What US Immigrants Need to Know About Being Independent Contractors

portrait of asian woman showing direction to the driver using GPS in her mobile phone
The life of an independent contractor isn’t for everyone

Many immigrants have an entrepreneurial spirit. Some start a business, while others prefer to become independent contractors. However, choosing between traditional employment and self-employment is a tough decision.

Recently, the US government has placed greater restrictions on the gig economy and some forms of self-employment, putting some independent contractors at risk of losing their livelihoods. Undocumented immigrants face even greater risks thanks to the policies and raids of the Trump administration.

Yet there are also many issues concerning the lack of workers’ rights in the US and the perception of immigrants. These can make self-employment seem less risky.

What is an independent contractor?

An independent contractor is anyone who works for themselves offering a service to organizations. This includes those who start their own business and offer their services through this vehicle. Contractors often work for multiple companies on various projects.

Being an independent contractor involves lots of responsibility — they must take care of their taxes, manage their cash flow, and order their time.

Differences between employees and independent contractors

One of the primary differences between contractors and employees is how they interact with their clients. Although clients can request a specific service or product from a contractor, they can’t control how or when the contractor fulfills their request. On the contrary, employers can give specific instructions and commands to their employees. 

Another important distinction is pay. An independent contractor can be paid per hour or per project, whereas employees receive weekly or monthly pay checks.

Self-employed people also aren’t eligible for any kinds of employee benefits, like paid vacations or insurance. This is a huge disadvantage of self-employment to bear in mind, although the reduced tax burden and deductibles partly compensate.

Infographic about the differences between contractors and employees
Employees and contractors have very different lifestyles

Entrepreneurship for Hispanic immigrants in the US

Regardless of immigration status, anyone can become an independent contractor or start your own business — even undocumented immigrants can use an ITIN to file their taxes. Many immigrants have taken this route.

In 2016, 1 in 4 businesses in the country belonged to immigrants. The trend is particularly strong among Latinos, the fastest-growing group of entrepreneurs in the US. There are currently 4.3 million businesses with owners of Latino origin in the US, which contribute $700 billion to the economy each year.

Two researchers from the Peterson Institute for International Economics (PIIE), Jacob Funk and Gonzalo Huertas, found that Latinos are the immigrant community with the greatest capacity for entrepreneurship.

Despite the difficulties many Latinos encounter when trying to find credit and start a business, their success is undeniable.

Infographic about ITIN numbers
ITINs are essential for undocumented workers

Opportunities and challenges for US immigrants from Latin America

The decision to become an independent contractor depends on context. So, it’s important to discuss the current situation regarding US immigrants. 

It’s a demographic that continues to face many challenges but has also seen lots of successes over recent years.

The successes of Latino immigrants

The media often portrays immigrant workers in the United States as farmers who work from sunrise to sunset as maids or housekeepers. Especially Hispanic immigrants.  In reality, many Latinos living in the United States work in education, health, and social services.

In the past, most Latinos worked in the construction industry, and it still employs many people in this demographic. But times are changing and Latinos are moving into different industries. As well as the sectors mentioned above, Latinos are entering the arts, entertainment, hospitality, catering, and tourism industries.

In terms of specific roles, the most popular jobs are administrative support, secretarial positions, sales, and construction. More skilled jobs gaining traction among immigrants are machinery management, electrical systems management, water and heating management, supervisory roles, management,, and engineering.

Hierarchies are changing too. Over the last decade, many Latinos have climbed to higher positions on the corporate ladder. They now occupy 8% of all managerial positions, up from 7% a few years ago. There’s still a long way to go, but it’s a promising start. 

Although historically Latino immigrants have suffered from limited education, this is changing too. Now, around a quarter of Hispanic immigrants over the age of 25 have a Bachelor’s degree. This trend is expected to accelerate in the future, with more Hispanics in positions of power and influence.

Happy Attractive Hispanic Family Portrait Outdoors In the Park.
Latin workers have had a great impact on the US economy

Impact of Latino immigrants on the economy 

The US is a country of immigrants; this is more true than ever thanks to the explosion of the Hispanic population in the nation. Now, 18% of US citizens are of Latino origin, or 60.6 million people. According to estimations, by 2060 one in four will be Latinos, or 119 million people.

Far from a strain on resources, these immigrants have had a huge positive impact on the economy.

Considering the number of Latino immigrants working in the US, it shouldn’t be surprising that they contribute $2.3 trillion anually to GDP. If Latinos living in the United States were a country, they would be the eighth largest economy in the world. Impressive, right?

One thing Latino immigrants have in their youth compared to other ethnic groups. As the Latino workforce grows and the number of people of working age increases, they’re likely to make an even larger contribution. Currently, nearly half of Hispanic immigrants are under the age of 18.

Clearly, despite the xenophobic discourse encouraged by the US media, Latinos are far from a public burden — in fact, they’re vital for the future of the country. Although some Latinos may flout taxes or dodge the law, it’s clear they’re not the majority.

Challenges for Latino immigrants

However, Latinos seem to be at a disadvantage compared to other races. The annual income of a Latino who works full time is just $30,048 — far less than the average for other ethnic groups in the US. 

Asian Americans earn $51,288 per year on average, making them the highest earners, followed by white workers ($47,958) and black workers ($31,082).

Even worse, wage growth for Hispanic workers has been particularly slow. Between 1980 and 2010, the salaries of Hispanic workers grew by just 11.9%, compared to 36.7% growth for Asian Americans and 23.3% growth for white workers.

Although the number of Latinos in education is increasing, they’re still behind other immigrants groups. 49% of Asian Americans, 30% of whites, and 17% of blacks have higher education, compared to just 11% of Hispanics. However, this may be because of their preference for entrepreneurship over formal education and employment. 

Infographic about average salaries in the US
The US still faces lots of inequality

How do other countries see immigrants?

There are currently 164 million migrant workers across the globe. They’re more welcome in some countries than others.

Outside of the US, many countries see immigration as a tool to boost the economy. After all, immigrants can help with job generation and therefore economic growth. Let’s take a look at how these countries fare.

Hispanic contractors in the US
Immigrant workers aren’t always welcome

The case of Canada

Canada is among the countries that receive the most immigrants (alongside the US, UK, Germany, France, and Australia) — there were 321,040 immigrants in the country in 2018. Yet 68% of Canadians believe immigrants have a positive impact on the country, the highest percentage of any nation. In contrast, only 59% of US citizens have the same opinion.

In Canada, immigration is a meritocratic process that evaluates factors like education and work experience to select workers that fill skills shortages. It also takes on lots of seasonal agricultural workers.

The OECD recently praised Canada for its success handling immigration, saying it has “the most carefully designed and longest-standing skilled migration system in the OECD” and serves as a benchmark for other countries. Indeed, nations like New Zealand and Australia have adopted similar systems.

As developed countries like Canada face aging populations and low birth rates, immigration will become increasingly important. From 2026. Canada could lose 100,000 workers a year because of these factors. Something similar is likely to happen in the United States by 2035.

The case of Japan

However, not all countries share this attitude. On the opposite end of the spectrum is Japan, where immigrants make up just 2% of the total population. 

The Japanese government is strict about who it grants residence permits to and limits how long workers can stay in the country after receiving a permit. However, Japan has recently allowed more medium-skilled workers to fill the skills shortages caused by the aging population.

Considering Japan’s birth rate has jumped to the lowest point on record, it may need to reevaluate some of its anti-immigration policies.

The case of the US

Despite the obvious need for immigrants in the US, the public has a poor view of migrant workers. For the most part, only immigrants with large bank accounts are welcome.

The Trump administration has prioritized fighting against illegal immigration, to the point of wanting to construct a wall along the US/Mexico border. In reality, the majority of illegal immigrants in the country didn’t enter the country via the southern border.

Instead, they mostly enter legally through airports. Every day, 350,000 visitors arrive in the US by air as tourists, students, or other legal means. However, as these people overstay the time their permits allow, they become illegal immigrants.  

For instance, large companies like Apple or LinkedIn give out sponsored visas, but their hires often stay in the country after their contracts end and become illegal contractors without the correct visa.

Between 2010 and 2017, around 3.5 million undocumented immigrants entered the US; of that number, 65% had the correct visa when they first arrived. Indians were the most likely ethnic group to overstay their visa allowance, with 330,000 doing so between 2010 and 2017. The undocumented Indian community has now surpassed that of Mexico, which was previously responsible for the largest number of undocumented immigrants. 

Some of these workers then move into low-skilled work like customer service in clothing boutiques, restaurants, or supermarkets. They may also become independent contractors.

Why some independent contractors may turn into employees

Life as an undocumented immigrant in the US is stressful. There’s a constant worry the government will find out about your legal status and deport you, as well as the usual worries related to living away from home. 

In August 2019, the US Immigration and Enforcement (ICE) agents carried out raids in seven food processing factories in Mississippi and found 680 undocumented immigrants. The ICE arrested the workers, including 107 Mexican detainees.

Life is becoming increasingly precarious for immigrants living in the US, especially if they need to work on-site. The gig economy has been a saving grace for many, but this is also at risk now thanks to possible changes in legislation.

Uber driver in the car
The gig economy is attractive to many

AB-5 legislation

Gig economy platforms such as Uber and Lyft have attracted criticism for how they use self-employed workers, resulting in changes that could impact gig economy workers.

These apps take on drivers as self-employed contractors to cut down costs. Yet many of their workers are effectively employees, since they perform gig work for one company as a full-time job and have minimal control over how they work. 

The explosion of gig economy drivers is also frustrating for independent taxi drivers, who struggle to compete with the low prices. Consequently, the Californian state government launched AB-5 to protect contractors.

The bill would require companies like Uber to take on their “contractors” as full-time employees if they complete a certain amount of work for them. 

If the apps in question labeled their workers as employees, they’d have to offer them benefits like minimum wages, set hours, overtime, insurance pay (social security and Medicare), unemployment and disability insurance, workers compensation, and more. 

They’d also have to cover vehicle maintenance costs, since drivers currently use their own vehicles and must cover the expenses themselves.

The future of AB-5

If passed, AB-5 has the potential to bankrupt many gig economy apps. 

So, affected companies have sought an alternative where the drivers could be classed as contractors yet receive the benefits of employees. For instance, Uber and Lyft could lose $500 million annually if AB-5 is passed.

Various gig platforms have launched a $90 million ballot called Protect App-Based Drivers & Services campaign, which aims to put a referendum about the fate of gig drivers onto the ballot for the 2020 election.

Uber also claims the current arrangement allows drivers to set their own schedules and earn as they wish without being constrained by being employees. They believe this is a mutually beneficial arrangement for users, drivers, and company executives alike. 

It would be naïve to believe that Uber’s motives are completely altruistic, but the current flexibility of drivers does give them greater control over their incomes and hours. So, which is better: employee benefits but earning less, or earning more without employee benefits?

Infographic about AB-5 legislation
AB-5 will decide the fate of gig workers in California

The importance of unions and the lack of workers’ rights

According to the International Trade Union Confederation, the United States is one of the countries with the greatest systematic violations of labor rights. Plus, the National Labor Relations Board doesn’t even include agricultural workers or contractors.

Even worse, the United States is the only developed country that doesn’t provide guaranteed maternity leave, vacations, or salaries for hospitalized or ill employees (along with South Korea). It also offers one of the lowest minimum wages of all Organization for Economic Cooperation and Development (OECD) members.

People waving banners on strike, protection of employee rights, work conditions
The US scores poorly on workers’ rights

A history of decreasing rights

The main culprit is the pro-business and anti-unionist strategies the US has supported since the Reagan era in the 1970s. Yet unions tackle equality, wage stagnation, and boosting democracy and civic participation. In contrast, companies that promote anti-union ideas often violate workers’ rights.

After recent worker demands for unionization, the reaction of companies has been disgraceful. 57% of employers threatened to close operations, 47% to reduce wages or benefits, and 34% to fire union supporters.

In the 1950s, the union membership rate in the US was 35%; the current rate is just 10.3%. Over that time, income inequality has increased. Now, the hourly wages are lower than in the 1970s according to some types of calculation. The rich are richer; the poor are poorer.

Contact us for extra support

Whether you’re an employee or an independent contractor, there are advantages and disadvantages. Employees face decreasing rights thanks to the lack of union power; new legislation could put independent contractors into difficulty.

If you want to know more about the legal pros and cons of becoming an independent contractor or you’d prefer tailored advice, get in touch. You can call us on +1 (704) 243-6333 or visit us at 4801 E Independence Blvd, Charlotte, NC 28212. You can also get in touch using our contact form.

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