What Are Portable Benefits and How Do They Impact Independent Workers?

Portable benefits — benefits that are tied to the employee, rather than the employer, may seem like a new trend, but some versions of benefits portability have been around for many years. Consolidated Omnibus Budget Reconciliation Act (COBRA), for example, allows an employee to continue their healthcare coverage if they leave an employer, for some duration. The Employee Retirement Income Security Act of 1974 (ERISA) allows employees to take their retirement plans with them when they go, as well.

New forms of portable benefits are emerging, however, that allow for more flexibility of coverage — which can mean more independence for gig workers and contract employees. Some are ones businesses offer, others state or federal law mandate. If you hire independent contractors, consider offering portable benefits. Or, remind gig workers of their eligibility to create a more attractive job offer.

New forms of portable benefits are emerging, however, that allow for more flexibility of coverage — which can mean more independence for gig workers and contract employees.

What could a universal portable benefits system look like? 

Independent workers have a high need for workplace benefits, but also some of the lowest coverage rates. A portable benefits system could change this and provide self-employed workers with access to benefits.

Gig workers could access benefits through a platform where they can manage and “trade” benefits. Multiple employers could also offer benefits to the same employee on the same platform through standard payments or credits. Workers may also be able to choose benefit offerings from a menu of options from companies, startups, unions, and the government.

Here are some portable benefits offerings that you can access now, and may see as options in a future universal portable benefits system.

Types of portable benefits 

Retirement

A defined contribution or 401(k) retirement plan belongs to the employee as soon as they put in their first dollar. When they leave the company, no matter what the condition of separation, their contributions remain in the fund. Employees can roll the fund over into a new employer’s plan, convert it to a private 401(k) or leave it as is until they retire. Employer contributions not “vested” in the fund return to the business.

Medical

COBRA allows employees who were enrolled in a company’s healthcare plan to stay on the plan, provided they make the premium payments, for a set amount of time. Typically employees have 18 months, however some instances allow dependents and children to stay on the plan longer.

HSAs

Some employers offer Healthcare Spending Accounts (HSAs) to their employees enrolled in a high deductible health insurance plan (HDHP). These funds allow employees to use money they set aside on a pre-tax basis for qualified medical expenses. These funds belong to the employee and can roll over into the following year is the staffer remains on the payroll, but are portable. A third-party provider (often a bank) manages HSAs. These funds are portable if the employee leaves the organization.

HSA funds do not generally qualify to purchase healthcare coverage; rather, they intend to offset non-covered healthcare expenses. However, in limited instances employees may use their HSA money to purchase COBRA continuing benefits or ACA benefits, if they are collecting unemployment insurance.

Sick time

In some states, paid sick leave accrual is mandatory and funds to cover the cost of a predetermined amount of days off per year is funded through employee contributions to a state-run insurance plan. In some, the employee has to contribute to the fund for as little as 30 days on the job for eligibility. If the staff member moves on to another company, and satisfies the waiting period, depending on the state’s guidelines they may be able to roll over any sick time they have accrued.

Non-portable benefits and gig workers

For independent contractors and the companies that hire them, access to benefits has always been an issue. While gig workers like their freedom, and companies enjoy staff-on-demand, the absence of benefits — particularly meaningful medical protection plans — is often a barrier to hiring top talent and keeping them.

California’s recent AB5 legislation, fraught with lawsuits and revisions, sought to reclassify independent contractors as employees, with the intention of providing these workers access to healthcare coverage. Other states are considering similar legislation, but to date, none have achieved the goal. In the interim, there are some options that may bridge the gap to help businesses leverage the talents of independent contractors and provide necessary benefits.

Healthcare coverage is almost never a portable benefit. Employers can opt to provide funds for an independent contractor to purchase their own coverage under an Affordable Care Act or third-party plan. Using this option the staff member can continue to buy the coverage if they leave the company. It’s estimated more than 25% of the American workforce using ACA coverage are non-employees.

This option could allow a business to attract talent with health insurance coverage that’s portable if they leave their job, but could pose a problem for business. As with California’s AB5, many states and the federal government have been carefully scrutinizing the use of independent contractors versus payroll employees. Providing a benefit, such as access to the company’s healthcare plan, could blur the line between an I/C and a staff member.

Stipend for healthcare

If a business provides a stipend for a contractor to personally purchase healthcare, it would likely have to be a “no-strings” option that does not include access to the company’s employee medical group plan(s). Whether or not the independent contractor uses the funds to purchase their own coverage might also be an issue. To maintain the distinction between employee and contractor, any health insurance funds provided might need to be qualified that the employee must buy coverage independent of the company’s healthcare plan, or opt not to purchase coverage at all and still receive the monthly payment.

How would portable benefits help independent contractors?

True portable benefits, tied to the employee rather than the employer, may be years in the making.

With about 2 million American workers reporting they are 1099/independent contractors, providing portable benefits options could be a means to attract and retain top talent for business and offer necessary coverage for workers.

Legislators at the state and federal level have been investigating how to create portable benefits for gig workers, with bills pending and researchers developing plans. The challenges are great:

• Who will administer the benefits
• Who will pay for them
• How will they be earned, tracked, and used?

Eligibility for workers and thresholds for employers would have to be set: likely similar to the ACA’s employer mandate, which doesn’t include businesses with less than 50 employees, if employers are required to pay into the plans. True portable benefits, tied to the employee rather than the employer, may be years in the making.

Many companies look to creative solutions to provide some type of portable options for gig workers, but these organizations are unique in the marketplace. The challenge for the future of the gig economy, which continues to grow, may be to look for alternatives to traditional benefits.

Proposition 22, which offered an update to California’s AB5 has made some inroads. Some rideshare workers will have access to monthly healthcare premium subsidy payments as well as life and disability insurance coverage in the event they are injured on the job. Passed in November 2020, Proposition 22 could be a model for portable benefits around the country. Access to employee benefits, whether an employer has involvement or not, could help businesses acquire top talent and provide contractors with the safety net they need in the event of illness or injury.