Provide income documentation to all workers, regardless of earnings.


All employees receive a W-2 form from the IRS that specifies their tax obligations.

All employees receive a W-2 form from the IRS that specifies their tax obligations.

Audit state processes for enforcing worker classification and develop clear guidelines for determining classification.

California enacted a blanket law (AB5) that establishes a three-part “ABC” test for establishing employment in all but a handful of cases.

Incorporated entrepreneurs choose to pursue legal classification as a limited liability company (LLC).

Workers that are classified as employees benefit from a variety of protections and supports under the Fair Labor Standards Act, Occupational Safety and Health Act and other federal statute.

Workers that are classified as employees benefit from a variety of protections and supports under the Fair Labor Standards Act, Occupational Safety and Health Act and other federal statute.

Support programs that provide entrepreneurial opportunities and skill development.

Pennsylvania Gov. Tom Wolf in 2018 launched the PA Business One-Stop Shop as the sole source for guiding entrepreneurs and small businesses through all stages of development, from planning and startup to operation and expansion, consolidating what had previously been several difficult-to-navigate programs.


In West Virginia, the Governor’s School of Entrepreneurship, a free summer program created by the West Virginia Department of Education and West Virginia University, is a three-week boot camp for high school students that teaches them the basics of business and enables them to participate in pitch and startup competitions.

Reduce barriers to work such as occupational licenses and noncompete agreements.

Arizona Gov. Doug Ducey signed an executive order requiring regulatory boards to justify any license that is not required by at least 25 other states. Further, in 2019, the state enacted an occupational license reciprocity policy that allows most workers to practice their profession with their out-of-state license, with some restrictions.


Illinois Freedom to Work Act prohibited noncompete agreements for workers who earn less than $13 an hour. Governors can evaluate which types of noncompete agreements are necessary in their state to support innovation and which types impose undue hardship on workers.

Support and incentivize participation in lifelong learning.

States can incentivize employer investment in worker training. Connecticut employers are credited 5% of all expenses incurred for worker training. Mississippi employers receive a 50% tax credit for the costs of training an employee, up to $2,500 per employee per year.


Provide tax incentives for workers to invest in their own education and training. For example, states could expand eligible uses of 529 accounts to provide tax benefits for adult workers to invest in lifelong learning opportunities.