Portable Benefits 101: What Are They, and How Do They Help Self-Employed Professionals?
As the American independent workforce continues to grow, the discussions surrounding non-employee and self-employed benefits and protections continue to gain steam.
A potential solution to this issue, portable benefits, has been receiving significant attention in the media.
Portable benefits are a proposed system that would allow an independent contractor, or their clients, to pay into a pooled resource that would provide independents with access to benefits guaranteed to traditional full-time employees. Such benefits would include health insurance and retirement plan options.
Portable benefits have been elevated to mainstream news lately as high-profile politicians like Democratic Presidential Nominee Hillary Clinton, Senator Mark Warner and former Department of Labor Secretary Robert Reich have mentioned and championed the issue.
The Argument for Portable Benefits
In Clinton’s Initiative on Technology and Innovation, the presidential nominee promises to make a commitment to “making sure our policies meet the challenges [families] face in the 21st century economy,” and that “as the nature of work in America changes, the government must do all that it can to update the safety net and ensure that benefits are flexible, portable, and comprehensive.”
Warner also believes it is critical to build a social safety net that can protect (and reward) independent contractors, and champions portable benefits as a solution to “invest in our work force.”
Since contractors typically aren’t eligible for tax withholdings, unemployment insurance, and healthcare or retirement options, both argue that the portable benefits system presents an attractive option.
Potential Process and Payment of Portable Benefits
Former DoL Secretary Robert Reich believes a portable benefits system is easily attainable. Citing Obamacare’s success for providing independents health insurance options and opportunities, Reich believes similar options for “income insurance” should be made available as well. Such a proposal suggests tax advantages normally given to employers would be instead applied to the individual worker.
Research efforts in this endeavor have already received DoL funding, and lawmakers in Congress have already looked to receive additional funding for establishing these portable benefits systems.
How Will Portable Benefits Be Funded & Implemented?
The discussed implementation of portable benefits has two potential paths:
- Companies hiring independents pay into a fund for each independent (depending on the hours/deliverables to which they are committed). This process creates an obligation for enterprises engaging independents to help provide the entitlements these independents forego by declaring themselves non-employees.
- The government sets up a system by which workers could take and retain benefits from client to client. This process would create a seamless option, very similar to how traditional employees gain benefit access with each employer.
Portable Benefits Realities
MBO Partners has been a contributor to the portable benefits conversation since 2008. As part of our suite of services, we have provided the aforementioned entitlements to independents for over a decade (generally referred to as portable employer benefits).
We have looked at the heart of the matter, giving these independent workers the ability to create an employment capability for themselves that can be taken from project to project. Specifically, MBO offers these workers access to the power of their group purchasing to access healthcare, disability and business insurance, as well as 401(k) options for retirement saving. Their “accounts” afford them the ability to secure benefits regardless of type of or number of clients and projects.
A New Race to the Bottom?
It is clear that these benefits can be packaged up properly for the high-earning independents, however, there is a need to focus on those working across working groups that may not have the pricing power to incorporate benefit costs to their bill rates. For example, a ride-share driver or a dog walker may still encounter difficulty in factoring benefits like health care into their own bill rates.
For the independents engaging via a platform (e.g., Uber, Lyft, Handy), the debate lies with whether that marketplace or platform has the “employer” responsibilities. That may depend on how many of the platform workers are truly dependent on this “gig” work as a primary income source. While sharing economy data shows most are supplementing their incomes via these platforms, there remains a portion of individuals fully dependent on the gig economy and thus need protections. Lyft has already created a portable program for retirement benefits, proving that establishing such benefit systems is an achievable endeavor.
In the new gig economy, all parties in a contract must proceed carefully; when independents provide commoditized services, there is a risk that the market will drive the pay of these services, creating a race to the bottom and thus a dangerous environment for those looking to afford certain benefits and entitlements. It is for this market segment where a solution is obviously needed.
As a result, issue at hand for lawmakers is not so much how an independent can obtain or retain benefits – companies like MBO have proven this can already be done – but how much education must be given to show independents at all ends of the spectrum how to properly source and finance these costs. Education – and to some extent, client participation or assistance – may be needed in greater quantities at the lower end of the spectrum.
Alternatives and Future Options
As the debates and conversations continue, portable benefits remains a topic people are hard-pressed to better understand. While intimidating, implementing such a nationwide program does not need heavy lifting or legislation from lawmakers – just the knowledge and technology to successfully execute such programs.
The nuances of worker benefits and protections, however, do present some interesting decisions our government will be pressed to make as the independent contractor population continues to grow. We dive into alternative solutions ourselves, which is detailed in our Certified Self-Employed proposal.
We welcome your thoughts and comments on the situation as well. For more information, or to continue the conversation with our thought leaders, contact us directly.