Freedom for gig workers comes with lack of traditional benefits

Bruce Helm works whenever he wants. A freelance graphic designer the past 30 years, Helm loves the flexibility. But that freedom comes with a price.

Cutting the company cord also means cutting company benefits. For many independent workers, the most pressing concern is health insurance.

“A lot of freelancers are in the same boat,” said Helm, owner of Helm Graphics. “Right now, I use HealthCare.gov, but who knows how long that is going to last.”

The gig economy is on the rise. Gig workers – those hired for a single project or task, a gig, often through a digital marketplace, to work on demand – mean a rise in those seeking alternative benefit methods. Gig workers don’t worry about how many sick days they’ve got left this calendar year, but in turn, they worry about benefits like 401(k) and employer-provided life insurance.

“Freelance has its ups and downs. I get to be on vacation whenever I want to be, but I also share my office with the cats,” said photographer and graphic artist Aaron Scott. “I’ve got a very modest direct deposit (individual retirement account.) When I left the corporate world, I rolled my 401(k) over.”

Local experts say the options for benefits and health insurance coverage for gig employees is as numerous and diverse as their gigs. There’s even talk of creating a collective bargaining agreement.

“Millennials have that more entrepreneurial spirit,” said Erica Gaynor, employee benefits adviser for Ollis/Akers/Arney. “We haven’t seen it much yet, but it makes sense that, coupled with some of these wage and hours law changes, we would start to see a rise in individual plans.”

Gig what?
While the gig economy buzz is growing, finding a definitive answer on the number of workers in this category isn’t simple – even for the U.S. Bureau of Labor Statistics.

The BLS’ last recorded data set on gig workers was in 2005, when about 7 percent of workers were independent contractors, the most common alternative employment arrangement, in that year. Contingent workers accounted for roughly 2 to 4 percent of all workers. BLS plans to collect and update this data again in May.  

U.S. Census Bureau data is little help in narrowing the field, but nonemployer statistics data created from tax returns offer another possible look at what’s been happening in the gig economy. Many gig workers fit the census definition of a nonemployer: in most cases, a self-employed individual operating a very small, unincorporated business with no paid employees.

Between 2003 and 2013, all industries experienced growth in nonemployer businesses. The “other services” sector gained nearly 1 million nonemployer businesses during that time, the most of any category, according to the Census Bureau.

Michael Wehrenberg started Wehrenberg Design Co. in 1997 and is proud to say he has zero employees.

“I could have gone and rented a big office, borrowed money and paid employees or I could just work with people who have the skills I need,” he said. “These people are already good at what they do and have a method for doing it. They don’t need training and a corporate structure.”

A full-service web development firm, Wehrenberg Design works with a core group of nine freelancers on a regular basis.

“I consider it like hiring a plumber,” he said. “If I need copy written or a certain kind of code for a site, I hire someone.”

Wehrenberg and gang qualify as an “alternative work agreement.” A study by the National Bureau of Economic Research points to a significant rise in alternative work arrangements in the U.S. economy from 2005 to 2015. The percentage of alternative work arrangements – defined as temporary help agency workers, on-call workers, contract workers and independent contractors or freelancers – rose to 15.8 percent in late 2015 from 10.7 percent in February 2005. The percentage of workers hired out through contract companies showed the largest rise, increasing to 3.1 percent in 2015 from 1.4 percent.

Methods may vary
While the government may not know how to count them, the reality is these workers still need benefits.

“These would be 1099-type employees, not a type that can get group insurance,” said Gaynor.

But that could change. According to the white paper, “A Proposal for Modernizing Labor Laws for Twenty-First-Century Work: The Independent Worker,” published in December 2015, two former members of the U.S. Department of Labor – attorney Seth Harris and economist Alan Krueger – suggest a new independent worker classification for gig workers should be considered which would entitle those workers to bargain collectively. It also would allow them to become eligible for certain tax contributions from employers.

The broadest suggestion made in the paper is the construction of a portable benefits system, in which independent workers could pay into a universal fund on a pro-rata basis, rather than be required to participate in any one employer’s plan. In addition, the authors argue antitrust laws should be amended to allow gig workers to organize for the purpose of aggregating bargaining power, in order to collectively influence compensation and benefits.

“There is merit in 1099 employees forming an association,” Gaynor said. “But from an insurance company standpoint, they still need common ground, such as the nature of their business. For example, manufacturers and schools have health care consortiums.”

For now, Gaynor said many gig workers purchase individual plans and most go through the federal health care marketplace. Graphic designer Helm found himself inside a doughnut hole: He didn’t make enough to qualify for a government subsidy through the exchange but made too much to qualify for government assistance, such as Medicare.

So, the 60-year-old went back to work in a more conventional way – sort of. To supplement his income, Helm works part time jobs through Penmac Personnel Services Inc.

“The main reason was to qualify for that subsidy,” he said, noting he’s used HealthCare.gov to purchase insurance the past three years.

With newly inaugurated President Donald Trump vowing to repeal the Affordable Care Act, Gaynor said many are unsure how to proceed.

“There are already steps in place to jeopardize that subsidy,” she said. “We’re all hopeful if they do repeal it, they replace it with something. I can’t imagine the new president would want to take money from all these individuals.”

Other gig workers are cutting the government out of the equation. Photographer Scott has health insurance through his wife.

“She has a quote-unquote actual job,” he said, with a laugh. “I did COBRA when I left my job, then transitioned into a short-term policy. Right now, I’m lucky, but you never know when that will change.”