Even during a contentious election year, plenty of Democrats and Republicans agree on something: With millions of Americans earning money on freelance and gig platforms, it’s time to focus on innovative ideas to better incorporate this growing self-employed workforce.
Portable benefits — those tied to a worker rather than an employer — are rapidly moving to the top of a bipartisan agenda.
In fact, the next president and Congress, no matter who that happens to be, will have a realistic early opportunity to help a lot of workers.
Sen. Bill Cassidy (R-La.) made headlines over the summer for his interest in portable benefits reforms. Earlier, in April, the House Committee on Education and the Workforce held a hearing on the idea. Some members of Congress have even introduced a bipartisan bill on a portable benefits pilot program. At the same time, there is unprecedented momentum at the state level, including in Utah and Pennsylvania.
The core idea inspiring these reforms is the realization that our current policies force workers to choose between self-employment on one hand and access to common workplace benefits on the other.
Half a century ago — long before anyone could line up self-employment with a few clicks of a mouse — tax incentives were created to encourage our fringe benefits to be tied to traditional W-2 employment jobs. This unintentional policy now feeds into labor laws that restrict the flow of benefits to non-traditional workers. For a long time, this was not a big issue because most workers were traditional employees. But now that circumstances have changed, our laws are failing a large and growing sector of the workforce.
This does not have to be the case. Federal policymakers can equalize tax treatment between self-employed and payroll workers, create opportunities for flexible benefits and savings, and improve self-employed workers’ access to health-care benefits.
For starters, policymakers can legalize access to benefits for self-employed workers simply by stating that no federal agency can use the presence of benefits to determine whether a worker is an independent contractor or an employee. This would eliminate a risk that organizations currently face: If they agree to provide benefits to self-employed workers with whom they contract, they might be hit with large fees and penalties for misclassifying them. These penalties also create challenges for the workers, who may want to maintain a contractual relationship with multiple organizations.
At the same time, Congress should give self-employed workers the same tax advantages they give employees. This means allowing the self-employed workforce to create “cafeteria” plans, similar to what employees do under Section 125 of the tax code. In such a scenario, self-employed workers would contribute pre-tax income to their flexible benefits accounts, which could be used to make the same purchases possible in traditional employees’ cafeteria plans. These include retirement savings, health care, life and disability insurance, childcare and more.
Last but certainly not least, we should improve self-employed workers’ access to health-care benefits. This could include a range of options, from relaxing restrictions on portable health savings accounts to legalizing association health plans for self-employed workers. One simple, bipartisan solution is to expand Individual Coverage Health Reimbursement Arrangements to let self-employed workers use pre-tax dollars to purchase health insurance, whether on the private market or through the Affordable Care Act exchanges.
Some critics of portable benefits reforms want to force independent workers into traditional employment arrangements, arguing they will have access to the more complete set of traditional employee benefits and rights. But survey after survey shows that the majority of independent workers don’t want to be W-2 employees.
For some of them, independent work is merely a source of supplemental income to help meet financial needs. Others require complete work-schedule autonomy — in some cases for health or family reasons — so that independent work provides the only opportunity to earn income.
In fact, reclassifying independent workers into forced-employment arrangements has already backfired, harming the same workers proponents were trying to help. For example, California under Assembly Bill 5 — the nation’s strictest law against independent workers — saw a significant decline in overall employment and in self-employment for affected occupations.
For many Americans, self-employment is beneficial, desirable and even preferred — except insofar as it comes without access to common workplace benefits. Republicans and Democrats both like to position themselves as the “pro-worker” party. Both have a golden opportunity here to deliver for a giant segment of the working public.
Liya Palagashvili is a senior research fellow and director of the Labor Policy project with the Mercatus Center at George Mason University, Jonathan Wolfson is the chief legal officer and policy director at the Cicero Institute. They are authors of a new study, “Flexible and Portable Benefits for Independent Workers: Federal Policy Guide.”
