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When Gig Workers Want Benefits, Should You Offer Them?

Voluntary benefits, bonuses and intangible rewards can motivate contingent workers

July 25, 2019 | Lin Grensing-Pophal

A group of people talking in a warehouse.

Last December, when Google's temporary, vendor and contract workers demanded benefits and better communication, the media took notice. Since then, and given the rise in the gig economy and a tight labor market, employers are asking if they should offer more benefits to make their gig workers feel engaged and valued.

Not All Gig Workers Are Created Equal

The Bureau of Labor Statistics' Contingent Worker Supplement indicates that just over 10 percent of U.S. workers take advantage of alternative work in some way, including temporary, on-call, contracted and freelance work.

Regarding their access to employee benefits, gig workers fall into one of three groups:

Those who receive full benefits through a staffing firm or professional employer organization.

Those working with organizations, such as Uber, that offer gig workers the opportunity to pay for health and retirement benefits.

Independent contractors and freelancers who don't get traditional benefits from an employer.

Gig workers are becoming disgruntled, as Google recently learned, and often their top concern is not having access to the benefits that full-time employees enjoy.

The U.S. government has drawn a line in the sand when it comes to how employees and contractors are treated. Cross that line, and face what can be stiff penalties.

"Companies take great economic risks when they misclassify a worker as independent," said Mark Kluger, a labor and employment law attorney with Kluger Healey in Fairfield, N.J. "The IRS and Department of Labor will seek payroll taxes, income taxes, FICA [Federal Insurance Contributions Act] contributions, unemployment and disability insurance contributions, and penalties on top of it," he cautioned.

Tangible Benefits

Health care coverage tops the list of valued benefits for employees and the same is true for contract staff (although perhaps not to the extent that HR managers believe, see box below). Providing employer-paid health care coverage for contingent workers, however, risks appearing to treat these workers as employees, employment lawyers advise.

Employers can, however, provide access to health care coverage, as Uber is doing, by letting gig workers pay monthly premiums to participate in a group health plan, which is often less expensive than the cost of individual market coverage.

"Gig workers fall outside the regular company-insurance world, but they do still need basic coverage," said Matt Jackson, vice president of client solutions at Thomsons Online Benefits, a benefits-management software firm. Employee-paid voluntary benefits offered month to month "will give gig workers the opportunity to ensure a certain level of protection and economic security."

Even so, giving gig workers access to benefits can be a slippery slope, said Mike Boro, a partner on PwC's workforce of the future team and an attorney who specializes in HR compliance. "If we find that clients are offering benefits, we actually raise it as a risk," he said.

Instead, Boro advises companies to work with temp agencies to provide benefits. That, however, doesn't help independent contractors who don't work through a third party.

Boro advises employers to exercise caution when working with a temp agency that passes the cost of benefits to employer clients. "It's clever, yes, but the benefits are not coming from the temp agency if you're paying for them"—which again raises employee status issues.

Gig-Worker Bonuses

Bonuses are another way to motivate and reward gig workers. "There is no reason that a company cannot offer bonuses to independent contractors, and they can even build them into the contract with the worker," Kluger said.

Jackson noted, "Companies like Uber incentivize gig workers with bonuses for completing a set number of rides in a certain time period or earning higher fares during busy hours in specific areas." Bonuses can be offered, for example, for high-quality work, early delivery of a project and when a gig worker helps control costs, he added.

"Since gig workers are often hired for short-term, time-sensitive projects, bonuses can help achieve consistent work that benefits the overall organization," Jackson said.

Clients are also free to provide gift cards, apparel and other forms of recognition to contractors, Kluger pointed out.

Intangible Incentives

Employers can also offer gig workers training and certification assistance, Boro said. This helps workers learn new skills they can use in other settings and with other clients.

Caution must still be exercised, however.

"The more a worker looks and appears to be treated like an employee, the more likely [federal and state agencies] are to determine that they are an employee," Kluger said.

Business cards, e-mail addresses, telephone extensions and even participation in company social events can play a role in that analysis, Kluger noted. "The more time a worker spends at or with a company, the less likely they will be treated as truly independent under state and federal tests."

There is also a pragmatic reason why providing the same benefits to employees and contractors would work against an organization, Boro said: If its gig workers get the same benefits as employees, an organization's ability to attract people to permanent employee roles could be hindered.

What Gig Workers Really Want

Managers and HR professionals, when asked to speculate on which benefits might attract external workers to their organizations, overestimated the value of both health care and paid time off to these workers, according to more than 1,700 interviews with managers, external workers and internal employees conducted in April 2019. Nevertheless, health care was still the top benefit gig workers cited as likely to motivate them to work for a company.

The research by the Society for Human Resources Management (SHRM) and SAP SuccessFactors indicated that many people who become gig workers have health care benefits from another source, such as the government or their spouse's employer. Retirement benefits, on the other hand, were far more important to external workers than either managers or HR believed.

gig worker chart-top.png gig worker chart-bottom3.png

Source: SHRM and SAP SuccessFactors, Want Your Business to Thrive? Cultivate Your External Talent.

Managers and HR underestimated gig workers' interest in bonus compensation for good work. Gig workers, however, reported "being recognized for contributions at work" as the factor that most encouraged them to perform their best.

Gig work chart 2 -TOP.png Gig work chart 2-Bottom.png