August 2, 2017

Old Benefit Models Don’t Cut It in a World of Contingent Work



The rapidly changing nature of work in the 21st century has been a source of increasing concern for American workers and policymakers alike. We’ve heard about lost manufacturing jobs, the decline of the construction industry, coal miners left behind by political elites, and so on. Yet the most significant changes in the labor force are not happening in any single industry. Rather, the last two decades have witnessed a fast-growing contingent workforce that cuts across multiple sectors and skill levels.

Though usage varies, “contingent workers” is generally defined to include independent contractors, freelancers, and temporary, seasonal, and part-time workers. The imprecise definition of contingent work makes tracking the exact number of individuals in the contingent sector a tricky task. Best estimates find that anywhere between 20 and 33 percent of the U.S. workforce today consists of independent workers, which encompasses contractors, freelancers, and temps. When part-time workers are added, the proportion of the labor force engaging in contingent work rises to 40.4 percent, according to a report by the Government Accountability Office. By some estimates, the entirety of the net increase in employment over the past decade can be explained by the additional 9.4 million people that joined the labor force in “alternative work arrangements.”

Some industries are embracing this development more quickly than others. In oil and gas, reportedly 77 percent of employees now reside outside of the core organization. The rise of online independent contracting platforms like TaskRabbit makes such outsourcing easier, with approximately one million workers having earned over $1 billion over the past 10 years through “on-demand” services.

Due to their classification, many contingent workers lack access to both employer and government-provided benefits tied to full-time employment, including health insurance, paid leave, and unemployment insurance. Compared to standard full-time employees, contingent workers also experience lower pay, more job instability, higher levels of poverty, and greater dependence on government assistance.

While these issues have thus far been undercovered in the public policy arena, a growing number of advocates and policymakers have started to pay attention. This past May, Senator Mark Warner (D – VA) introduced legislation that would establish a $20-million federal fund to provide grants to experiment with “portable benefits.” A similar bill was introduced in the House by Rep. Suzan DelBene (D – WA).

The concept of portable benefits is straightforward enough: employment-related benefits that attach to the worker rather than the employer, such that the worker carries benefits over when moving between jobs, and may even have multiple employers contribute to his/her account simultaneously.

Under Warner and DelBene’s proposal, the Portable Benefits for Independent Workers Pilot Program Act, the Department of Labor would issue grants for innovative pilot programs to states, local governments, and nonprofits, including unions. $15 million of the theoretical fund is meant to be allocated to designing, implementing, and evaluating new models, while the other $5 million is dedicated to assessing and improving existing portable benefits models.

In a press release, Warner’s office emphasized the need for “innovative thinking,” stipulating that “programs focused solely on retirement-related benefits will not be eligible” for a grant. Applicants are encouraged to design models that provide an array of work-related benefits, such as retirement savings, workers’ compensation, life and disability insurance, sick leave, health care, and others. To ensure that the fund serves its purpose, the Secretary of Labor is directed to prioritize programs that have greater potential to be replicated on a large scale or at the national level.

While the federal government works to catch up to the changing workforce, some states and private corporations have already implemented their own portable benefits programs. Last December in New York, the home cleaning service Handy sought to preempt any lawsuits over employee misclassification by floating a draft of a plan that would give workers at participating “gig” companies the option to acknowledge, in writing, that they are correctly classified as independent contractors. In exchange, the companies involved would contribute 2.5 percent of the fee for every job to a pre-tax individual savings account for each worker, which the worker could use to purchase health insurance or other benefits.

New Jersey Assemblyman Troy Singleton recently introduced a bill that would require companies with 50 or more freelance or contract workers who have been “employed” for 12 continuous months to set aside 25 percent of every sale, with the money going to a qualified benefit provider chosen by the worker attached to the account. The benefits purchased with these funds would remain with workers from job to job. A similar measure is being considered in Washington state’s congress to provide portable, pro-rated, and universal benefits to contingent workers.

Not everyone is a fan of these proposals. 32BJ SEIU, the largest union of property service workers in the U.S., has objected to the bills in New York and New Jersey on the grounds that they deny workers employee status, stripping them of the right to unionize or file legal complaints. While Handy’s bill is reportedly not a final draft, Handy affirmed that it is “in favor of some form of portable benefits.”

Whether a portable benefits model can be designed to assuage, if not satisfy, the concerns of all stakeholders remains to be seen. Experimentation of the kind Warner and DelBene aim to incentivize is a necessary step in developing a successful national policy. Of course, the prospects for their bill are uncertain, as it seeks to increase spending by the Labor Department at a time when President Trump wants to cut the Department’s budget by 21 percent.

There is hope in the fact that Sen. Todd Young (R – IN) has signed on as a cosponsor, indicating some degree of bipartisan support. Independent of the bill’s specifics, the issues it addresses will only become more pressing in coming years.

Katy Li is a Poverty and Welfare Intern at the Niskanen Center