Why the PRO Act is ANTI-Small Business
For the first time in months, you’re feeling more optimistic about your post-COVID future, according to recent poll results. And while that is something to celebrate, there’s also a new bill popping up in Washington that might put a damper on that hope.
It’s called the PRO Act and it comes with some serious implications for small business owners, ones that may be as or more dangerous than the COVID virus.
So what is the PRO Act and how could it affect your business? Let’s take a look at the details of this proposed law including recent data that shows just how big the impact could be and how you can raise your voice.
What is the PRO Act?
The PRO Act 2021, or Protecting the Right to Organize Act, focuses on reducing the barriers for employees to unionize. Based on a version of a similar state law that passed in California (AB5), it makes it easier for workers to form a union with the aim of protecting them from unfair working conditions.
But unions aren’t the issue—what comes along with the bill is where things get ugly.
If this legislation passes, there’s a provision within it that could act as a virus that would target the dreams 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 intends to include the PRO Act, or key elements of it, in his proposed $2.3 trillion infrastructure legislation, we wanted to keep you informed. Here’s what you need to know.
What does the PRO Act do?
One specific part of the PRO Act bill redefines what it means to be an employee vs. an independent contractor.
A provision called the ABC test determines whether or not you can work as an independent consultant for another business. Under part B, many freelancers would now be considered employees.
As a result, freelancers lose their freedom, and companies would be forced to bring on full-time employees or stop hiring contractors altogether.
Here are the conditions of 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.”
Condition B is where the greatest threat lies to small business. 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.
Prong 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.”
Prong 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.”
Why would this be detrimental to independent contractors and small businesses?
Because this law means companies that hire independent contractors would now need to hire them as W2 employees.
When California passed a similar law, many businesses chose 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 of you left W2 work behind, because you didn’t want to be tied down to one company or because you simply wanted to be in control of your own destiny (aka freedom).
Will this legislation affect my business?
Most likely. Many different people, businesses, and their communities would be hurt.
If passed, the PRO Act would be a barrier 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, 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.
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.
Here’s How Big the Impact Could Be, According to Our Latest Poll
When it comes right down to it, the PRO Act could threaten 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.
So we wanted to know what the impact would be on you, and more than 11,000 of you weighed in (both independent contractors and businesses who depend on them). Here’s what you told us.
1. Many of you depend on independent contractors to meet demand
how much in house work is done by independent contractors
Over 7,100 of you hire contractors to accomplish your business needs. Of those, nearly half of you have contractors whose work overlaps with in-house employees at least 25% of the time.
In other words, your contractors are working on similar projects or have similar skills as your in-house staff. If the PRO Act passed, you’d have to bring those contractors on as W2 employees.
2. You’d rather turn away work than hire
how would your business practices change if the PRO Act passed
Rather than hire those contractors you depend on, you’d either deprioritize the work they’ve been doing or turn away work you couldn’t handle in-house. This could have huge effects on the small business economy.
3. Nearly half of you said the PRO Act could put you out of business
if you can't hire independent contractors how would it impact your business
Most of you depend on independent contractors to win business, manage your costs, and keep your businesses afloat. Without your contractors, 45% of you said you could be out of business.
4. Majority of independent contractors anticipate losing 76% or more of their business
contractors: how much work would you lose
We asked those of you who are independent contractors what percentage of your business would go away if the law changed and you had to be hired as W-2 employees instead of contractors.
Of 5,730 respondents, 61% of you said you would lose 76% or more of your business.
There are two reasons you’d lose business
Companies won’t be willing to incur the added expense
You don’t want to work for a company; you want to work on your own
top reasons why work would go away if the PRO Act passed
- Freelancing is critical for surviving a crisis
freelancing importance to SMBs for Covid crisis survival
So many of you depend on freelancers. Of the 9,059 of you who responded to this question, 73% indicated in one manner or another that having access to freelancers was critical for surviving the COVID crisis.
6. For many of you, having multiple jobs enables survival
side hustles are important for survival for 37% of small business owners
Of 11,606 of you who responded to this question, 37% reported having a side-hustle to generate extra income during the COVID crisis, which helped you keep your main business afloat.
Could Provision B in the PRO Act Bring Down Small Business?
Clearly, there would be a huge impact on you, your businesses, and the small business economy if the PRO Act passes. Given that 81% of all small business owners are solopreneurs, we’re not sure when small business would ever bounce back.
Lila Stromer of Lila Stromer Editorial Services, one of our members who brought this legislation to our attention, 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?”
But if the PRO Act never becomes law, “…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.”
What Can You Do About It?
If you have concerns about the PRO Act, please contact your legislators. Here are some links to help you learn more about it and to find your legislators’ contact information.
Resources to learn about the PRO Act
Read the Legislation
How each House Representative voted
Understanding the impact of the legislation
In Favor of PRO Act:
AFL-CIO
Against the PRO Act:
U.S. Chamber of Commerce
State Policy Network
NY Times - Op Ed
About the California Law: CA AB5
Contact your representatives
Senate Committee on Health, Education, Labor & Pensions
Listing of all US Senators
Want to discuss this with other small business owners? Here are a few groups to join. Or head over to the Groups page to find more.
Opportunities for Freelancers
Solopreneur Alliance
All About Etsy
Side Hustlers
The more we all work together, the better our chances of squelching this legislation that could be hugely detrimental to the small business economy.
What are your thoughts about the bill? Weigh in below in the comments section.