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The modern workforce is undergoing a significant transformation, with an increase in contract positions replacing traditional full-time positions. This change allowed companies to reduce costs by not necessarily offering benefits to these contract workers, saving up to 25% on labor costs.
However, this strategy is not without consequences. As contract workers become more integral to a company’s workforce, denying benefits could hurt long-term growth and talent attraction. To stay competitive, businesses should start extending benefits to their independent contractors and 1,099 other workers.
There will of course be obstacles. As independent contractors, these workers will not be eligible for any group insurance programs, such as life, dental or vision insurance. To get around this problem, benefits brokers and HR professionals need to consider a new approach to employee benefits. Having over 30 years of experience advising organizations on their benefits, I believe lifestyle accounts are the answer.
Benefits and Independent Contractors
Not all industries use independent contractors, also called freelancers or gig workers. Yet for those who do, this segment of the workforce can be the cornerstone of their business. Industries such as construction, technology, healthcare, and marketing regularly rely on gig workers, who provide a high level of flexibility during times of crisis. That said, very few companies – if any – currently offer benefits to their gig workers. This, I believe, will change in the coming years, as more and more companies realize that they are in a difficult situation. war for talent for these essential workers.
Look at it this way. Anyone who works as a self-employed person knows full well that they have very limited protection against a sudden loss of income due to illness or injury. Even if they wanted to purchase coverage for themselves, most have limited or limited access to the benefits market. Under these circumstances, any organization offering employer-subsidized benefits to its gig workers would immediately become a very attractive employer. And with many businesses currently experiencing labor shortages, having attractive benefits packages has never been more important.
As for benefits that companies should offer, I would advise employers not to get bogged down in health benefits. Employer-provided health insurance, with its high premiums and tax deductibility issues, tends to take up 80% of the conversation when discussing employee benefits. This is a mistake that many employers make. They are too busy sorting out the details of health insurance and forget about other benefits such as life insurance, disability coverage and wellness programs. These are the benefits you should focus on when looking to attract independent contractors.
Lifestyle accounts
Again, the biggest problem with extending benefits to gig workers is that they are not eligible for group policies, which are typically the bread and butter of employee benefits programs. The IRS says that to be eligible for group policies, workers must be full employees, which independent contractors are not. However, gig workers can access individual benefits, which are not subject to any eligibility rules. The way to do this is through lifestyle accounts.
Lifestyle accounts are a relatively new approach to benefits that have only emerged in recent years. Whereas before, an employer purchased a set of predetermined benefits that a worker could choose from, with lifestyle accounts you pay a fixed annual amount from your benefits budget to each worker.
For example, let’s say you give $1,000 to a gig worker through a lifestyle account. Gig workers can then spend that money on the individual benefits they want, whether it’s life insurance, wellness programs, or even pet insurance if it’s is what they want. Companies can easily offer this level of choice through a benefits management platform, providing not only the funds but also the access that gig workers typically lack.
The only apparent problem with this configuration is that these employer contributions would be considered taxable income for the worker. However, given the low premiums of these insurance products, at least compared to health insurance, the tax issues are insignificant compared to the benefits. At most, the tax consequence can be a few hundred dollars per year.
Additionally, any costs or complications of setting up a lifestyle account for every entrepreneur should be measured against what you gain: a satisfied worker who can see that you take care of them and who will commit to working with you for the long term. This is the main objective of the benefits and it is something that the freelancer will not soon forget.
At this point, it is worth considering the benefits of extending the use of lifestyle accounts to all workers, whether salaried or contract workers. This not only makes sense from an administrative point of view, but also increases employee job satisfaction. Having the opportunity to acquire additional individual benefits – for example, complementary individual life insurance – on top of their group benefits will go a long way to making each employee feel highly valued, thereby increasing talent acquisition and retention rates from a company.
Related: Here’s how to understand and help gig workers
In the years to come, gig workers will become an increasingly essential component of every company’s workforce. While it may be tempting to continue denying benefits to contract workers in an effort to cut costs, this short-term perspective risks compromising a company’s talent acquisition and retention.
It’s only a matter of time before more companies fully realize the importance of attracting talented workers. Those who achieve this through early adoption of lifestyle accounts will be able to gain an advantage in the war for talent.
Bob Gaydos, CEO of Pendella