My Congressional Testimony: Flexible Benefits for a Flexible Workforce

My testimony before the House Committee on Education & the Workforce on April 11, 2024, where I address how to legalize access to benefits for independent workers

Below is an abridged version of my testimony on April 11, 2024 for the House Committee on Education & the Workforce, Subcommittee on Workforce Protections hearing on “Unlocking Opportunity: Allowing Independent Contractors to Access Benefits.” You can listen to my oral remarks here, beginning at 32:32.

My full, written testimony is available here.

Good morning, Chairman Kiley and members of the Subcommittee on Workforce Protections. It is an honor to testify before you.

My name is Liya Palagashvili, and I am a labor economist at the Mercatus Center at George Mason University. I am also on the Data Users Advisory Committee for the US Bureau of Labor Statistics. I study the independent workforce and the changing nature of work. My research on flexible benefits for independent workers has motivated state legislative reforms over the past year, and I would like to share some of those insights with you. 

My testimony today focuses on legalizing independent contractors’ access to fringe benefits. My three key points are:

1.    Independent contractors lives would be enhanced if they had access to benefits.

2.    States are experimenting with various portable benefits models so that workers care not forced to choose between structured employment with benefits or flexible work without benefits. 

3.    Federal policy can provide a safe harbor for state and local experimentation with these portable benefits systems.

1. Enhancing the Lives of Independent Contractors

On my first point: It is a rare chance when your research so closely connects to your personal life, so before I dive into the subject matter, I would like to share a brief story.

In January 2020 my father lost his work. He had been a driver his whole life—even before coming to the United States. The US company he had been contracting with told him they are moving away from an independent-contractor model to an employment-based model.

My father was offered a position to become a full-time employee at the company. He turned it down. He continued to remain without work until he found an opportunity to be an independent contractor again.

What my father’s story illustrates is that regardless of worker-classification policies that may tip the scale in one direction or the other—such as the Department of Labor’s recent independent-contractor rule or California’s Assembly Bill 5 (AB5)—there will still be millions of US workers who will continue to engage in independent contracting or self-employed work just because they want to. Indeed, according to the Bureau of Labor Statistics, almost 80 percent of all independent contractors prefer their work arrangement over an employment arrangement, and fewer than 1 out of 10 would like to be employees.

For some, like my father, being a contractor rather than an employee gives them freedom to work on side projects and side businesses. For others, it is out of necessity—some workers have disabilities or life circumstances that hinder their participation in the labor market. And for the vast majority of independent contractors, especially those using app-based delivery and transportation platforms, being a contractor rather than an employee is simply about the opportunity to make side income.

So, the question before us is how to address the challenges confronting millions of independent contractors who will choose to remain self-employed regardless of the broader worker-classification policy debates.

2. How States Are Legalizing Access to Benefits for Independent Contractors

This brings me to my second point where portable, or flexible, benefits reforms can be monumental. 

One of the key challenges today is that regulations restrict organizations from providing independent contractors with benefits. If an organization were to provide benefits to their independent contractors, it would risk the worker being reclassified as an employee. This discourages companies from providing benefits to independent contractors.

That means our current regulatory framework does not provide an option for workers to have access to both independent jobs and benefits.

That is why states are now beginning to experiment with various portable benefits models. Last year, Utah passed a bill that removes the presence of benefits as a factor in worker classification tests. Others are experimenting with tax credits for independent contractors.

Just last week, with the backing of Pennsylvania’s Governor, the platform company DoorDash launched a first-of-its-kind pilot portable benefits program making contributions into a worker’s flexible savings account managed by the benefits company Stride. Delivery drivers can use those funds toward retirement savings, paid time-off, or health insurance premiums.

These are just a few ideas for how states are implementing reforms to help all workers—not just employees—better step into the future.

3. How Federal Policy Can Unleash Portable Benefits Reforms

And now my third point is the vital role that federal policy can play to help legalize access to benefits for independent contractors.

This past year, I co-led the Utah Flexible Benefits Working Group under the leadership of Utah Senator John Johnson. One of the key takeaways was that the biggest barrier to flexible benefits implementation in Utah was fear from the federal level. Companies were discouraged from providing benefits to independent contractors in Utah regardless of the state law because they could still be penalized by the IRS or the Department of Labor under federal regulations.

Therefore, federal policymakers should create a safe harbor. A policy would need to explicitly state that no federal agency can use the presence of benefits to determine whether a worker is an independent contractor or employee.

This is just one example—there are other ways for federal policy to support creating a more equitable system that puts independent workers and employees on more equal footing. As I have discussed here, legalizing access to benefits for independent contractors is a small but necessary step that could (1) help unleash the flow of benefits to independent contractors and (2) allow states and localities to experiment to find the systems that works best for their citizens.