Jobs & Unemployment

The Benefits System in America is Failing Independent Workers. Startups Can Help Fix it

By Trent Bigelow, CEO of Abound

The benefits system is failing independent contractors, freelancers, and gig workers. Then again, it never worked for them in the first place.

More workers are moving into the Independent Economy than ever before, with an estimated 68 million individuals in the US earning part-time or full time income outside of a traditional workplace. They’re doing all sorts of work across nearly every industry. They’re picking up extra hours as a gig worker or going into business for themselves as a company of one, or they’ve discovered after moving to remote during the pandemic that they want the freedom and flexibility of working wherever they want.

Whatever they do and however they do it, independent workers all have a major pain point in common: benefits.

Benefits in America are designed for big employers, and HR departments are dedicated to sourcing, implementing, and managing benefits for their employees, from health coverage to retirement plans to paid time off. Additionally, employees who work W-2 income don't have to worry about doing the legwork, and can simply observe as their benefits costs are deducted from their paycheck.

But once a worker moves out from a traditional employer to work independently, there’s no system of benefits coverage they can just move under. Independent workers don't have an HR department; they are their own HR department. Not only do they have to source benefits themselves — and there are few products that are made for one-person employers — but they also need to make sure they're setting aside enough money to pay them each month. They also find that purchasing benefits plans for one is much more expensive than it was when they were employed. According to a new report, less than 5% of gig workers say they’re offered a retirement plan or medical coverage by their employer — which means over 95% are finding coverage on their own.

For independent employees, finding and managing benefits becomes an added monthly bill to pay, an added time commitment, and a very valid barrier to entry for those wanting to make the move (not to mention the added time and effort estimating their own taxes takes as well). There’s no infrastructure or support, and little guidance to help independent workers navigate this new commitment.

Independent workers deserve benefits, but who can solve the benefits problem? Actually, founders can.

Providing Access to Benefits to Your Independent Workers

Businesses who pay independent workers can be the ones to fix the system and provide benefits products and support, all while gaining a competitive edge. It may seem antithetical, right? If businesses who hire independent workers don't have to provide benefits, why would they then voluntarily provide access to benefits?

There are a few reasons why it makes good business sense for you to do so.

Retention: Because the benefits issue is such a complicated one for independent workers to solve, it makes sense that businesses who pay contractors, freelancers, and gig workers can do it for them — you can even automate it into your payout tool. Independent workers who know they can receive benefits from a company will be more likely to stick with them longer. Providing access to benefits also communicates that founders value working with their independent workers, and that they’re looking to build relationships instead of burning through new workers. This leads to higher retention, which is always a plus for any business.

Revenue: Businesses who want to offer access to and contributions to benefits for their independent workers can monetize it as well, which can provide new revenue streams for businesses who offer automation into their payout tool, or offer other financial services to their workers. Not only will you be able to retain the best employees — which is a revenue-saver in itself — but you can place benefits features in higher-priced product tiers as an anchor or conversion catalyst as well.

Risk reduction: Offering benefits can also help businesses who pay independent workers with their compliance, both current and future. It gives you the opportunity to correctly classify your independent workers, ensures contractor compliance when it comes to paying 1099 taxes, and can ensure compliance as new regulations, like Proposition 22, emerge.

The Stakes of Not Offering Benefits

With so many people moving into independent work — in a few years, it’s expected that over half of US workers will be independent — businesses that actively employ contractors, freelancers, or gig workers, and those who are anticipating doing so, are going to have to make a decision on where they stand: Do we want to keep them at arm’s length? Or do we actively want to provide support and services that can provide a better, more streamlined work experience?

By not providing access to benefits to independent workers, businesses not only miss out on the right thing to do, but will see direct impact to their operations and brand as they get left behind.

We’re not far away from benefits being commoditized, and your competitors are already developing benefits products and services for their independent workers. So not keeping up with offering benefits will mean losing the greatest talent to them — and a churn problem can skyrocket costs and tank productivity if a business has to keep hiring and replacing. A business who doesn't implement benefits tools will also miss out on new revenue streams and monetization opportunities, which will only increase through adoption. It’s also easier for a business to keep up with regulations when they're already ahead of them, but businesses who don't offer benefits will have to catch up when new regulations pass.

How to Do It

Not only can it be a boost for your business, but providing access to benefits for your independent workers can actually be easy — and will help shape what the future of independent work looks like. It’s a matter of:

  • Sourcing benefits products that are designed for independent workers, but that also offer economies of scale so you can cover many independent workers at once.
  • Automating the benefits process at point of payment so that independent workers can simply pay into their benefits easily. This can not only help with managing expenses, but can reduce costs as it shifts to pre-tax.
  • Becoming the HR department that independent workers are looking for, while also providing access to benefits that are in compliance.

 Creating the Future

If there’s anything holding back the Independent Economy, it’s the burden of the lack of a benefits infrastructure. But businesses who employ independent workers can come alongside them and provide the safety net they’re looking for — and find deep opportunities from it in return. With these tools already in development, the time to adopt is now.

Trent Bigelow is co-founder and CEO of Abound. The company’s APIs enable those serving or paying independent workers (1099ers) to quickly and effortlessly embed benefits into their products, automatically setting aside enough to cover taxes, retirement, healthcare, insurance, PTO, and more. Trent leads the company’s strategy to increase wealth and wellness for 68 million self-employed Americans, unlocking access to independent benefits in an easy, affordable, and compliant way that works for everyone.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.