A new policy brief explores how policymakers can reform existing labor laws to encourage more flexible work arrangements. 

Mercatus Senior Research Fellow Liya Palagashvili describes two immediate challenges to the independent workforce: threats of reclassification by the government and limited access to portable benefits.

Palagashvili argues reclassification efforts like California Assembly Bill 5 (AB5) and the federal Protecting the Right to Organize (PRO) Act make independent workers worse off by offering few opportunities outside traditional jobs. Worker reclassification, she adds, limits opportunities and denies flexibility. 

In contrast with universal benefits (i.e. healthcare) offered to full-time employees by an employer, portable benefits would be decoupled from employers and follow individual workers regardless of work arrangement—W-2 or freelance.

Although the freelance economy has grown exponentially—with 60 million participants comprising 39% of the U.S. workforce—existing benefits programs are only tied to employer-employee work relationships. 

The policy brief calls for removing legal barriers on independent workers to access portable benefits in the following ways: urge policymakers, regulators, and the Internal Revenue Service (IRS) to nix mention of “benefits” from worker classification tests and give independent contractors access to Association Health Plans (AHPs) and to “allow them to deduct healthcare and retirement contributions from the self-employment tax earnings calculations.” 

The implementation of a portable benefits program would stipulate voluntary participation and multiple sources of contributions and directly tie benefits accounts to individual workers. 

Federal lawmakers agree and have explored options to modernize existing workplace benefits programs through innovative means. 

During the 117th Congress, a bicameral bipartisan group of lawmakers reintroduced the Portable Benefits for Independent Workers Pilot Program Act. The bill, if passed, would award a $20 million grant to the Department of Labor “to incentivize states, localities, and nonprofit organizations” to test portable benefits models for self-employed and gig workers. 

With half of the workforce expected to partake in flexible work arrangements by 2028, worker benefits programs should begin to reflect a changing economy.

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