Nontraditional workers make up a growing share of the U.S. workforce. According to consulting firm McKinsey & Co.’s American Opportunity Survey, 36% of employed respondents identified as independent contractors in 2022, up from 27% in 2016. Although contracted gigs appeal to many people due to the flexibility they offer, they often lack the benefits or worker safety nets associated with traditional jobs, such as health insurance, workers’ compensation and retirement accounts.
“The everlasting negative impacts COVID had on job losses [resulted] in many workers needing to work from home or take other jobs that do not fit into the traditional workday,” says New Jersey Assemblywoman Carol Murphy (D). “And this has changed America’s workforce.”
Over the last decade, states have begun to consider the implications of a larger workforce without many of the benefits and protections offered by traditional employer-employee relationships. Portable benefits are an option that is increasingly gaining traction in legislative and business circles. In contrast to traditional employer benefits, portable benefits are tied directly to the worker rather than an employer, and they follow the worker from job to job. NCSL convened a working group in 2022 to explore the potential of portable benefits and what state policymakers should consider when looking into these policies.
“Expanding economic opportunities for our workforce should never be a partisan idea. If tailored correctly, there is no reason these types of proposals can’t help both workers and business.” —Wisconsin Rep. Tyler August
“The value of the working group is huge,” Murphy says. “Having a group of legislators around the table discussing this issue and the need, positively impacts all outcomes, giving way for a stronger state workforce in the end.”
At a time when companies are struggling with worker recruitment and retention, flexibility paired with access to benefits could be a big draw for workers. “Expanding economic opportunities for our workforce should never be a partisan idea,” says Wisconsin Rep. Tyler August (R), who sponsored 2021 legislation that would have created portable benefit accounts for app-based drivers. “If tailored correctly, there is no reason these types of proposals can’t help both workers and business.” (The measure failed in the Senate last year.)
Some employers want to offer benefits to nontraditional workers, but policymakers first need to decide what those benefits look like and what roles business, government and the workers themselves will play. There is tremendous variety in state legislative approaches, reflecting tensions among stakeholders, differing priorities and a range of complicated legal factors.
A Menu of Benefits
The NCSL work group members acknowledged that the needs of nontraditional and traditional workers might differ. Some independent workers receive benefits through a spouse or parent and don’t want the traditional benefits of a full-time job, whereas others might want both job flexibility and some worker safety nets in the case of illness or other life event. Increased data collection can help stakeholders understand the scope of benefits that independent workers might be looking for, including retirement savings and health care as well as paid leave, sick leave, career and professional development, and financial planning.
The work group members also believe states need to determine which workers are eligible for portable benefit programs. Should the benefits be restricted to certain industries? Should there be requirements for coverage based on earnings or hours worked? Washington state, for example, enacted legislation offering a suite of benefits specifically for ride-booking and ride-sharing drivers. The law also classifies these drivers as independent contractors. In contrast, a proposed 2018 Georgia bill would have required benefits, including workers’ compensation insurance, for all independent contractors.
In tandem with developing benefits, stakeholders must decide how benefits should be administered. Should each worker have a personal account, such as a health savings account, or should the benefits be pooled like traditional health insurance? Finally, what choice do employers and workers have in their benefits? Will participation in the programs be mandatory, or should employers and workers be able to opt in? A 2020 ballot initiative, for example, required Colorado employers to provide paid family leave. But language in the proposition allows independent contractors to elect coverage under the program.
Program Funding and Design Options
NCSL’s work group members valued the flexibility to tailor portable benefits programs to the labor economy and political realities of their state. They envisioned a continuum of benefits, from those that serve platform-based gig workers in population centers to those targeting seasonal agricultural laborers; from systems that echo traditional employee benefits packages to flexible, a la carte offerings that cater to shifting worker priorities; from publicly funded programs that might prioritize equity and uniformity to privately run packages that capitalize on industry-specific innovations and competition.
The work group drew lessons from existing state benefits programs, state-facilitated (public-private partnership) models, private market solutions, international frameworks, and their own state governments’ experiences using nontraditional workers. They asked whether portable benefit funds should be administered by nonprofits, for-profits such as financial institutions, state agencies or some combination. One important consideration was the role of purely private sector innovation—such as short-term disability insurance products for gig workers or fintech platforms to address independent workers’ tax, health insurance, emergency and retirement savings needs—in informing or ultimately leading the way to broader applications.
Central to the discussions of portable benefit program design are funding questions: who pays, how much, and is it adequate? What proportion of the costs to fund and administer benefits is borne by workers, businesses, customers or taxpayers? For example, the work group acknowledged that worker self-funding may contribute to an enhanced sense of ownership and eagerness to take advantage of benefit offerings more fully. But low-income workers may struggle to self-fund at appropriate levels and prefer to realize immediate income rather than diverting pay to benefits/savings accounts.
Because an independent contractor’s benefits package could differ considerably in scope and cost from a traditional employee’s, the concept of proration is at the heart of many funding proposals. States try to ensure that companies contribute to the programs in proportion to hours worked, dollars earned, transactions completed or other measures of worker production. State proposals use various formulas to connect the amount of work someone performs to the amount of benefit funding that activity generates.
Challenges and Considerations
As portable benefits continue to gain traction nationwide, policymakers, businesses and workers face a constantly shifting matrix of state and federal worker classification laws. Work group members discussed whether the provision of benefits per se might signal an employer-employee relationship under some federal rules, including those outlined in the Employee Retirement Income Security Act.
Worker classification perspectives differ by state and agency. Policies include reclassifying independent contractors as employees, solidifying interpretations that self-employed workers are classified correctly, and eliminating the use of employment classifications altogether. Law professor Orly Lobel, who directs the University of San Diego’s employment and labor law program and helped frame the work group’s discussion, argues that the debate over classifying workers as employees or freelancers is a red herring. “The larger issue is how to modernize employment and labor protections to fit with the realities of work today,” she says.
With different resources and capabilities, every state must assess its needs and feasibilities. In some states, the workforce might not be asking for portable benefits; in others, the resources might not exist to implement a successful program. A successful portable benefits system requires consistent program evaluation and strong rates of participation, benefits adoption and business satisfaction.
For now, even as they generate interest in business, academic and political circles and some states establish limited programs, portable benefits remain to be seen on the national stage.
Suzanne Hultin directs NCSL’s Employment, Labor and Retirement Program; Landon Jacquinot is a policy associate and Anna Petrini is a principal in the program.