New proposed SEC rules would allow tech companies to compensate gig workers with equity in addition to cash. The proposed SEC rules were published on Nov. 24th and will cover five years. During this period, stock issuers will provide information to the SEC on how they handle this type of equity compensation. The commission will then assess if the rule is being used and works as intended. Equity compensation would be limited to 15% of the total compensation paid to the employee with a hard cap of $75,000 over three years. If the company in question is not public, they will have to take steps to restrict gig workers from reselling the equity – a provision that would not apply to public companies. Additionally, gig workers would not be permitted to negotiate to receive equity or cash.
Under the proposed rules, the compensation could be provided to gig workers that provide services through a market, but the rules could be extended to cover gig workers that sell products as well.
According the statement issued in connection with the proposed rules, the commission believes the gig economy is here to stay and will be an important part of the employment landscape coming out of the pandemic. The commissioners view this as way to help gig employees build savings in addition to receiving cash compensation.
The rules are not without criticism. The SEC’s Democratic commissioners said giving tech giants such flexibility would create an uneven playing field for other types of companies. Independent contractors and freelancers have existed in several other mature industries for decades, so it is not clear why the rule should be exclusive to the tech industry. In addition, would equity compensation be subject to the payroll tax and would any such tax be paid by the individual or the company? Will companies be permitted to issue restricted shares to gig workers (for example, shares that vest after a certain number of hours are worked)?