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Benefits Products & Services

As on-demand workforce grows, Prudential seeks benefits solutions

For most people, “work” is the place you go every week to perform your marketable skills in exchange for a paycheck. That check is reduced by mandatory withholdings and augmented by a package of employee benefits. If you are a “gig worker,” an independent contractor with 1099 income, you pretty much get a paycheck, period.

Gig workers perform “on demand” work. They do stints at one employer, then may move to another. Or they could work for multiple employers simultaneously, either on-site or from home. Instead of a W-2, their earnings are reported on a 1099 form.

The job functions of gig workers are diverse—from traditional white collar or blue collar, to technical, creative or personal care. One thing they have in common is a lack of access to a traditional employee benefits package at their places of work.

Prudential recently commissioned an independent study that shows only about 40% of workers whose income is derived entirely from gig work have access to employer-based medical insurance benefits, which includes benefits derived from a spouse or by affiliation with a professional association. By comparison, 82% of full-time employees have access to employer-based medical benefits. The discrepancy for gig workers in retirement plans also is significant—52% for full-time workers to 16% for gig workers.

“In 2005, maybe 10% of the workforce had 1099 income, and it was up to 15% by 2016. We see it continuing to rise.”
—John “Jamie” Kalamarides
President, Group Insurance
Prudential Financial

The purpose of Prudential’s study is to better understand the mindset of gig workers and determine how their financial wellness needs can be better served. Like other major benefits providers looking at this issue, Prudential notes that 1099 workers are a growing segment of the workforce. “In 2005, maybe 10% of the workforce had 1099 income, and it was up to 15% by 2016. We see it continuing to rise,” says John “Jamie” Kalamarides, president of group insurance for Prudential Financial.

Rather than studying all gig workers as one group, Prudential’s study segmented them into “Gig Only” workers—those whose only income is from 1099 work—and a “Gig-Plus” group, who have gig income as well as income from a traditional employer relationship. Both groups express satisfaction with their gig work arrangement.

For Gig Only workers, the demographic group that is most satisfied with their work arrangement is Baby Boomers (75% like their work arrangement and wouldn’t want to change it), followed closely by Millennials (67%). The least satisfied are GenXers at 45%. For the Gig Only worker group as a whole, the leading source of dissatisfaction is the lack of benefits.

Kalamarides notes, “Gig Only workers on average are older and are more likely to be retired or stay-at-home parents. They often are looking for the next opportunity.” The study finds that younger Gig Only workers are less likely to have access to benefits (70% have no access) compared to the 44% of Gig Only workers over age 55 who have no access.

Gig Plus workers generally are younger and work an average of 44 hours a week, doing the 1099 work to supplement their regular W-2 income. Gig Plus workers also are less likely to be the sole source of household income and are more likely to have attended graduate school and to still be a student, the study states.

The job category with the most Gig Only workers, according to the study, is construction, installation and repair. For Gig Plus workers, the leading category is computer and IT. Jobs in sales and jobs in personal care and service rank high for both Gig Only and Gig Plus workers. However, as noted earlier, job categories of 1099 workers vary widely.

“From the employer’s point of view, the decision about whether to hire a full-time worker or contract worker varies by industry, the age of the company, and whether they are trying to create some flex capacity,” says Kalamarides. “Some industries, like arts and design media or installation, repair and construction, have a lot more gig workers.

“We’re starting to see some industries use contract workers to staff to their peak or to fill in the difference between supply and demand. The challenge for people who are in this Gig Only economy is that, although they might be earning a decent amount of money by piecing together their various gigs, they don’t have access to an institutional employee benefits marketplace.

“For Gig Only workers, their access to regular employee benefits is about half that of a full-time worker. A Gig Plus worker has about 20% less access to an employer’s benefits. Our hypothesis is that both of these groups are really using their spouse or an association to obtain access.”

Kalamarides points out a few ways that workers who are part of the on-demand economy can help narrow this benefits deficit. First, he says, “Workers moving from full-time to 1099 status can often port their benefits, such as life insurance, from a group policy to an individual policy at better rates than retail. This is a great option for those in transition.”

Also, he states, “An individual can always go out and buy products on a consumer level to piece together their benefits. They can open an IRA for retirement savings. They can participate in the federal or state health exchanges. They can purchase individual products, such as life or disability. The drawback is that these tend to be higher priced than what they would get in an employee benefits plan.

“Another option,” he points out, “is that many industries have associations that they can join, and often these associations provide purchasing power for benefits. For example, the AICPA (American Institute of Certified Public Accountants) provides a wealth of solutions—life insurance, disability and other products.”

It is impossible under current law for employers to provide a regular schedule of benefits to their contract workers, Kalamarides points out. “Under ERISA, the definition of employee benefits is predicated on the assumption that the employee is a W-2 worker. There would have to be modifications to ERISA to allow 1099 workers to participate.”

There is always the possibility that laws affecting the eligibility of contract workers for employee benefits could change. Kalamarides points out that, in February, U.S. Senator Michael Enzi (R-Wyo.), who chairs the Health, Education, Labor and Pensions Committee subpanel on primary health and retirement security, held a hearing to discuss benefits and the gig economy.

“Just as Senator Enzi has supported the idea of small businesses pooling their purchasing power to form open multiple-employer retirement plans (Open MEPs), he supports the idea of contract workers joining together to participate in retirement plans,” says Kalamarides.

Enzi said, “As more people join the ‘gig economy,’ Congress should work to ensure that choosing flexibility does not mean sacrificing access to retirement savings options.”

Kalamarides says financial wellness programs can be especially important to 1099 workers because their income streams are volatile. “They need to be able to smooth out their income and expenses. Programs that help people manage money at each stage of their lives are critical. It might be managing student loan debt, preparing for retirement, or establishing emergency savings funds.”

He believes 1099 workers can gain access to such a financial wellness program through a purchasing program established by an industry group, working in coordination with a large segment of contractors. The organization can create a pool of 1099 workers and introduce them to a financial service provider, like Prudential, that offers a financial wellness platform.

“In certain trades, such as construction and repair, unions are the classic way for members to pool their purchasing power and have benefits provided to them. Some people are not in unions and there are certain geographic regions where unions are not prevalent. Other organizations can do the pooling of workers, too. Sometimes it might be as simple as the Chamber of Commerce.”

Kalamarides continues, “We are experimenting with models for providing these services to 1099 workers. We know they have tremendous needs. We have financial wellness solutions that we’ve been delivering through the workplace. It’s now a matter of identifying non-traditional workplace areas, and how we can serve them.

“Associations are a very viable way of delivering these services, and it will be interesting to see what associations are building to meet the needs of gig workers.”

Gig workers fulfill a crucial role for companies seeking expertise with job functions where demand rises and falls, or for whatever reason they cannot commit to adding full-time employees. For the gig workers, it is proving to be a good arrangement. Prudential’s study found that Gig Only workers are less likely to say they are interested in switching to traditional work than full-time employees are in switching to gig work.

It appears that the gig worker model is a solidly entrenched part of today’s workforce. Benefits providers will be looking for opportunities to serve this growing population of workers.

The author

Thomas A. McCoy, CLU, retired in 2013 as editor-in-chief of Rough Notes magazine.