Revolutionizing Gig Worker Benefits With Lifestyle Accounts

Why companies should start providing benefits to their independent contractors

The rise of independent contractors – sometimes referred to as gig workers – has shifted the employment landscape in dramatic ways. More people than ever before are now working as independent contractors, with some estimates projecting that by 2027, 86.5 million people will be freelancing in the United States.
 

For human resources (HR) professionals, the growing number of independent contractors has been something of a boon for their recruitment prospects. With so many people looking for contract positions, recruiters are spoiled for choice. Moreover, since these workers are typically classed as 1099s rather than employees, they normally aren’t entitled to any benefits. This can save companies as much as 25 percent on their employment spending by not having to pay for things like unemployment insurance, workers’ compensation, and paid leave.
 
However, my feeling is that not offering benefits to gig workers will, in the long run, prove detrimental to a company’s recruitment prospects. People do not like being taken advantage of, and as time goes on, more gig workers will realize that they can get a better deal by choosing an employer that offers them competitive benefits.
 
That said, providing benefits to an independent worker is not as straightforward as providing them to an employee. HR professionals will need to get creative with their approach to benefits, and I believe the answer lies in using lifestyle accounts.

Benefits for Contract Workers

It can be tempting to think that extending benefits to gig workers isn’t worth the effort. After all, freelancers are typically only contracted for a specific amount of time or until a particular project is completed. What, you might ask, is the point of trying to secure their long-term job satisfaction and loyalty?
 
Benefits are not just for building loyalty but also for attracting new workers and making them feel valued. Offering good benefits can give a company a powerful edge in attracting top talent. That’s just as true for independent contractors as it is for employees.
 
Regarding making contractors feel valued, this is a point that many companies don't appreciate, at least in my experience. Too many companies believe that the only reason workers would leave is because they found more competitive salaries elsewhere. However, from what I’ve seen, people are more likely to switch jobs because they don’t feel valued by their current employer. And this is just as true of freelancers: if they don’t feel like they are valued, then it’s unlikely they’ll want to work with you again in the future.
 
So, my advice to HR professionals would be to think about what kind of benefits you could offer that would attract freelancers and make them feel valued enough to continue working with you. Health insurance is probably the first to come to mind. But honestly, most people can now get a far better health plan on the individual marketplace than from their employer.
 
That just leaves the remaining insurance products like dental, life, and disability. The last two would be highly attractive for gig workers as almost no one in the individual marketplace is talking to them about these products. Wellness programs can be another highly attractive benefit, especially when workers are allowed a lot of freedom in choosing different programs, such as leadership training or mental health classes. Ultimately, whatever benefits you can offer will come down to how your benefits system is structured.

Lifestyle Accounts

Any company that wishes to extend its benefits program to its gig workers is bound to encounter a problem with that. Their group benefits, such as health, life, dental, and vision – typically the bread and butter of most benefits programs – cannot be extended to gig workers. This is because, by definition, group insurance means grouping people together, and you can only do that with long-term employees.
 
In theory, you could get around this by hiring your gig workers as full or part-time employees. But that’s unlikely to please many gig workers, most of whom tend to place a lot of value on their independence as freelancers. Also, making everyone an employee won’t be practical in sectors like the tech industry that rely heavily on the use of gig workers. The only solution is to provide each gig worker with access to individual coverage plans, and the best way to do that is through lifestyle accounts.
 
Lifestyle accounts are a fairly new concept in the benefits landscape. Instead of offering a set of predetermined benefits, the company contributes a specific amount of funds to each worker, say, $1,000. This does two things. First, it removes the barrier to group insurance benefits for gig workers since they can now purchase individual coverage instead. Second, it gives each gig worker the freedom to choose benefits that they value, like financial wellness programs or health coaching.

The only potential drawback of using lifestyle accounts to provide benefits is that employer contributions would be counted as taxable income to the worker. Yet considering the low premiums on these products, especially when compared to health insurance, the tax implications pale in comparison to the advantages. At most, the tax impact for each worker may amount to just a few hundred dollars per year.
 
There’s also no reason why a company can’t extend the use of lifestyle accounts to their full-time employees. Doing so would satisfy the workers' needs for more personalized benefits while also streamlining a company’s benefits administration. Think of it this way. There are already coverage plans like the Health Reimbursement Arrangement (HRA), in which employers give money to employees to buy their own health insurance. Well, if you're going to let them shop for individual health insurance, why not also let them shop for individual life, dental, or whatever else they need?

Conclusion

As gig workers become an increasingly integral part of the U.S. workforce, HR professionals will need to consider whether the benefits they offer are truly aligned to suit the needs of these workers. That may require companies to reevaluate their entire approach to benefits, which up until now have been dominated by group offerings.
 
Switching to a lifestyle account system offers the most efficient and painless way to meet the needs of gig workers, ensuring that your company can continue to find top talent in an increasingly competitive business landscape.

Author Bio

Bob Gaydos is the Founder and CEO of Pendella, where he leads a team of innovators in the insurance industry, automating the underwriting process through AI and big data. Over the last 10 years, Bob has founded, invested, advised, and operated innovative companies in the benefit & insurance industry, such as Maxwell Health, Connected Benefits, Limelight, and GoCo.