State Lawmakers Taking More Interest in Portable Benefits for Gig-Economy Workers

The gig economy has transformed the world of work.

Gigs like working as an on-demand driver for Lyft or Uber, or as a freelance web developer on Fiverr, offer flexibility and autonomy not found in traditional nine-to-five jobs. Americans are flocking to them in droves.

More than a third of U.S. workers told Gallup that they participate in the gig economy in some capacity—and that survey was conducted in 2018, five years ago. Since then, of course, the trend has just accelerated, with the chaos of the pandemic rewarding agile workforces.

But despite its growing popularity, gig work poses some serious disadvantages to workers, particularly those who rely on gigs as their primary source of income.

Gig workers are classified as independent contractors, not as employees, which generally excludes them from a litany of employee benefits and protections, from paid leave to minimum wages and, perhaps most importantly, health insurance. According to a 2022 survey by McKinsey & Co., 36 percent of employed respondents identified themselves as independent contractors, up from 27 percent in 2016.

As gig work becomes more and more popular, state lawmakers across the country are growing concerned that labor benefits historically enjoyed by U.S. workers have become out of reach for a sizable segment of the population, particularly those from marginalized communities.

To address that issue, state policymakers in recent years have begun discussing a radical change to employee benefits: making them “portable.” Instead of health coverage being tied to a particular job, policymakers are exploring whether medical insurance and other benefits could be tied to individual workers, allowing the coverage and protections to “follow” them from employer to employer.

The discussion has gained so much momentum that “job lock”—staying with an employer to avoid losing benefits—could, at least in theory, someday become a thing of the past.

More States Taking Serious Look at Portable Benefits

In January the National Conference of State Legislatures reported that since 2018 at least nine states—Alabama, California, Connecticut, Georgia, Massachusetts, New Jersey, New York, Washington and Vermont—had introduced bills to establish portable benefits programs for gig workers, devote funds to experiment in this arena or study related issues. In mid-February Utah became the tenth state to introduce such legislation.

A few years ago it looked as though the portable benefits debate might be coming to a head in California when voters approved Proposition 22, which authorized gig-economy companies to offer app-based drivers limited benefits like accident insurance.

But a California judge ruled in August 2021 that portions of the initiative were unconstitutional, leaving the whole measure unenforceable.

Thus, no comprehensive portable benefits legislation has been enacted. At least, not yet.

This year, though, Utah enacted SB 233, which allows government entities or private businesses to offer portable benefit plans. And lawmakers in Massachusetts and New Jersey are considering bills to establish portable benefits for gig workers. Massachusetts HB 961 seeks to establish “portable benefit accounts for app-based-delivery drivers,” while New Jersey AB 789 and its corresponding bill in the other chamber, SB 328, seek to establish a system of “portable benefits for workers who provide services to consumers through contracting agents”—i.e. platforms like Uber.

In addition, Massachusetts (HB 1099) and New Jersey (SB 723) have bills before their legislatures that would establish bills of rights for transportation network drivers and domestic workers, respectively. Both of the measures include provisions relating to portable benefits.

“Portable benefits that follow workers are not a new idea (think COBRA health insurance coverage and even Social Security),” wrote Anna Petrini, program principal in Employment, Labor & Retirement for the National Conference of State Legislatures last year. “But with today’s tectonic shifts in the workforce, state policymakers are weighing which benefits should follow workers from job to job, along with eligibility, funding and administration considerations. Meanwhile, industry leaders are stepping into the breach with new products that leverage fintech and behavioral economics, and institutional innovators are thinking through new models for worker organization and benefit structures.”

Portable Benefits for Gig Workers Slowly Catching On

Since 2018 at least 10 states have considered and two have enacted legislation dealing with portable benefits for transportation network drivers and other gig workers, according to analysis by the National Conference of State Legislatures and LexisNexis® State Net®. Three states have considered and one, Utah, has enacted such legislation this year.

Many Factors for States to Consider When Exploring Portable Benefits

Earlier this year NCSL published a “framework” for states to consider when looking into portable benefits. The organization’s Portable Benefits Work Group wrote that a key matter for states to consider is whether portable benefits should be account-based or pooled.

“Account-based programs are tied and controllable by individuals. Pooled programs are based on group contributions and are generally controlled by another actor,” the working group wrote. “For example, traditional 401(k)s are account-based and public pension funds are pooled arrangements. Some states, such as New Jersey, introduced prescriptive legislation and others, such as Alabama, leave many of the choices up to workers.”

The working group also wrote that states will need to consider eligibility requirements as well as mechanisms for funding portable benefits.

“What are the relative merits of mandatory versus voluntary contributions?” the working group asks at one point in its report. “Reliability could be one advantage of the former, while stakeholder buy-in could be easier to secure with the latter. Another question policymakers might consider is whether contributions might be mandatory for some stakeholders and voluntary for others. There is certainly wide variation in state bills, ranging from explicit formulas to more flexible approaches.”

The NCSL framework makes clear that there are a lot of factors for state policymakers to consider when exploring portable benefits—and that there is not yet any consensus on the best way to set them up for gig workers.

Legislative Breakthroughs Could Spark More Bills Nationwide

Landon Jacquinot, a policy associate for NCSL, said that while consensus is lacking on portable benefits, there have been some legislative breakthroughs, including Washington’s enactment last year of HB 2076, which established minimum per-trip payments, paid sick leave and workers’ compensation benefits for rideshare drivers, and Utah’s passage of SB 233 this year.

Jacquinot said either of those bills, or perhaps another bill still to be approved by a state legislature, could be the spark that gets a portable benefits trend moving throughout the country.

“We’ll see what happens,” he said. “When one state passes it, it tends to catch on and pass to other states.”

—By SNCJ Correspondent BRIAN JOSEPH

 Please visit our webpage to connect with a State Net representative and learn how the State Net legislative and regulatory tracking solution can help you identify, track, analyze and report on relevant legislative and regulatory developments.