Portable Benefits for an Insecure Workforce

Portable Benefits for an Insecure Workforce

Why Americans need portable benefits, what those benefits should look like, and how those benefits can be created and funded

February 23, 2017

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This article appears in the Winter 2017 issue of The American Prospect magazine. Subscribe here

Imagine an entirely new system of employment benefits—a system that substantially closes the gap left by the ongoing decline of secure full-time employment while uniting business and labor, tech companies and small businesses, progressives and libertarians.

You would sense you were on to something, right?

We believe that we (and Barack Obama, Elizabeth Warren, Etsy, and the libertarian R Street Institute) are on to something. Traditional full-time employment—and the middle-class lifestyle it enables—is slipping from the grasp of more and more American workers, who’ve been stripped of the benefits our parents’ generation understood to be part of standard compensation: health insurance, vacation, sick leave, unemployment and disability insurance, and retirement. The loss of these basic employment-based benefits is worsening the insecurity faced by workers and their families. Fewer and fewer jobs offer a full package of benefits, or any benefits at all.

At the same time, innovative companies such as TaskRabbit, Instacart, Handy, and Upwork—part of a sector variously called the on-demand, sharing, or gig economy—risk being distracted from the task of creating real economic value by the easy profits to be reaped from classifying workers as independent contractors. This “disruption” of employee-employer relations, which has abetted the on-demand companies’ billion-dollar revenue and high-flying stock valuations, moves us beyond the letter and spirit of our aging and inadequate regulatory framework. The debate over the on-demand economy isn’t merely a legal question, however: Our collective failure to close the widening gap between technological innovation and social realities is responsible for much of the economic angst that dominated the 2016 election.

To address this challenge, we developed the idea of a “Shared Security System,” a package of portable benefits for contingent workers first proposed in the Summer 2015 issue of the journal Democracy (“Shared Security, Shared Growth”). Soon after, an unlikely collaboration of individuals and organizations from across the political spectrum also called for a new system of employment benefits. Supporters included gig economy executives, labor leaders, venture capitalists, business people, academics, and policy professionals.

AP Photo/Candice Choi

A bag of food from McDonald's ordered through the Postmates service sits next to a Postmates delivery bag during a delivery in New York. 

This Shared Security System would recognize that work and employment are changing, and that we can no longer wait to act as the old system unravels. Workers would earn and accrue portable benefits on a per-hour basis, regardless of a worker’s relationship with the employer that is paying him or her. Like Social Security, these benefits would be fully portable, with every worker having an account at the qualified financial institution of his or her choice. Companies would be responsible for paying into workers’ benefit accounts at a reasonable rate. In some situations, workers or the government might also contribute to benefit accounts.

In the year and a half since we first proposed a Shared Security System, we’ve seen serious interest from the tech sector and public policy experts. (President Obama even mentioned portable retirement benefits in his last State of the Union address.) It seems highly likely that cities and states will begin experimenting with some type of prorated, portable benefits program within the next year. Accordingly, it’s time to move beyond our rough outline and into more specifics of what a plan could and should look like—and why it’s so crucial for the future of American workers.

 

OVER THE PAST FEW DECADES, corporate America has assiduously worked to sever the social contract that had formerly been the birthright of the Great American Middle Class. There was once an understanding that the benefits of growing labor productivity would be shared with the workers who created it. But while productivity has continued to rise, most of the profits over the past few decades have accrued to CEOs and their shareholders, while most of the disruption from the historic transformation of globalization, automation, and the financialization of the economy has been shouldered by workers and their families. And little has proven more disruptive than the transformation of the employment relationship between corporations and their workers—particularly low-wage workers.

The direct employer-employee relationship assumed by U.S. labor law, a staple of our society for generations, is no longer the reality for 40 percent of American workers, according to the U.S. Government Accountability Office.  These “contingent” workers have jobs that are temporary, irregular, or otherwise not expected to last. Whether they are driving for Uber, working multiple part-time jobs without a consistent schedule, or contracting for a labor intermediary, a growing number of workers don’t have a stable employment contract with the company (or companies) that pay them.

Even workers who technically have a full-time job and receive a W2 increasingly do not work for the company that ultimately benefits from their work—but rather for an ever-shifting network of subcontracting companies.

These pressures have been building for years, as David Weil’s study The Fissured Workplace makes clear. Over the past few decades, corporations have made a science of squeezing labor costs down to the bone. There’s been no one there to stop them: Where labor unions once had the power to hold the line on wages, today fewer than 7 percent of private-sector American workers are represented by a union. At the same time, technological advances in automation and communications have made it easier, and financialization has provided pressure, for companies to export jobs overseas, hire less-skilled contract workers, or eliminate the positions entirely.

Even those jobs that remain have increasingly been low-wage service-sector work; the jobs that returned after the Great Recession were, on net, all low-wage. According to economists Lawrence Katz and Alan Krueger, all of the net employment growth over the past decade has been in contingent work.

These transformations have created a more rootless, desperate—and flexible—labor force. Workers could feel the effects of these changes in their lives, but until now there hasn’t been a focal point to galvanize public attention around these changes in the nature of work.

Stephen L/Creative Commons

As the Fight for 15 has demonstrated, the real work of moving America forward in the 21st century has begun at the state and city level. Here, protesters rally for a higher minimum wage in Columbus, Ohio. 

Now we have a name: Uber. The powerful ride-sharing company has helped drive the creation of one particular form of the fissured workplace—the on-demand sector. Uber, Lyft, Handy, TaskRabbit, Postmates, Instacart, and an ever-evolving cast of smartphone application-based companies have built their sometimes-massive valuations (Uber’s is $66 billion) around a business model of providing customers the service, flexibility, and convenience they were often missing from more traditional competitors.

On-demand companies have also built their fortunes on the insistence that the workers who provide these services are not employees, but rather independent contractors who are simply using their technical platforms to connect with customers. This strategy has allowed them to provide services that are powered by a large and highly flexible workforce, which is—in aggregate—ready to work at any time, for any amount of time. According to the JPMorgan Chase Institute, more than 4 percent of American workers received income from the on-demand platform economy between 2012 and 2015, a rate which increased 47-fold over that time. This growth rate makes platform work by far the fastest-growing sector of the economy, even exceeding the growth of home health care and software.

Many labor advocates have found the contractor arrangements enshrined in the on-demand sector to be unfair and exploitative. By classifying workers as independent contractors, the companies evade the traditional responsibility of paying basic benefits like unemployment and Social Security taxes, complying with overtime provisions, or allowing collective-bargaining efforts. On-demand drivers are also not reimbursed for their gas, insurance, or car payments.

Multiple lawsuits have charged these companies with “misclassifying” their workers as 1099 contractors instead of W2 employees, and have met with some success. Most experts believe that the companies exist in a legal gray zone that could easily turn into a serious liability problem. Drivers for the Lyft platform are most of the way to winning a class-action misclassification lawsuit against the company; U.S. District Judge Vince Chhabria granted approval to a $27 million settlement for the workers, saying Lyft had “shortchanged” the drivers. The judge also called out the inherent difficulty in applying labor law to the on-demand economy, noting that “the jury in this case will be handed a square peg and asked to choose between two round holes.” A similar suit is being brought against Uber.

Confronted with this litigation, on-demand companies would be providing further evidence that their contractors are actually employees if they were to pay their workers benefits or provide them with training. Attorneys in misclassification lawsuits against the on-demand companies can make a strong case that providing benefits indicates a traditional employer-employee relationship between the companies and the workers.

It is important to note that worker classification is a legal issue, and not a choice to be made at the convenience of a company or industry. But without a legal mandate or industry-wide agreement for on-demand companies to provide workers with benefits, the companies aren’t willing to jeopardize their contractor-based business model, thereby finding themselves stuck with fewer options for recruiting, training, or retaining their workforce than their competitors enjoy.

While a study by Intuit said most workers are “highly satisfied” with their on-demand jobs, many also protest that the companies treat them like contractors while trying to manage them like regular employees. Uber drivers, for example, are essentially required to abide by Uber’s “rules” for exactly which and how many fares they take—or risk being deactivated from the platform without warning.

In a fissured, flexible world of work, do we give up on the American model of benefits tied to employment? Or innovate a new way to tie them together? When some worry that Uber is wrecking work, we need to remind ourselves, as The Economist wrote last year of the contingent workforce, “that the on-demand economy is not introducing the serpent of casual labour into the garden of full employment: it is exploiting an already casualised workforce in ways that will ameliorate some problems even as they aggravate others.”

 

ALL OF WHICH LEADS US to our unexpected bargain: Portable benefits. By redefining work for the 21st century in this way, we will find a common ground between workers who can’t or don’t want to obtain a 40-hour workweek with a traditional employer, and employers who seek to reimagine the worker-employer contract. It offers workers and employers alike the certainty they require while still acknowledging the realities of a technology-driven economy.

We need to put a structure in place that will raise standards for all contingent workers—including those who weren’t ever included in traditional labor law (notably, the domestic and agricultural workforce, explicitly excluded due to misogyny and racism). It’s time for a new safety net, with workers earning benefits that are

• portable from job to job;

• prorated by contributions from employers (for example, a $2-per-hour contribution); and

• universally accessible by all workers.

Portability ensures that benefits are not tied to any particular job or company, but that workers own their own benefits. Even if they work multiple jobs in a single day for multiple employers, benefits are pooled into a single account. A worker should be able to manage and maintain their benefits from year to year, and their protections should not depend on the app they currently have open.

Alfredo Mendez/Creative Commons

A Lyft car and driver in San Francisco. 

Proration means each company contributes to a worker’s benefits at a fixed rate depending on how much he or she works, or earns. Contributions from companies can be prorated by dollars earned, jobs done, or time worked. For example, if a person works an hour for a delivery company and an hour cleaning houses, both companies would contribute a predetermined amount toward that worker’s benefits on a per-hour basis, such as $1 for each hour worked. To increase their competitiveness in the labor market, companies could also choose to contribute more, or offer an expanded suite of portable benefits beyond the minimum requirements.

And universality requires that benefits cover all workers, not just traditional W2 employees. If all companies are playing on the same level field, there is a lot less room for gamesmanship and creative avoidance of employment classification, and more certainty for both workers and companies about their rights and obligations. Any viable benefits system for the new economy must cover individuals working outside of a traditional employment relationship.

A system of portable benefits would initially be tailored to the needs of contingent workers—especially on-demand workers, who are among the least protected—but could be extended outward to cover all workers below a certain benefits floor. And so it should, because the work of the future is much more likely to be a catch-as-catch-can, technologically mediated affair than a return to the union contracts of midcentury American industry.

Shared Security Accounts could track a variety of benefits, including:

• health insurance contributions

• disability insurance

• workers’ compensation insurance

• unemployment insurance

• retirement contributions

• paid sick leave

• paid vacation leave

• paid family leave

In terms of exactly how portable benefits are implemented, we should stress that this is a moment for a big “what” and a small “how.” We believe the system will provide the best outcomes if executed in certain ways, but it’s more important that cities and states quickly begin to experiment with how to implement portable benefits for their workforces.

That said, we propose that cities and states craft legislation that sets out the structure of the system, including a mandate for companies to pay into workers’ benefit accounts at prescribed rates. A state or municipal mandate, or industry-wide agreement, is more or less required to make this system work; anything less leaves loopholes for less scrupulous companies to exploit.

We intentionally are not suggesting an initial push for national legislation, because, as the Fight for 15 and the path to legalized same-sex marriage have demonstrated, the real work of moving America forward in the 21st century has begun at the state and city level. It’s not just blue states moving forward, either: Arizona voters approved a statewide $12 minimum wage while also voting for Donald Trump at the top of the ticket. It’s obviously best to enact portable benefits at the state level to avoid tricky coverage issues (such as, for example, Lyft drivers taking fares into a neighboring city that does not support a portable benefits program). But where state leaders are unwilling to experiment, it must fall on the most forward-thinking cities to forge a path that others will surely follow.

We believe that Shared Security Accounts would best be administered by nonprofit benefit providers whose qualifications are determined by criteria written into statute. We imagine that any number of existing nonprofit organizations, including unions, professional societies, civic groups such as the AARP, and credit unions will have a vested interest in competing in this space. These providers would have to legally agree to stringent conflict-of-interest rules ensuring that they operate with the best interests of beneficiaries in mind, and that they are insured to possess sufficient cash reserves to pay out the benefits that workers have already earned.

The benefit providers will compete on an open exchange for the business of individual workers, who will choose the provider that offers the suite of benefits that most appeals to them. To take advantage of pooled insurance rates, however, benefits such as health insurance, disability insurance, and workers’ compensation should be mandatory.

Once they pass the regulatory hurdles, these benefit providers will be accountable to workers as their customer base. If workers are not satisfied with the quality of their pension plans, they should be able to easily move their account to another provider on an annual open-enrollment basis, with all current benefits intact. This will ensure that providers will advocate for and efficiently provide the highest-quality package of benefits for their workers. Provider organizations could choose to contract with financial institutions and insurers as vendors, but we do not foresee that most of these stringently profit-driven companies will meet the necessary criteria to place beneficiaries’ interests before profits.

Mark Warner/Creative Commons

In a recent op-ed in The Washington Post, Senator Mark Warner recognized that “[m]odern American capitalism is not working for many Americans,” and recommended that “we should be encouraging more innovation and experimentation around portable benefits—a 21st-century safety net tied to the individual, not the job.”

How would qualifying organizations provide portable benefits that significantly match current offerings for W2 workers? Certain benefits are already available as products that would function well in a portable system, including health care and retirement plans. Some, such as disability insurance and workers’ compensation, are now virtually impossible to secure as an individual, and would require new products to be created by insurance companies or innovative startups. Others, such as paid leave, would need to be conceptualized from scratch as cash accounts or accruals that could be withdrawn as cash with the plan administrator’s approval.

Obviously, Shared Security programs would not replace preexisting public benefits like Social Security, Medicaid, and Medicare. In time, as local portable benefits plans establish themselves, it will become clearer how to thread national social safety-net programs—and more complex national issues that are currently in flux, like Obamacare—into a Shared Security program.

Each worker will be provided with a Shared Security Account card or number, which they will then provide to each employer. Whether they work for one employer per week or a dozen, all their benefits—vacation time, sick time, retirement, health insurance contributions—land instantly in a single, easy-to-manage account. We imagine that workers will be able to access their benefit options through an online portal that helps to guide them through their choice of provider, benefit types, contribution and withdrawal options, and more.

Benefit providers can resolve the portability and universality problems of a portable benefits system, but what about proration? How much would this amount total for each hour worked?

Our internal analysis of the cost of providing basic benefits in Washington state yielded an average figure of between $1.68 and $3.54 per hour, depending on the worker’s age and occupation. This calculation includes the cost of the most critical social safety-net components, in our opinion: Sick leave; workers’ compensation insurance, offered by the state of Washington; and 60 percent of the most inexpensive bronze-level health-care plan on the Affordable Care Act exchange. (Our sick leave calculation is based on the City of Seattle’s innovative paid sick leave legislation, which requires that large employers fund one hour of paid sick time for every 30 hours an employee works.)

Another metric comes from the conservative Heritage Foundation, which estimated last year that employers save about 20 percent on their total payroll costs by shifting workers from W2 employment to 1099 employment. That works out to $3.61 per hour for employees earning a $15 hourly wage, and includes the cost of unemployment insurance, payroll taxes, and $2.27 per hour in Affordable Care Act penalties for uncovered employees.

No matter what the magic number is, it’s important to remember that the established amount of deposit for portable benefits accounts is a floor, not a ceiling. While many present-day low-wage employers will undoubtedly pay the bare minimum in benefits, many other employers—those who prefer to invest in a long-term high-quality workforce—can offer better benefits like higher 401(k) pay-ins and higher-quality health insurance to desirable employees.

Depending on the specific legislation passed by each state or municipality, the Shared Security System would likely begin with 1099 contractors and then circle outward to more traditional employees. There are currently a variety of limitations on state or local changes to retirement and health coverage requirements for W2 employees. We also believe that it makes sense to bring contingent workers closer to parity with traditional W2 workers as a first step, as contingent workers usually lack employer contributions for Social Security and Medicare, health insurance mandated under the Affordable Care Act, paid sick leave in states that require it, workers’ compensation, and other crucial benefits. However, in the long run we would like to see a mandated benefits floor that applied to every worker, to reduce the games that companies play with worker classification and ensure that workers are treated equally under the law, no matter their job or sector.

Basic benefits are critically important for American workers, but benefits on their own are meaningless without setting an enforceable floor for the minimum labor standards that all employers must meet, including:

Paid leave. Employers will be legally obligated to provide time off to use the leave benefits accrued in portable benefits accounts, without intimidation or retaliation.

Livable minimum wage. The federal minimum wage should be raised to $15 an hour and indexed to inflation.

Anti-discrimination and worker protections. The federal government should pursue policies that create real wage parity between women and men and properly enforce anti-discrimination provisions. Reasonable health and safety standards should be enforced regardless of workplace or worker classification.

Health insurance. Obviously, the federal government also needs to improve health-care policy to the point where every American, regardless of employment, has health insurance. Single-payer health insurance by a government or government-related source would help to resolve issues around the skyrocketing costs of care in the United States and provide true universal access.

AP Photo/Matt Rourke

Taxi and Uber's black car service drivers protest the ride-hailing services Uber X and Lyft Wednesday, December 16, 2015, in Philadelphia. 

For now, we incorporate health insurance into our model because it has historically been tied to employment for U.S. workers.

 

WE'VE ALREADY SEEN SOME motion on portable benefits. Senator Mark Warner, a Virginia Democrat, has prompted the federal government to collect more information about the on-demand economy. In a recent op-ed in The Washington Post, Warner recognized that “[m]odern American capitalism is not working for many Americans,” and recommended that “we should be encouraging more innovation and experimentation around portable benefits—a 21st-century safety net tied to the individual, not the job.”

The Republican Party also included a provision in their 2016 party platform that said changes in technology and the workplace mean that employees need “portability in pension plans and health insurance.”

Another leader on the effort has been Senator Elizabeth Warren. “For many,” Warren said in a speech at the New America annual conference in 2016,

… the gig economy is simply the next step in a losing effort to build some economic security in a world where all the benefits are floating to the top 10 percent. … Workers deserve a level playing field and some basic protections, no matter who they work for, where they work, or how the law classifies them. They deserve a strong safety net, dependable benefits, and the chance to bargain over their working conditions—that’s the basic deal. And that’s the deal that is necessary to restore a strong and sustainable American middle class.

Hillary Clinton also enshrined the concept in her presidential platform, noting that “as the nature of work in America changes, the government must do all that it can to update the safety net and ensure that benefits are flexible, portable, and comprehensive.”

Critics of this idea argue that prorating benefits and tracking hours will be difficult. Yet Starbucks utilizes scheduling software that can plan a shop’s schedule months in advance down to the last second, while freelancers have access to powerful software like Harvest that easily allows them to track a complex set of tasks for a variety of employers.

Then there are those who argue that paying a living wage and benefits is impossible. But if you think that’s impossible, imagine running a business with no paying customers; a modern economy can only thrive when all participants are able to be consumers. Strong economies are completely compatible with high wages and labor standards—the minimum wage in Australia is $17.70 an hour, while fast-food workers make a minimum of $20 an hour in Denmark, and the average autoworker in Germany made more than $67 per hour including salary and benefits, nearly twice the $34 average in the United States.

Others charge that this plan will only encourage automation. We say, try selling burgers to your burger-flipping robots.

Finally, there are those who claim that the old employment agreement is the only way forward. But we must reluctantly admit that the old employment contract of the 20th century isn’t coming back.

One argument that few dispute, regardless of party affiliation, is that the current social contract between companies and workers isn’t working. Inequality is rising, growth is not where it should be, populist unrest is increasing. Clinging to a system of labor laws that originated out of the Great Depression—built for an industrial economy that no longer exists—is not a viable strategy.

Most policy experts believe that something like a Shared Security System is coming. Some pilot programs will be sketched out as early as 2017 by state and local governments. The only question is how we build this system. Do we choose to create a system that gives outsize power to large employers, casting a century of labor standards to the dustbin of history? Do we attempt to regulate new-economy employers into behaving as though they’re the factories of the mid-20th century? Neither path works. Instead, we must create a system that benefits both employers and employees.

The Shared Security System balances the needs of workers and employers because those needs are not, and have never been, at odds. The trickle-down economics story, which pits owners against workers as parasites who suck profits dry, is a fact-free caricature. Employees are not regrettable expenses to be strip-mined and cast aside; they are problem-solvers, teammates, brand ambassadors—and they are customers, too.

In the proposal we’ve outlined, government does what it does best—establishes a floor of basic rights and standards on which businesses can innovate—and in so doing creates a civic infrastructure for benefit providers to advocate for their workers. It also removes the complex burden for employers to manage benefits, an ill-fitting relationship born out of necessity almost a hundred years ago.

Many have told us that this concept reimagines too much of the contract of American work. But if the election of Donald Trump does nothing else, it should inspire progressives to think bigger than just tinkering with decades-old social programs ill-fitted to our modern economy. Progressives must create and promote new, nimble programs that help America to evolve as a nation and an economy. Our goal is not to make America great again; it is to make America better than ever as we transition into a dynamic 21st-century economy.

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