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We Need A New Social Contract For A Nation Of Freelancers And Contractors

The biggest threat to middle-class workers—and to our economy as a whole—comes from the changing nature of employment itself.

Noted investor Nick Hanauer and David Rolf, SEIU’s international vice president, have a long, thoughtful piece in Democracy Journal about how to provide security to people working multiple jobs in the new economy. This is just one part, I strongly recommend you read the entire thing (particularly timely in light of today's Uber ruling):

It is important to state that this is not an argument against innovation. We welcome the efficiencies and flexibility that companies like TaskRabbit and Uber bring to the market. But innovation also brings with it disruption, and if we want to preserve the economic security of the American middle class, then we need to respond with an equally innovative set of labor policies.

A Twenty-First-Century Social Contract
An economy based on micro-employment requires the accrual of micro-benefits, and a twenty-first-century sharing economy requires a twenty-first-century social contract that assures shared economic security and broad prosperity.

We propose a new Shared Security System that endows every American worker with, first, a “Shared Security Account” in which to accrue the basic employment benefits necessary for a thriving middle class, and second, a new set of “Shared Security Standards” that complement and reinforce that account.

One can think of the Shared Security Account as analogous to Social Security, but encompassing all of the employment benefits traditionally provided by a full-time salaried job. Shared Security benefits would be earned and accrued via automatic payroll deductions, regardless of the employment relationship, and, like Social Security, these benefits would be fully prorated, portable, and universal.

Proration. The obvious solution to the explosion of part-time work—voluntary or otherwise—is to prorate the accrual of benefits on an hourly or equivalent basis. For example, if Zoe works 30 hours a week at the hotel, she should earn three-quarters of the benefits offered by a full-time 40-hour-a-week job; if she works 20 hours a week, she should earn half the benefits. There is no doubt that many employers push their employees into part-time work in order to avoid the added cost of paying any benefits at all. Proration would eliminate this perverse incentive and the economic distortions and inefficiencies that come with it.


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To be clear, proration is not a radical idea. Social Security and Medicare have always been prorated: Zoe’s employer pays half of her 15.3 percent combined Social Security and Medicare tax, regardless of how many hours she works. But all mandatory benefits that normally accrue to full-time employees on a daily basis—sick days, vacation days, health insurance, unemployment insurance, workers’ compensation insurance, retirement matching, Social Security, and Medicare—should also accrue to part-time employees (hourly, salaried, or contract) and sharing-economy providers on a prorated hourly or equivalent basis.

Portability. Job-based benefits no longer make sense in an economy where fewer and fewer workers hold traditional jobs. This is why these accrued benefits must be fully portable, following the worker from job to job, or contract to contract. For example, paid vacation days that Zoe accrues at one employer could be carried over to her next, although the cost of paying for these days would come from funds banked in her Shared Security Account. Because benefits from multiple employers are pooled into the same account, portability and proration work together to provide workers with the full panoply of benefits, even within the flexible micro-employment environment of the sharing economy.

Universality. In the new economy, a basic set of benefits and labor standards must be universal across all employers and all forms of employment, with few exceptions or exemptions. While there is much to recommend the innovations introduced by companies like Uber and TaskRabbit, they are currently exploiting gigantic loopholes in our social contract by transforming jobholders into independent contractors, thus stripping them of essential benefits. A robust set of mandatory universal benefits would put all employees and employers alike on an equal footing, while providing the economic security and certainty necessary for the middle class to thrive.

Within the context of the Shared Security Account, there would be essentially two types of benefits: those that are accrued over time, retaining a specific dollar value, and those that provide insurance against life events, foreseen or otherwise. And the two types of benefits would be accounted for differently.

Mandatory accrued benefits should include a minimum of five days a year of paid sick leave, 15 days a year of paid vacation leave, a matching 401(k) contribution, and the same health insurance premium contribution as currently required under the Affordable Care Act (ideally, health care would fall into the insurance benefit category, but that is a larger battle).

Employers—that is to say, whatever entity is paying the worker—would be required to contribute to the worker’s Shared Security Account with each paycheck, with the contributions prorated based on a standard eight-hour day, 40-hour week, and 2,080-hour year. For example, 20 days a year of combined vacation and sick leave is equivalent to a contribution of $0.0769 for every dollar of wages paid, and that is the rate at which companies like TaskRabbit and Uber would contribute for non-hourly piecework (of course, there will always be under-the-table employment that circumvents these requirements, but that is true already). There would be restrictions on how and when the worker could withdraw the funds.

Mandatory insurance benefits should include unemployment, workers’ compensation, and paid maternity, paternity, family, and medical leave. These would not be cash benefits that the employee could accrue and cash out, but rather pooled insurance to which both the employer and employee would contribute small premiums as a percentage of pay, based on actuarial tables.

As for who collects and holds these contributions, there are several potential options. It could be the state or federal government, as with existing payroll deductions. It could be one or more not-for-profit institutions analogous to the old Blue Cross and Blue Shield. It could be a public/private institution created expressly for this purpose. It might even be the bank or credit union with which you’ve already set up direct deposit (it is quite likely that the value of holding these funds would more than cover the cost of administration, leading to competition for your business). As little as a decade ago, such a system might have been considered a costly logistical and accounting burden, but the electronic debits and credits of one’s Shared Security Account are nothing compared to the transactional complexity of the fast-growing sharing economy.

The universal, portable, and prorated features of the Shared Security Account would assure that all workers accrued basic job benefits regardless of the changing nature of employment. But that alone is not enough to provide the economic security necessary for the middle class to grow and thrive. The new economy also requires the adoption of a complementary set of minimal Shared Security Standards to level the playing field among employers while giving all Americans the opportunity to fully participate in our economy.

Paid leave. Employers would be legally obligated to grant you time off to use the leave benefits accrued in your Shared Security Account, without intimidation or retaliation.
Livable minimum wage. The federal minimum wage should be raised to $15 an hour, indexed to inflation, and adjusted up or down geographically to account for substantial disparities in local cost of living.

Overtime pay. The federal overtime threshold—the amount you must earn less than to qualify for mandatory overtime—should be raised from $23,660 to $69,000, and readjusted annually to a level sufficient to cover the same 65 percent of salaried workers who were covered back in 1975.

Pay equity. At the bare minimum, protections like those in the Paycheck Fairness Act must ensure wage parity between women and men.

Fair scheduling. Middle-class security is impossible without a reasonable and stable work schedule. Employers must be required to give fair notice to workers on scheduling.

Together, the Shared Security Account and the Shared Security Standards—along with critical family support programs like affordable child care, high-quality universal preschool, debt-free college education, and immigration reform—would comprise a new social contract designed to fit the flexible employment relationships of the new economy. By condensing these benefits into one holistic, self-reinforcing, and portable package of standards we call the “Shared Security System,” we streamline the employment process, making it easier for the sharing economy to absorb new employees, and freeing employers from the burden of tracking employee benefits.

These are not outrageous demands. Most Americans already enjoy many of these benefits—our challenge is to retain them in the face of the changing nature of employment. And the benefits for the economy would come in the form of more than the intangible (but crucial) metric of worker happiness. The new system would subtract the inefficiency of negotiation from the hiring process. It would encourage employers to provide additional benefits in order to attract the best workers on the job market. It would increase productivity. And it would level the playing field between the large number of employers who believe in providing benefits for their workforce and that small subset of rapacious employers who sacrifice worker happiness for the sake of profits, lowering the bar for everyone else.

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