Summary
What It Is
The worker is an owner of the business entity where he or she works. There are no employees.
What Problem It Solves
Employee labor laws add administrative costs. All the procedures set forth in these laws to protect and support employees in an owner governed business may not be applicable in a business where workers share governance with the owners. Also, the stigma of being an employee carries with it attitudes that hamper the success of the business.
How It Works
The Workerle is a limit liability company (LLC). Every worker is a member (i.e., owner) of this LLC and labors as such. The capability of the LLC to hire members as employees is not utilized.
Discussion
The legal structure of a Liberty Workforce business is bifurcated. There is a legal entity which owns the assets of the business. It is called the Ownerle. There is another legal entity formed as a limited liability company (LLC) which performs the work of the business. It is called the Workerle. The owners of an LLC are called “members”. Each worker is a member of the Workerle in this sense.
An owner or member can, if he chooses, also be an employee of the company he owns. But, this is not required. The bifurcated legal structure provides the option of having the workers to just be members or to be both members and employees. Either as a member only or as a member-employee, the worker will receive essentially the same net compensation. It is just called something different in each case and is reported in a different place on the worker’s tax returns. However, it is more advantageous for the workers to be only members, and not employees.
Advantages to the Worker of Being Only a Member
One of the main goals of the Liberty Workforce model is for the worker to think and act more like an owner. The model seeks to create a culture where workers take initiative and responsibility like owners do rather than waiting to be told what to do. Eliminating the employee status will create a symbolic break with prior worker experiences that will provide room for this new owner paradigm to take root and flourish. While even in a small business where the owner is legally an employee, there is a class difference between the owner and the employees. The owner cannot be fired. He makes the decisions. The employee is hired and fired by the owner. He does what he is told to do. In a normal corporate environment, there are artifacts of labor laws that preserve this “us-them” mentality. Managers are usually exempt from US Fair Labor Standards Act while most workers are not. Consequently, the labor record keeping for workers is different than for managers. This artifact reinforces the false notion that management and labor are different. To achieve the highest performance, a business needs to break this “us-them” mentality and bring everyone together as one with a single, common purpose. While being mostly symbolic of this aim rather than substantive, nonetheless, eliminating the employee status will help accomplish it.
If employee status is used, then the workplace will be under the state and federal labor laws. The workers will not be able to decide for themselves how they want their workplace to be. If they do not become employees, they can pick and choose which laws are appropriate for them. For example, if they want to work at home, they will not likely have to be concerned about having homes comply with the US or state OSHA. A key feature of the Liberty Workforce model is that the workers compensation is proportional to the business’ performance in the market place rather than the hours the worker spends at work. Labor laws like US Fair Labor Standards Act require compensation that is at or above a minimum hourly wage. This law runs counter to the philosophy of Liberty Workforce. Where workers choose the employee status, their choices will be limited by law. The workers will have the most freedom to govern in the workplace if they choose the member only status.
While definitely a minor advantage, if the workers choose the member only status, their costs will be lower because they do not have to comply with all the paperwork requirements of the labor laws.
Disadvantages to the Worker of Being Only a Member
There are several disadvantages for the worker who is only a member rather than a member-employee.
- It does not appear that the worker will be able to receive unemployment. However, the member only worker does not have to pay the unemployment tax. Furthermore, the Liberty Workforce workers have control over whether there will ever be lay-offs.
- Member only workers are classified as self-employed. As such, if they have less than two or three years’ time with the Workerle, they might have difficulty applying for loans. The Workerle may be able to generate a report that satisfies the loan underwriter’s requirements, but only time will tell if this is possible.
- Member only workers are subject to federal self-employment tax. This will not reduce their net pay because their compensation will be increased to cover it. Nor does it change the cost nature of the business. It just changes who pays it. However, it is something new and might appear less acceptable than being an employee. Employees have to pay this tax also, but our devious politicians have hidden it from them. The employer is forced to pay half of the tax. The employee never sees this. The other half of the tax is deducted from the employee’s paycheck so that it never gets into his hands.
- Incentive stock options will not be possible because they can only be given to employees. But non-qualified stock options will still be possible. The Ownerle could grant stock options to Workerle as part of the lease which could then be re-distributed to workers.