Better Protection for Workers and Freelancers and Lower Burdens on Employers? It Can Be Done!

The emerging freelance economy promises greater flexibility for workers—but greater uncertainty and insecurity, too. We can ensure greater security for workers while encouraging innovation and reducing burdens on employers and the self-employed.

Intuit, a business and financial software company, released a study in 2010 estimating that 40% of US workers would be freelancing by 2020. By May 2015, 15.5 million Americans were self-employed, which was up by around 1 million on 2014. Although by August of this year, the Bureau of Labor Statistics reports this number had returned to around 15 million, this is likely the result of the greater availability of employed work as the economy heats up and is unlikely to mark a wholesale reversal of the trend. Whether we hit a 40% freelance ratio in 2020 or 2025, the trend is clear.

Self-employment has much to recommend it: You can set your own hours, you have no boss, and you enjoy the feeling of satisfaction that comes from being "independent". On the downside, your income can fluctuate wildly, making budgeting difficult, and you do not the get paid vacations, sick leave, or other benefits that come with the stability of being employed. At the same time, employing workers is expensive, and government rules (like those within the Affordable Care Act) put additional burdens on employers.

I have argued* that health insurance should be independent of employers because this would give control to workers/patients and encourage them to shop around for the best deals, avoid coverage gaps by allowing workers to take their health insurance with them when they change jobs, and reduce the burden on employers, encouraging them to employ more people and pay them more, having saved money on health insurance. There's no reason to stop at health insurance, however. Why have vacation and sick pay tied up with employers?

Separating vacation and sick pay from employers would give workers (i.e. employees and freelancers) greater flexibility to change jobs and decide how much vacation time to take. It would also allow them to bank sick days over their lifetimes to prepare for old age, a key advantage, given that working past 65 seems inevitable if we are all to afford retirement.

Employers and freelancers would be required to pay the equivalent of 10 days' work into a vacation account and 5 days' sick leave into a sick pay account each year (pro rata). For someone working full-time, 40 hours per week, 50 weeks (minus vacations and holidays) per year, this equates to around .04 hours of vacation pay per hour worked and .02 hours of sick pay. Workers would also be free to pay out-of-pocket into these accounts, allowing them to take more vacations or to bank extra sick leave for the future.

Surely employers already set aside such money for vacations? What's the difference? Well-run employers certainly do this, but some smaller operations may not, and may find themselves caught out when an employee goes on leave. With this system, employers would not have to pay anything while their employees are on vacation because vacation time would be paid out of an account belonging to the worker. This makes these employees more like contractors—only paid when they do work—except with all the benefits of a permanent contract. Employers would find it easier to let employees take time off, knowing that the employees are, in effect, paying for it themselves. Freelancers and contractors would now enjoy the same benefits employees have. They, too, could take paid vacations and enjoy the security of sick pay.

The most important feature of this change, however, is that workers would take their vacation and sick accounts with them wherever they went. They could thus build up several weeks of sick leave over the years even if they changed employers frequently (as workers these days tend to do). If they later get sick more often, they can take the needed time off to recover without fear. This will also prevent them from spreading their germs in the office and causing additional lost productivity.

If a worker got to retirement with lots of sick and vacation days banked, they could then use them to retire early—the money is theirs, after all. Breaking the link between employers and the things that give workers stability gives more power to workers and relieves employers of burdens. This and health care are just two areas where this could be done. Meeting the freelance revolution with a market-friendly revolution in social care and personal empowerment could help the US and its workers to stay ahead of the game and enjoy a prosperous and secure future.

*Note: I would now make a few changes to the system I advocate in that post, as I do not think it would offer adequate coverage. The basic idea remains sound, however.