Best Benefits Practices for the Gig Economy

Benefits can attract gig workers, but don't treat them as employees

By Lin Grensing-Pophal October 27, 2021
LIKE SAVE
Best Benefits Practices for the Gig Economy

Gig work—project-based assignments performed by people operating as independent contractors—became more prevalent as the COVID-19 pandemic led rising numbers of employees to leave traditional full-time jobs. But the shift toward a gig-dependent economy predates the public health crisis and is expected to continue post-pandemic.

Employers benefit from gig work by gaining access to skilled talent at a time when hiring full-time employees has become more challenging. Gig workers, also known as contingent or contract workers, benefit from flexibility and access to new opportunities that might not have been available before.

While gig workers have not traditionally been able to partake in employee benefits packages, that's starting to change as employers realize that to attract talented gig workers in a tight labor market, they need to review and potentially revise their benefits options.

Employers, however, must remember a critical fact: Gig workers are not employees, and there are significant consequences for treating them as such, including when it comes to benefits offerings.

Gig Benefits on the Rise

Lacrecia Cade, the newly appointed president of Atlanta Life Insurance Co., says insurance companies and brokers have long provided benefits options for gig workers.

Now, however, she is seeing more companies offering gig workers "self-service menus [to purchase] insurance products that include health coverage, life insurance and other supplemental products for independent workforces," such as accident, cancer and hospital policies. Companies are also giving these workers access to identity theft protection and pet insurance.

Roni Jernigan, director of the consumer products division at benefits software firm BenefitMall, is also seeing more carriers introduce, or reintroduce, benefits aimed at the gig workers. But, he noted, "it's really dependent on the industry, the employer, the gig workers and the carrier." Some industries, such as the hospitality and construction industries, are more accustomed to using gig workers without providing benefits, he said.

Still, Jernigan noted, the pandemic is driving new interest in this area. In addition to medical coverage, gig workers "are looking for stand-alone dental, vision and other plans that fill the gaps. We have also seen a rise in nontraditional employer benefits such as telemedicine, wellness benefits, virtual consultations and holistic healing."

Caution: Status Change Ahead

In an increasingly tight labor market and amid reports of a "turnover tsunami," more employers may be thinking about offering benefits to gig workers. While doing so can help employers stand out as they seek to attract such talent, there are potential risks.

When determining individuals' status as either employee or independent contractor, employers will need to consider the duration of the contract, whether the individuals are self-directed and in charge over their hours worked, and whether they are receiving the same benefits as employees.

"Misclassification is a key issue for companies that utilize independent workforces because the penalties associated with this can be extraordinarily high," Cade said.

One way to avoid this risk, she explained, is for employers to keep doing what many have been doing: continuing to provide "a set of products, or a platform, that independent workers can access to build the right insurance portfolio to protect themselves, their business and their families"—essentially a "centralized marketplace for buying benefits that are otherwise available in the open market."

These won't be the same benefits employees typically receive, with group-level pricing, she said, but gig workers will benefit from access to products that can help meet their needs.

There's a key distinction between "gaining access" and "receiving benefits," pointed out David Klimaszewski, a partner in the Dallas office of law firm Culhane Meadows.

The mistake that some employers make, Klimaszewski warned, is "trying to provide the same types of benefits that they provide to employees to gig workers, and they generally can't."

SHRM Resource Hub Page
Future of Work

Reporting Failures Can Be Costly

In addition to properly classifying individuals as independent contractors, employers should be sure to report the value of employer-provided benefits as income on gig workers' 1099 statements.

A foundational best practice for employers when it comes to benefits administration and contract workers is to be aware of and follow the rules related to IRS reporting requirements, financial and legal advisors caution. Companies and gig workers both bear risk if something of value is received by gig workers, operating as contractors, but not reported by them or the companies they work with.

There are significant penalties for those who fail to follow these rules. But, Klimaszewski said, the risks are greater for organizations, which are far more likely than individual contractors to be audited. Companies also tend to have much deeper pockets for paying penalties than individuals do, which can attract regulators' interest.

Best Practices to Follow

Employers can play an important role in communicating to contractors what the contractors' tax responsibilities are, Klimaszewski said. The government must collect income taxes from somewhere—either through organizational withholding or contractor reporting.

"Basically, when you're an independent contractor, everything you receive—whether it's in cash or other goods, is all taxable," Klimaszewski said. "[As an employer, you] need to make it clear to contractors that they are responsible for reporting the income they receive from you; this includes the value of any benefits you are providing."

Jernigan noted that improved communication around benefits is important. "By not educating [gig workers] and communicating the benefits correctly, you risk either under- or over-utilization of the benefits, as well as gig workers not finding the benefits provided of that much value to them," he said.

Little Things Mean a Lot

Although organizations need to be cautious about giving gig workers access to benefits reserved for regular staff, there are other ways to attract and retain contingent talent. Even small tokens of appreciation can be welcome surprises. Some examples:

  • Monetary incentives to recognize significant effort on a project—in essence, paying more than originally agreed upon for services provided.
  • "Swag" such as water bottles, coffee mugs and mouse pads that bear the company logo.
  • "Care packages" containing food and goodies like coffee, candies or charcuterie.
  • Access to company training to help gig workers build existing skills and acquire new ones.
  • Discounts on company products and services.

Remember, though, that any of these types of benefits that would provide financial value to contractors may have to be reported on their 1099 forms; when in doubt, check with your financial and legal advisors.

Finally, simply engaging gig workers as part of the team and including them in communications, meetings and events can help them to feel more appreciated and valued.

The growth in the gig economy may result in changes to tax laws to allow more flexibility in providing benefits in the future. For now, though, employers need to be aware of and adhere to the laws and rules that regulate what types of benefits they can provide and how they need to report those benefits.

Lin Grensing-Pophal, SHRM-SCP, is a Wisconsin-based business journalist with HR consulting experience.


Related SHRM Article:

Managing Expectations: How to Balance Gig Workers and Regular Employees, SHRM Online, February 2020


LIKE SAVE

SHRM HR JOBS

Hire the best HR talent or advance your own career.

Are you a department of one?

Expand your toolbox with the tools and techniques needed to fix your organization’s unique needs.

Expand your toolbox with the tools and techniques needed to fix your organization’s unique needs.

REGISTER NOW

SPONSOR OFFERS

HR Daily Newsletter

News, trends and analysis, as well as breaking news alerts, to help HR professionals do their jobs better each business day.