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Lack of benefits can leave part-time W-2 and 1099 contract workers vulnerable
About one-quarter of working Americans are employed in part-time, independent contractor or contingent positions rather than full-time, permanent jobs, and most of them lack employee benefits, a new study shows. Employers that are anticipating an increase in part-time and long-term contract workers can better compete for talent by providing their entire workforce with employer-sponsored benefit options, including access to employee-paid voluntary benefits.
Part-Time Nation, a report on the latest findings from Guardian Life Insurance Co.'s annual workplace benefits study, reveals that the lack of employee benefits for part-time workers makes them financially vulnerable. For instance:
The study draws on a survey conducted in spring 2016 with responses from representative samples of 1,439 full-time and 277 part-time permanent and contract workers.
"More Americans are seeking greater autonomy and flexibility in their career than they can find in the traditional 9-to-5 model," said Peggy Maher, senior vice president and head of Guardian's direct-to-consumer business in New York City. "While pursuing a passion and achieving greater work/life balance are major advantages of alternative work arrangements, the lack of important insurance and retirement benefits can negatively impact financial security for [part-time workers] and their families."
Under a voluntary benefit program, the employer offers workers a menu of benefits; employees pay for the ones they want through payroll deductions. The employee pays the cost, and the benefits provider handles all administration and provides all needed education materials, Maher explained. Usually employees are responsible for paying 100 percent of the premiums. However, voluntary benefits sometimes are niche offerings, such as pet insurance, that might appeal to a subset of workers, and employers may pay part of the cost.
Providing access to voluntary benefits can ease part-time workers' financial stress, reduce turnover and differentiate employers from competitors in the talent market, Maher noted.
"They also will have more satisfied employees overall," said Paul Fronstin, director of the nonprofit Employee Benefit Research Institute's (EBRI's) health research and education program, in Washington, D.C.
[SHRM members-only how-to guide:
How to Design an Employee Benefits Program]
Voluntary Benefits Fill a Gap
Last year, an EBRI
study on voluntary workplace benefits, with responses from 1,500 workers throughout the U.S., showed that workers identify lower cost, choice, and the convenience of paying for benefits through pretax and payroll deductions as strong advantages of voluntary benefits.
"Many voluntary benefit programs can be offered to part-time employees on a payroll or direct bill basis," explained Peter Marcia, CEO of YouDecide, a Richmond, Va.-based web-based benefits platform provider.
"Although part-time employees may not have the same access to a full suite of core benefits, voluntary benefits can allow part-time workers to take advantage of special pricing and underwriting concessions offered to other employees," Marcia noted. "Examples can include auto and home insurance, employee purchase program, identity theft, or worksite programs such as critical illness and accident insurance."
Worksite benefits "may be especially important to part-time employees to help cover out-of-pocket costs if they have a high deductible health care plan," Marcia added. "Communicate to part-time employees directly by outlining programs they are eligible for."
Putting the Components in Place
"By 2020, research indicates, as much as 50 percent of the U.S. workforce will be working on some sort of freelance, gig or on-demand basis. That suggests a seismic reshaping of the composition of the American workforce," said Joseph L. Murgo, a Charlotte, N.C.-based independent benefits consultant with more than 30 years experience.
As part-time or other intermittent workers are a larger portion of the workforce, "the competition for talent is really no different. You still want attract and keep high quality workers who will be good performers," said Murgo, formerly executive director of Aetna Voluntary Plans and currently on long-term assignment as an executive consultant with another major health insurer. "The difference is how many hours they work and which benefit plans they may be offered. But you still want to bring good talent into your company."
For the most part, benefits for part-time, freelance and other intermittent workers would be employee-pay-all, he said, but "there are some occasions where more generous employers may choose to make a premium subsidy for their non-full-time workforce."
An employer might have 10,000 active, full-time core employees entitled to the full benefits and another 30,000 intermittent workers that could be a mix of part-time variable-hour workers and independent contractors, Murgo explained. The employer could create a separate program for these workers, "perhaps more limited, lower-premium benefits to take account that segment of the workforce that earns less than those working on a full-time active basis."
These workers would go through open enrollment just like active workers, picking and choosing benefits that meet their lifestyle and family needs, and paying for them through payroll deduction. "The big difference would be that virtually all those benefits would be paid for out of the employee's pocket, usually 100 percent, versus having the employer subsidize them," Murgo said.
Employers could construct a portfolio of benefits, anchored with a medical plan such as a lower-premium minimum essential coverage type plan which offers limited benefits with no deductibles or co-insurance that is both Affordable Care Act compliant and less expensive than the subsided plan offered to full-time workers. Surrounding the health plan could be supplemental offerings—mixing pretax and post-tax benefits—such as dental and a vision plan, term-life insurance, hospital indemnity and critical illness/accident plans.
"You could layer into that pet insurance and identity theft protection in keeping with the employer's decision to include a narrow or broad range of products," Murgo explained.
For 1099 contract workers, employers can sponsor benefits and make them available for the same reasons they would with their W-2 workforce, to be able to recruit as an "employer of choice" and to retain high-value workers. "For the 1099 workforce, however, employers have to be careful of making contributions because of IRS issues," he noted.
Uber Provides Drivers with Retirement Savings Support
Ride-sharing service Uber is providing more than 2,500 drivers with access to Betterment, an online financial advice service, Bloomberg BNA reported on Aug. 28. Drivers who access Betterment through an Uber app are encouraged to sign up for individual retirement accounts and are eligible for a "special pricing package" through Uber. But Harry Campbell, a Los Angeles Uber driver who runs a blog titled The Rideshare Guy, told Bloomberg BNA that "It sounds cool on the surface, but a lot of drivers don't have the money to contribute to a retirement account."
Part-Time Benefit Challenges
One challenge involved with part-time or independent contractor benefits is "getting employees engaged in the offering and to understand how they can add value to someone's life depending on their needs and whatever stage of life they're in," Murgo said. "You don't want to go through the trouble of building a voluntary benefits program tailored for intermittent workers and not have it used."
Worksite marketing and communications can persuade intermittent workers "to at least log on to the web portal and read about the benefits, or contact the call center agent and ask questions. Then they can make decisions as to whether any of the benefits make sense for them or not."
While some carriers allow employees to pay voluntary benefit premiums through a direct-pay program using credit-card deduction rather than through payroll deduction, "direct-pay is typically more common for individual insurance products rather than for employer-sponsored group plans. The group market is almost always funded through payroll deduction," Murgo said.
For that to work, employees typically would need to work at least 20 to 25 hours per week on average so they have a large enough paycheck to make a payroll deduction. "There has to be a certain minimum level of hours for this to make sense, and so employers will set eligibility guidelines," he noted.
Staffing Firms Offer Benefits to Contingent Employees
The job market for staffing firms has become much tighter, with "job orders they can't fill because they can't attract enough people to hire," said John Rutledge, a senior vice president in the St. Louis office of Assurance, a benefits consulting and insurance brokerage firm. "We can't create a larger labor pool, but we can help staffing firms to become a more attractive employer of choice."
Staffing firms have grappled with administering employee benefits because they have two workforces—a small core permanent workforce of people who manage the company, and a larger contingent workforce on long- or short-term assignments with client companies.
The contingent workers are W-2 employees of the staffing firms, and they are looking for their employer to provide benefits, Rutledge said.
The majority of staffing firms began offering health benefits to their contingent workers to comply with the Affordable Care Act. "The challenge now is helping staffing companies modify skimpy 'minimum essential coverage' health plans without adding a lot of cost, to create something that's more attractive to the employee," Rutledge said.
In most cases health plan premiums are paid by the contingent employees, but in more competitive local labor markets employers are contributing as well, he said. "In California, the farm labor contractors can't hire enough people to do the job, and paying more in wages is not as attractive financially for an employer as it is to pay more for benefits, which are tax free to the employee."
Staffing firms also are increasingly offering supplemental covering—dental, vision, life and disability insurance, for instance—to contingent workers as voluntary, employee-paid benefits. But, Rutledge said, "it's still rare to have a 401(k) plan in staffing firms [for contingent workers] because so many of the rank and file workers don't contribute, which makes these plans top heavy."
Health Care Between Assignments
If contingent workers' health plan premiums are paid monthly and deducted from their paychecks, then when they're between assignments and not being paid that creates a challenge.
"Either the staffing firm, as the employer, is in a position of having to pay the premium and collect from the employee once they return to work"—that is, begin a new assignment—"or, in some cases, the staffing firm will try to deduct one or more premiums in advance so they have it in hand" while the employee is between assignments and not getting paid, Rutledge said.
Some employers with a large contingent workforce are partnering with their insurers to create a weekly, rather than monthly, premium option. Under this structure, "If you don't have a paycheck this week, you don't have coverage this week. If you come back to work next week, then we start deducting again and your coverage resumes."
While a week without coverage is better than losing coverage altogether, "it's still not good for the employee," Rutledge noted, and some of these workers may be better off purchasing individual policies on a public health care exchange.
Related SHRM Articles:
Phased Retirement Gets a Second Look,
SHRM Online Benefits, July 2017
What Benefits Can Companies Offer Gig Workers?,
SHRM Online Benefits, March 2017
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