Portable Benefits and the Gig Economy: A Backgrounder

The debate surrounding the gig economy has cast light on workers who depend for their livelihood on multiple sources of income.  For example, an Uber driver may also be working for Lyft, and a freelance website designer may have five clients at the same time.  But when classified as contractors, these workers may miss out on employer-provided health benefits, unemployment, worker’s compensation, paid sick days, and more.

In a letter titled “Common ground for independent workers,” a group of tech gurus, union leaders, and startup CEOs recently called for a change in how benefits work.  As they argued in the letter: “Everyone, regardless of employment classification, should have access to the option of an affordable safety net that supports them when they’re injured, sick, in need of professional growth, or when it’s time to retire.”  Their call to action pushes for “flexibility and stability”: the flexibility to work multiple jobs, temporarily or long term, with varying schedules—all while experiencing the stability of a safety net.  Workers’ benefits, they say, shouldn’t be tied to an employer. They should be portable.

What are portable benefits?

The idea behind portable benefits is simple: workers would receive benefits that are tied to the workers themselves, not to their employer.

For example, entrepreneur Nick Hanauer and SEIU international vice president David Rolf propose a “Shared Security System”—essentially, a Social Security-like system that encompasses all employment benefits and is docked directly from a worker’s pay.  This includes health insurance, worker’s compensation, unemployment, paid leave and sick days, retirement matching, as well as Social Security and Medicare.  The system must be portable, following the worker from job to job. Further, they suggest the system must be universal—mandatory across employers and employees.  The system could be administered by the government, a new public-private entity, a bank, or a credit union.  Alternatively, Sara Horowitz, founder and executive director of the Freelancers Union, suggests shared accounts administered by non-governmental entities like unions, faith-based groups, or nonprofit.

Hanauer and Rolf also suggest coupling the Shared Security System with a series of policy changes: Shared Security Standards.  These include laws mandating employers to heed paid leave accrued in one’s Shared Security account, raising the minimum wage, and providing protections around pay equity and scheduling.  The combination of the new system with additional laws, they argue, would provide gig economy workers and freelancers with both flexibility and security.

Some worker benefits are already portable, in a sense.  Most employers must cover their employees under worker’s compensation and are liable for payments under unemployment insurance by law, for example.  Such a requirement effectively makes these benefits portable: no matter where you’re employed—assuming you qualify as an employee and are not classified as an independent contractor (see immediately below)—you are guaranteed to be covered by workers’ comp and unemployment.

Furthermore, the Affordable Care Act has made it easier to buy individual health plans, especially since losing employer-provided healthcare from switching jobs is a “qualifying life event” that allows you to enroll in a new plan outside of an open enrollment period.  This gives workers a little more flexibility to move from job to job, without feeling as locked in for fear of losing benefits.

The issue being addressed here, however, is that most states exempt independent contractors from being covered by workers’ comp and unemployment.  Furthermore, not even all employee benefits are portable. While employees accumulate sick leave, pensions, and vacation time over the course of their employment, these benefits are administered by a particular employer and do not transfer.

The new benefits system aims to solve both these problems in two steps: first, it makes every benefit portable; second, it makes these benefits available to all workers, regardless of classification.  With portable benefits, the traditional lines between employees and independent contractors get blurred.

Who would pay?

Some suggest that these benefits would be paid for directly by the worker, who would be able to use the same health plan or contribute to the same pension plan no matter what job they held.  Benefits are often more readily available for employees (especially at medium to large firms) because deals struck by employers mean workers can get more perks for a smaller price.  Without these economies of scale in effect, though, individual workers likely face unaffordable plans.  To help defray these costs, the government could provide tax credits to workers who use portable benefit plans.

Others, like Hanauer and Rolf, propose a system where the employers pay for the benefits pro rata.  Like Social Security and Medicare today, the benefit costs could be calculated by the hour and partially covered by the employer: you could drive for Uber for 25 hours and Lyft for 15, and the costs would be pooled proportionally.  This directly counteracts employers who force part-time work upon their employees in order to avoid providing benefits.  Alternatively, contributions could be allocated based on money earned or jobs completed—a system that could extend to Etsy or eBay shops.  Data sharing between employers, Tim O’Reilly notes, could be made easier by the fact that scheduling is already largely handled by software, and payroll by outside firms.

Steven Hill of the New America Foundation, in his paper “New Economy, New Social Contract,” points out that plans that involve payments from multiple companies already exist—just look at the construction industry, for example.  Workers are hired for particular jobs and will likely have many different employers over the course of a year.  This group of companies work with trade unions to provide benefits to workers, known as multiemployer plans, through collective bargaining.  Employers provide funding pro-rata.  While multiemployer plans have run into funding issues and benefit cuts recently, the broader nature of multiple employers paying into a single fund could still serve as a useful model.

Because freelancers and independent contractors cannot unionize, the portable benefit model proposed by folks like Hanauer, Rolf, Horowitz, and Hill may be the next best step.  Workplaces provide funds pro-rata to a separate account, and workers would tap into this account to fund health insurance, pay into worker’s comp and unemployment insurance, and process which employer must provide paid sick days and leave.

What’s missing?

As it stands today, employees still have more protections that the gig economy’s independent contractors would be interested in.  For example, they wouldn’t be protected by OSHA—contractors are responsible for protecting their own safety and health.  They also still wouldn’t be able to unionize or collectively bargain.  Furthermore, independent contractors are not protected by Title VII, though other antidiscrimination laws may apply.  While not perfect, a portable benefits model could fill in serious gaps when it comes to providing gig economy workers with a safety net.