Health care for freelancers is a hot topic. After all, more than a third of the US workforce is now freelancing. The gig economy has arrived with a bang, and employers need to get savvy about their legal obligations when it comes to managing independent contractors and other 1099 employees.
What exactly are employers’ responsibilities when it comes to health care, and how can they better support their workers?
This is part of a series of articles about Freelance Management.
Is offering health care for freelancers mandatory?
The simple answer here is no. No matter how large a business is, or how many contractors they take on, it has no obligation to offer health care benefits to self-employed or freelance workers. The IRS classifies all freelance workers and independent contractors as 1099 employees, and therefore they are not considered to be employees, which eliminates the need to provide mandatory employee benefits.
That means that they don’t fall under the ruling of the Affordable Care Act (ACA), where employers with more than 50 employees need to provide health insurance to 95% of their staff.
There are no rules about providing health insurance or health care for freelancers, but there are also no rules that say you can’t!
Why would I want to provide health care for freelancers?
You might think that avoiding health insurance or health coverage is one of the benefits of working with freelance talent, but the truth is that there are a lot of really legitimate reasons why it makes sense to add this to your freelance contract.
Here are a few of our favorites:
#1 Turn your top freelance talents to fans
Fiverr reported that 40% of freelancers cite medical coverage and health-related fears as their biggest issue, compared to just 33% of the general population. With so much competition to get top-tier contractors, health coverage is a serious perk that could get skilled freelancers to stick by your company with more commitment than you might expect from an ad-hoc worker.
#2 Ensuring health and wellbeing
Ethically speaking, you might feel better about providing health coverage for all staff, no matter the official type of worker. After all, according to 2019 numbers, 17% of freelancers don’t have any health coverage at all, and 40% rely on Medicare and Medicaid. A further 21% rely on their parents or spouse. Even on a practical level, if your freelancers are sick and can’t get access to the medical help they need, this can have a knock-on impact on your own business continuity.
When you’re discussing health care options with your insurance provider, you might find that increasing the number of workers that you cover, or covering a larger subset of younger employees could reduce the premiums for the business and the employees, too. In a small business, covering freelancers might even allow you to qualify for group medical coverage in the first place.
I’ve decided to offer health care for freelancers: What do I need to know?
If a business does decide to follow the route of providing health care extras for freelancers and other 1099 employees, they can include this category of workers in the same group policy as the rest of their employees.
This is true no matter if it’s the business that is paying the premiums or the employees. In the majority of states, an employer is required to pay at least 50% of health insurance premiums for their employees – but even if a company adds its contractors to group coverage, the premiums do not have to be covered in any part by the business.
From the freelancer’s perspective, you should make sure that your workers understand what employer contributions they are receiving, and that in some cases they will need to declare these as taxable income. Let them know that by opting into employer-subsidized health care, they may forfeit the ability to deduct any premiums that they pay from their income when the tax return time of year rolls around. This might impact the decision that freelancers make.
I’m not covering my freelancer’s health care. How else can I support them?
Information is powerful, so if you’re not looking to add independent contractors to your health coverage, you can still provide them with advice and support when they are looking to get covered independently. A good start is considering their added costs when you’re setting a freelance budget. The average monthly cost of health insurance in the United States for 2022 is $541, an increase of 1% from last year.
Next, provide some options that they might not have considered, such as using COBRA, which provides coverage for up to 18 months after you leave a position as an employee, or speaking to their local business owner’s group or chambers who might be able to offer the same lower group rate as a company provides for employees. In certain States, the Freelancer’s Union offers health insurance plans at a reduced cost – but your workers need to apply within the window (which is currently open for 2021 until December 15th!)
If this still doesn’t fit their budget, you could also recommend that your freelancers take on catastrophic care coverage, which only covers them in case of an unexpected major injury or illness. This is a good choice for younger independent contractors who are in good health, as the premiums can be 50-75% lower than with regular healthcare insurance. It’s usually reserved for those who are under 30, and your freelancers will need to pay 100% of costs up to a specific amount, usually in the region of $8,000, at which point the coverage will kick in.
As the gig economy grows, your plans for freelance talent might need a rethink
Whether you offer health care for freelancers or stick to providing good advice and support to your independent contractors, it’s important to consider this growing element of the workforce, and how it impacts the way you run your business. After all, the freelance talent pool has grown every year since 2014, and it’s clear that it isn’t going in the other direction any time soon! From benefits and budget to processes and tools – how are you preparing your organization for this shift?
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