Chair Bramble and distinguished members of the committee, thank you for the invitation to speak today.
I am Liya Palagashvili. I am a senior research fellow at the Mercatus Center at George Mason University. For several years now, my research has focused on the gig economy and independent contractors, including the advantages of portable benefits systems for this workforce. I recently published a policy brief “Flexible Benefits for a Flexible Workforce: Unleashing Portable Benefits Solutions for Independent Workers and the Gig Economy,” which is attached. I hope you find it helpful in your discussion of the merits of allowing benefits to independent contractors in Utah.
Today, governments are grappling with the challenges caused by a growing independent, gig, or self-employed workforce. In Utah, there are 80,000 independent contractors or self-employed individuals, representing more than 5 percent of total employment. This number is expected to grow significantly in the next decade. This workforce spans industries, skill levels, and educational attainment. For example, these workers can be musicians, ridesharing and delivery drivers, yoga instructors, software developers, graphic designers, landscapers, and self-employed online merchants.
Today I address the following points:
Current laws in Utah and across the United States restrict employers from providing independent contractors with benefits, leaving a growing fraction of the workforce without access to common workplace benefits.
Independent workers would benefit from increased access to benefits while maintaining the flexibility of their work arrangements.
Laws Restrict Companies From Voluntarily Providing Benefits to Independent Contractors
Employment and tax laws offer two primary paths of work: The first is traditional employment, which comes with traditional and generally tax-advantaged benefits. This employment is often without the independence and flexibility that many workers desire or may require for personal reasons. The second is independent contracting, which provides flexibility and independence but generally requires forgoing common workplace benefits. As the gig economy grows, a growing fraction of the workforce does not have access to traditional benefits that are afforded to employees.
Current laws in Utah and across the United States restrict employers from providing independent contractors with benefits precisely because these benefits—healthcare, retirement, vacation days, paid or sick leave—have conventionally been tied to employer-employee relationships.
Therefore, if an employer were to provide benefits to their independent contractors, those workers would likely have to be reclassified as employees and consequently lose their independence and flexibility
Indeed, several employers have already indicated that they want and are ready to give benefits to independent contractors, conditional on the law allowing them to do so. For example, the CEO of Uber publicly wrote in the New York Times, “Our current system is binary, meaning that each time a company provides additional benefits to independent workers, the less independent they become. That creates more uncertainty and risk for the company, which is a main reason why we need new laws and can’t act entirely on our own.”
Removing these barriers and allowing voluntary participation could enable companies to provide a “menu of benefits,” where some businesses may provide one or two individual benefits, whereas others—especially larger companies—may provide a more complete set of benefits.
Let me provide two hypothetical examples of what a benefits program could look like when these legal barriers are removed:
Fiverr, a freelancer platform, could facilitate contributions in the following way: It could set up a 5.0 percent fee that will go into a benefits fund (a specific or general fund) for freelancers. Of that fee, 2.5 percent would be paid by the platform, and 2.5 percent would be paid by the client or customer who is hiring the freelancer. A third contributor could be the worker himself, and larger companies could set up various “matching contributions” plans to encourage greater savings
Uber could set up a 2.5 percent transaction fee for every ride a driver completes, and that fee would go into a benefits fund for drivers. This is in fact what exists in New York today with the Black Car Fund, which charges a 2.5 percent transaction fee and allocates it to a workers compensation fund for independent contractor drivers. Uber could also make contributions to a health insurance plan for the drivers.
To reiterate, these examples of platforms or employers setting up benefits for independent contractors are not possible today. The first step to providing portable benefits—benefits that are tied to the worker rather than tied to an employer—is to remove these factors from the independent contractor and employee worker classification rules. Because these rules are also set at the federal level, there will also have to be a change in the federal labor standards in this same manner.
Independent Workers Value the Flexibility of their Work and Would Benefit From Access to Benefits
Independent, freelancing, and gig work has grown significantly in the past two decades, especially after the pandemic, as workers began seeking out more flexible forms of work.
According to the Bureau of Labor Statistics, 79 percent of independent contractors prefer their arrangement over an employment arrangement. Over a dozen surveys indicate that workers prefer the flexibility of engaging in independent work, especially workers who have dependent care obligations or other personal circumstances that prevent them from taking on employment. In fact, approximately 46 percent of freelancers state that freelancing gives them the flexibility they need because they are unable to work for a traditional company owing to personal circumstances, such as health issues or family obligations.
Gig workers in particular value flexibility to a greater extent than the average employee. Uber drivers would require almost twice as much pay to accept the inflexibility that comes from adopting a taxi-style schedule. And for the top 10 percent of DoorDash drivers, losing flexibility is equivalent to a 15 percent pay cut.
These flexible job arrangements can be particularly transformative for women who are the primary caregivers in their households. One study finds that self-employment rates are higher for women who have young children and that self-employed female workers have more flexibility in their work location, hours, and schedule as compared to women in traditional employment.
In nationwide survey, researchers also found that about 75 percent of self-identified homemakers, or stay-at-home mothers, indicated that they would likely return to work if they had flexible options. Another survey of 2,000 women in independent work found that 96 percent of these women indicated that the primary benefit of engaging in platform-economy work is the flexible working hours. Indeed, 70 percent of these platform-working women were the primary caregivers in their homes. A quarter of these women recently left their full-time employment for platform-based work, and 60 percent of them indicated that they did so because they wanted flexibility, needed more time to care for a child, parent, or other relative, or both.
Independent contracting and self-employment are providing an important source of income for a large set of working Americans, especially for working mothers, many of whom are unable to take on traditional employment. At the same time, there are shortcomings with this type of work; independent workers do not have access to common workplace benefits afforded to traditional employees. About 80 percent of self-employed workers indicated they would like access to flexible or portable benefits— benefits that are not tied to a particular job or employer.
To better meet the needs of the growing independent workforce, governments could reform laws to give independent workers access to benefits.
Liya Palagashvili, “Flexible Benefits for a Flexible Workforce: Unleashing Portable Benefits Solutions for Independent Workers and the Gig Economy” (Mercatus Policy Brief, Mercatus Center at George Mason University, Arlington, VA, February 2023).
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