Rise of Portable Benefits in a Gig Economy
There are two contradictory facts at play today: (1) most benefits are tied to employment, and (2) a growing number of people aren't working as employees, and instead are independent contractors in the gig economy. According to a 2016 study, “The Rise and Nature of Alternative Work Arrangements in the United States, 1995-2015,” 94 percent of net employment growth in the U.S. between 2005 and 2015 occurred in the gig economy.
Portable benefits are defined as work-related benefits provided to eligible workers that they can maintain upon changing jobs or leaving a company for independent contractor work. These benefits arise from contributions by employers, employees, or a combination of both.
Currently, there are some benefits that are portable. These include:
- Vested benefits in retirement plans. Some contributions vest immediately, such as employee contributions to 401(k) plans and SIMPLE IRAs. Some contributions vest over time, such as employer contributions to various types of qualified retirement plans. Vesting schedules vary with the type of plan and other conditions.
- Health savings accounts. These health-related savings accounts are funded by employers, employees, or a combination of both as long as the employees are covered by a high-deductible health plan.
At present, employees may enjoy a variety of benefits at a company, but will lose them when they leave. These include:
- Flexible spending accounts (FSAs) for health or dependent care. Employees' pre-tax contributions to an FSA may be forfeited if they are not used up when changing jobs.
- Company stock and stock options. Stock may be forfeitable upon leaving the company before a set period. Stock options usually must be exercised within a small window (e.g., 90 days) of terminating a job.
- Other fringe benefits. These include transportation assistance, education assistance, life and disability coverage, and more.
Security Net for Independent Workers
The menu of fringe benefits offered to employees has been designed over the years to provide a significant supplement to wages. These benefits are needed to provide a measure of security. Benefits include health insurance, retirement savings, disability coverage, life insurance, workers' compensation for job-related injuries, dependent care assistance, and unemployment insurance.
Today, with more than one-third of workers no longer employees but rather engaged in the gig economy — a number that is projected to perhaps reach 50 percent by 2020 — the concern for security for these workers is growing. The safety net concern for these workers is prompting concern about portability benefits for them.
At present, independent workers in most cases cannot be protected by workers' compensation, unemployment insurance, or short-term disability. They do not accrue sick pay, vacation pay, or paid personal days.
They can provide their own retirement savings with their own money via:
- Qualified retirement plans, such as solo 401(k) plans
Additionally, certain benefits not tied to employment can be purchased on an individual basis, often at higher costs. Some of which include:
- Health insurance
- Health savings accounts
- Long-term disability
- Life insurance
Things may be changing. For example, Care.com offers their babysitters and other caregivers (who are independent contractors) up to $500 per year that can be used toward such benefits as health care, transportation, or other work-related expenses. This benefit is funded by a surcharge to clients who use their services.
Senator Mark Warner is advocating the creation of a $20 million fund for the Department of Labor to disburse to states, local governments, or nonprofit organizations to craft pilot programs for portable benefits. The Portable Benefits for Independent Workers Pilot Program Act (S. 1251) would help find solutions to make more benefits portable when workers change jobs.
There are several states also pushing for portable benefits for workers in the gig economy, including California, New Jersey, New York, and Washington, where proposals are pending. What will happen going forward? It's likely that there will be some changes to accommodate employees who change jobs and workers in the gig economy. When those changes will come, and what they will be, remains to be seen.