If your organization is using gig workers, independent contractors or freelancers, it’s time to rethink what benefits you provide to this class of workers.
The Gig Economy is Here to Stay
From 2005 to 2015, 94 percent of net employment growth in the U.S. economy came from alternative work arrangements, according to a 2016 study by economists Lawrence Katz and Alan Krueger. Additionally, 51 percent of employees said they are interested in contract or freelance work as opposed to a full-time job, according to MetLife’s annual U.S. employee benefits trends study published in April of 2018. If freelancing continues to grow at its current rate, the majority of U.S. workers will be freelancing by 2027, according to projections in the Freelancing in America Survey published in 2017.
These days, the makeup of who chooses to be independent is changing. Today’s independent workers aren’t necessarily in it for the cash (though some do make more as freelancers); they value the flexibility, lifestyle and professional development opportunities that freelancing brings. Oftentimes, these free agents are subject matter experts in their fields; rather than accepting any gigs that come their way, they’re choosing the opportunities that fit into their agenda.
From a business perspective, utilizing independent workers isn’t all about saving money anymore. It’s also about finding the right people for the right tasks. Katie Perry, Editor of AND CO, argued that modern workers’ desire for flexibility and change is in fact a great benefit for employers:
The modern career path differs from that of generations past in that it’s marked with near-constant movement and change. For employers, this leads to situations in which people are matched to specific objectives, rather than dated job roles that may or may not be fully applicable at any given moment.
Additionally, in today’s highly competitive labor market, employing contractors is an under-rated way of finding full-time talent. According to Garrison Wynn, consultant author of Amazon best-seller The Truth About Success:
The most talented people who have the most to contribute to a business’ bottom line are not beating down your down and showing up for interviews. Taking short-term contracts and contractors and gig-style employees can be a great way to find some of the best long-term, permanent individuals”
Why Businesses Need to Offer Benefits to Independent Workers
While it may seem advantageous for businesses to not spend cash on benefits like health insurance, tax-advantages savings accounts, sick leave or disability insurance for gig workers, this isn’t the best long-term solution.
For one, not all freelance workers have the means to secure and pay for their own benefits. Those who skipped the process altogether are put into a vulnerable position. For example, when a worker without disability insurance gets into an accident, they can find themselves without a source of income, perhaps for a long time. Research has shown that worries about finances hurt worker productivity, and it can literally make workers sick.
At this time, the federal government is starting to address the safety net issue. In May of 2018, the Portable Benefits for Independent Workers Pilot Program Act was into Congress by Sen. Mark Warner (D-Va.) and Rep Suzan DelBene (D-Wash.). If approved, it would establish a $20 million grant pilot program at the U.S. Department of Labor. Under the proposal, states, local governments and nonprofits would get $15 million to design, implement and evaluate new programs to provide benefits or $5 million to assess and improve existing models for portable perks for independent workers.
Senator Warner called the bill a necessary response to the shifting workforce: “As more and more Americans engage in part-time, contract or other alternative work arrangements, it’s increasingly important that we provide them with an ability to access more flexible, portable benefits that they can carry with them to multiple jobs across a day, a year, or even a career,” he says.
Companies themselves are making proactive adjustments. For example, Microsoft recently announced a new policy that requires their contractors and suppliers to booster their paid parental leave benefits. Microsoft said it was inspired by a new Washington state law for paid parental leave that takes effect in 2020.
In light of these trends, it’s no longer an option for businesses to ignore the benefits question.
If your business is thinking about taking on more independent contractors (or if you already use them), now is the time to figure out how you will apply benefits and perks to reward these workers. Providing meaningful benefits to gig workers can dramatically improve their financial security, reduce their stress level and increase their productivity. Also, your actions will speak volumes about your employer brand, which impacts your ability to retain and acquire talent.
The Challenges of Providing Benefits To Gig Workers
Providing benefits to gig workers — health insurance, tax-advantaged savings accounts, disability insurance, etc. — is more challenging than providing benefits to full-time workers. If an employer offers benefits such as group health insurance, it could mean the organization has to classify its on-demand workforce as employees, which results in additional tax and wage requirements for a business.
Also, putting together a meaningful benefits package for gig workers is doubly hard because your gig workforce is likely more diverse than your full-time one. For example, if you have one driver who works one hour a week and one driver who works 40 hours a week, how can you reward both in a way that feels consistent and fair? Below, we’ll provide some ideas to get you started.
Companies That Are Experimenting With Benefits For Gig Workers
Etsy, the online handicraft retailer, is leading the way when it comes to developing benefits for contingent workers. In 2016, Etsy published a policy proposal that outlined a new form of “social safety net” for gig workers, including Etsy sellers as well as Uber and Lyft drivers. The premise of their public policy proposal is that gig economy participants need three things they’re lacking currently:
- A single place to management benefits, regardless of income source. They proposed that workers should have a Federal Benefits Portal, which would tie all benefits (retirement, health insurance, paid leave, tax-advantaged savings accounts, disability, etc.) to the individual, providing a single place to view, choose and pay for their benefits, regardless of where or how they earn income.
- A single, common way to fund those benefits. In the gig economy, workers can’t rely on payroll as the vehicle to administer benefits. Etsy proposed using tax withholdings as the universal means to administer benefits contributions, enabling both employees and 1099s to withhold their Social Security and Medicare taxes from their pay, as well as an additional percentage of pre-tax income to fund benefits. All withheld pay and matching contributions would be routed to an individual’s account on the Federal Benefits Portal, where they could allocate consolidated contributions across plans.
- A way to manage income fluctuations. To mitigate gig workers’ income volatility due to the lack of income protections like unemployment insurance, Etsy put forth the idea of combining all existing tax-advantaged savings accounts (health, dependent care, parking and transformation) into a single MyFlex Account, which anyone could use to manage short-term income fluctuations throughout the year. To manage more catastrophic income loss, they proposed expanding the Earned Income Tax Credit and allowing it to be administered quarterly.
Care.com — a company that helps families find caretakers for children, pets, the elderly etc. — has launched a “peer-to-peer” benefits program that allows families who hire caretakers through the platform to contribute to their healthcare and other expenses.
Uber, Postmates and Wonolo
These organizations have decided to leverage third party benefits startups (Stride Health, Zego and Bunker) to help workers find insurance, according to the venture capital research firm CB Insights.
Key Things to Consider for Benefits Design
So what approaches should you consider? Mark Feffer at SHRM offered employers some suggestions on how to give freelance workers benefits without running the risks of causing them to be re-classified as full-time employees. Experts say that it’s important to recognize several things when designing a benefits package for gig workers.
1. More than money
First, understand that freelancers consider more than money when deciding whether or not to take on a project. It’s not really about tangible benefits so much as how you make these workers feel. To start, gig workers want to work with well-run businesses that treat them with respect.
“When we ask our customers why they liked or didn’t like a particular client, the No. 1 thing they talk about isn’t money — it’s about the client recognizing their value and treating them with respect,” said Zaino, whose company provides back-office support to independent workers. “Independents want to feel as if their work is making a difference”.
With this idea in mind, you can ensure that gig workers feel respected and valued by:
- Paying them on time.
- Awarding bonuses for hitting key milestones and contributing to overall team goals.
- Including them in your company’s social events or L&D opportunities (e.g. speaker series).
- Offering discounts and deals to your company’s products for the duration of their contract.
Related content: 5 Ways to Compensate Remote Workers to Keep Them Engaged.
2. Give them tangible, portable benefits
As we mentioned above, gig workers often lack the safety net that corporate employees enjoy. To take a leadership position, give gig workers tangible benefits that can increase their spending power or otherwise improve their financial wellness. For instance, while you cannot provide paid health insurance to gig workers, you can offer them access to other health and financial benefits as long as these benefits are portable (can be accessed after their assignment with you ends).
For example, Uber and Etsy both provide Stride health to their gig workers. Stride Health, launched in 2013 — is an online insurance broker and helps workers find health coverage under the Affordable Care Act. The company’s online platform includes more than 230 insurance carriers; it’s free for consumers to use the service, as the company takes commission from insurance company plans featured on their platform.
Alternately, you may allow freelancers to participate in financial and health wellness programs your company already offers, provide them access to professional training, or access to auto, home and other types of insurance.
3. A one-size-fits-all approach will not work
According to Jeff Yaniga, Chief revenue officer of Maestro Health, a Chicago company that operates the health and benefits platform maestroEDGE, you should recognize that independents work under a range of circumstances. Benefits should be tailored whenever possible (the same goes for your full time employees). For example, a work-from-home mom may value a day-care benefit while a graduate student would rather have you reimbursement them for textbook purchases. The point is, make sure to ask your workers what they want!
The way you treat your contingent workforce has repercussions on their productivity, your reputation and your business results. When treat your gig workers with respect and provide them with solid benefits, you establish yourself as a progressive organization and that has ripple effects on your ability to retain and attract employees.
Tell Us What You Think
Do you have benefits ideas that will meet the needs of gig workers? If so, tell us what you think in the comments below, or send us a tweet.