Many organizations prefer to have work performed by independent contractors precisely because they aren’t entitled to benefits, as employees are. Cost savings alone can justify that strategy, as there’s no need to enroll independent contractors in expensive health plans or contribute to their retirement savings.
But there’s a potentially expensive risk associated with using independent contractors: They’re likely to sue for misclassification, arguing that they’re actually employees who ought to receive overtime pay and other benefits.
The state of New York may be about to consider legislation that could reduce that liability, creating a system of “portable” benefits that would give independent contractors some of the advantages employees have without resorting to litigation.
The initiative is being spearheaded by business and labor leaders, including Andy Stern, the past president of the Service Employees International Union.
Earlier this month, Stern urged the New York State Assembly and State Senate to consider a measure that would set up a pool of money from which to fund various benefits for independent contractors, such as health insurance and pension fund contributions.
If enacted, it would allow companies that use independent contractors to contribute at least 2.5% of the fee for each job an independent contractor performs. Employer participation would be voluntary.
Contractors could then use the money to purchase benefits.
Enabling legislation is expected to be introduced in the State Assembly by the end of January.
What’s in it for organizations that hire independent contractors?
Draft proposals currently circulating dangle one huge incentive for companies to contribute: They would no longer have to worry about an independent contractor suing them for misclassification. The legislation would automatically classify any worker participating in the program as an independent contractor.
That may prove a powerful incentive to sign up for companies that rely on independent contractors, including so-called gig economy firms such as Uber and home-services start-up Handy, which have backed the measure.