The gig economy has transformed the way we live our lives. From food delivery to rideshare to freelance design, a whole bundle of services is at our fingertips. The gig economy has also transformed the way people earn a living, creating a wide array of opportunities to find work quickly on multiple platforms.
But the gig economy has a sustainability problem.
Every day, gig workers make a choice between security and flexibility. If they choose to work in the gig economy, their hours are flexible, and they can earn as much money as they want. But benefits like health insurance and disability insurance are not included. On the other hand, if they choose a traditional nine-to-five job, which offers benefits and employment protections, they give up the flexibility to take time off or take on extra hours.
As a result, gig workers tend to only engage in gig work part-time or in-between jobs. Those that work in the gig economy full time often only do so for a short period of time before moving on. After a while, the cost of paying for health insurance, disability insurance, and more simply outweighs the desire for freedom and flexibility.
Thus, the gig economy, for all its benefits in fulfilling the labor gaps of day-to-day life, is not sustainable. It is subject to high-volume turnover which creates gaps in coverage for platforms connecting gig workers to users — and sometimes a shortage of experienced workers.
Solving this problem — making gig work a viable way to earn a living and access benefits — will lead to an increase in the quality of life for those engaged in the gig economy..
Why the Gig Economy Problem Requires Outside-the-Box Solutions
The obvious solution to the sustainability problem is for platforms to simply offer benefits and protections like traditional employers. In fact, many platforms have publicly indicated their willingness to do so.
Unfortunately, it’s not that simple. The costs and legal liability associated with classifying gig workers as employees would cripple the gig economy and cancel out all the productivity gains experienced over the last decade since the “gig economy” was first coined.
This problem has puzzled policy wonks, judges, and legislators alike. The issue comes down to a simple, but loaded question: are gig workers employees or independent contractors?
If gig workers were employees, platforms would be subject to legal and financial liability that would necessitate reducing worker flexibility. It would also be limited in the number of platforms they could work for at any given time. If gig workers were considered independent contractors, it removes this liability and maintains flexibility.
So far, the best solution has been to treat gig workers as independent contractors. This has allowed the gig economy to grow and prosper over the years. However, if platforms were to offer benefits like health coverage, paid vacation time, or disability insurance resembling workman’s compensation, it would add significant weight to the argument that this is evidence of an employment relationship. As a practical matter, this would risk forfeiting the benefits of the independent contractor classification for platforms and workers alike.
A common solution to this problem is to declare that gig workers lie somewhere between employee and independent contractor — a hybrid classification just for gig workers. But doing so creates an opportunity for nefarious employers to use this classification as a loophole to avoid employer liability. Moreover, simply categorizing them into a third bucket only creates a third variation of the same problem. It doesn’t relieve the need to avoid employer liability and still fails to give gig workers access to the benefits and protections they need to make gig work sustainable.
Instead of perpetuating the rigid classification system by working within its confines, policymakers should work to reduce the relevance of classification altogether.
If the goal is to increase worker access to benefits and protections, and maintain their flexibility then the problem to solve is tied to company contributions — not employer status.
Focusing on Opening the Door to Benefits
One solution, initially suggested in the early 2000s to improve traditional employment, is benefit portability. In essence, benefits like health coverage would be untied from a person’s employer and instead tied to the employee, making these benefits “portable.” When a person wanted to switch jobs, benefits portability would eliminate the worry of losing health coverage or retirement benefits.
In the gig economy, where workers can switch between platforms within minutes, benefits would necessarily need to be portable. Moreover, some gig workers already rely on portable benefits they obtain through third-party portable benefits funds. These funds have emerged over the last decade to offer gig workers peace of mind. Portable benefits funds act as an insurance product where gig workers pay premiums in exchange for coverage, and their liability is spread out over a pool of other gig workers. These funds often offer health insurance, but they could also include disability insurance, income replacement, dental insurance, automotive insurance, and more.
However, portable benefits funds are also uniquely suited to receive contributions from platforms looking to lower the cost for gig workers to obtain benefits. As we have written before, contributions could also be used as a competitive advantage for one platform over another to attract top talent.
The only issue remaining, however, is there is no legal clarity on whether contributions to portable benefits funds should be treated as employer contributions to traditional benefits or a separate form of compensation for an independent contractor. The way to solve that problem is to untie portable benefits fund contributions from the legal analysis.
Legal Clarification to Open Up Access
At a minimum, states and federal regulators should except contributions to a portable benefit plan from the employment classification test.
However, beyond this legal clarification, policymakers should be careful not to overstep. Rather than dictating the specifics, as state and federal regulators have done for every other kind of employment, lawmakers should encourage innovation in portable benefit offerings.
Platform contributions to portable benefits funds should be voluntary. The administration of these funds should remain open to nonprofits, private entities, and quasi-governmental bodies alike. Finally, the exact type of benefits and coverage provided in these funds should be left to the discretion of fund administrators.
One of the core components of platforms in the gig economy is that they exist to fill specific needs in the market. The benefits plans designed for gig workers should be similar. A rideshare driver may need automotive insurance and rental car coverage, whereas a web designer or freelancer may simply need health insurance.
Looking ahead to the future of work, opening the door for platform contributions to portable benefits funds could reshape employment altogether. The impact and insights gleaned from fully implemented, portable benefits plans in the gig economy could open up new possibilities even beyond the gig economy. At the least, it will provide much-needed relief for the classification problem and provide gig workers with what they need to make working in the gig economy a realistic full-time choice.
