When millions of people who work for themselves or do gig work need healthcare coverage, where do they turn?
As independent contractors, they do not have access to workplace benefits that traditional employees enjoy, but that is a tradeoff they make for the flexibility of independent status.
Many independent contractors have healthcare coverage or retirement benefits they secure or gain from a spouse. As we explained in a policy focus, that’s not the case for millions of independent workers.
The left’s answer to this problem is to force mass reclassification of independent contractors as employees—against the will of independent workers and regardless of whether companies can afford to hire them as employees. California took this wrong approach by passing Assembly Bill 5 (AB5). Instead of gaining full employment and benefits, independent contractors lost incomes, contracts, and their livelihoods. Self-employment plummeted and unemployment rose.
State and federal lawmakers in red and blue states are innovating a better solution: portable benefits. The list of states advancing portable benefits legislation is growing to include Tennessee, Alabama, and Arkansas. We hope more get on board.
What are portable benefits?
Portable benefits are workplace benefits (such as healthcare, retirement, paid family leave, disability, etc.) that are attached to an individual rather than an employer. They are game-changers for independent workers.
Independent contractors such as freelancers, self-employed professionals, and gig workers cannot receive benefits from the companies that contract their services. Otherwise, they would be reclassified as employees, who are entitled to workplace benefits.
This is a trade-off that independent contractors make for the flexibility to set their schedules, work wherever they choose, and negotiate their pay.
By reforming laws, policymakers can clear the way for portable benefits plans. Portable benefits plans can be administered by banks, tech companies, or financial institutions and paid into by both the independent contractor and the entity hiring them for work. Critically, providing these types of benefits would not trigger a reclassification of independent contractors.
Portable benefits in the states
Legislation is currently pending in several states. If passed, they would join Utah, the pioneering state for portable benefits, and Pennsylvania, which piloted a program for portable benefits.
Tennessee, Alabama, Arkansas, and Virginia all have pending legislation to advance portable benefits plans in their states.
A common thread with these plans is that they are voluntary. Policymakers should not force businesses to adopt portable benefits; it should be a choice.
As more states see the value of these plans for their workforces, we hope new ones will jump on the bandwagon, heading off more ill-advised ways to expand benefits by reclassifying workers.
At the federal level, legislation has recently also been introduced to expand portable benefits nationwide. The Modern Worker Security Act, introduced by Congressman Kevin Kiley (R-CA), aims to create a federal safe harbor under federal law allowing companies to voluntarily provide portable benefits to independent contractors without risking reclassification.
While this bill does not supersede state laws like California’s AB5, it would be a powerful way forward.
Bottom Line
Independent contractors have been overlooked and undervalued for too long.
For the nearly 70 million people who are freelancers, the government should not dictate when, where, for whom, or how they work but should clear the way for them to work for themselves.
Portable benefits are a piece of their puzzle that provides them with economic security alongside freedom and opportunity.