Freelancing Without Benefits
The US’s employer centric benefit system leaves the self employed behind
This week, I get to teach my accounting students about tax credits. All of them. Just listing them out one by one.
I’ll be lucky if I have one conscious student at the end of the lesson.
While preparing the lesson, the credit that particularly stuck out was also the newest: an attempt during the TCJA Trump Tax Reform to inspire employers to pay for employees’ family and medical leave.
There’s certainly something laudable to the idea, and the actual text of the bill isn’t terrible (a great future tax topic), with Congress paying businesses to pay their employees while the employee is temporarily caring for loved ones.
Yet 4 years later, I’ve yet to see that credit making a dent in the job market. The reason is pretty obvious: even with the credit, paying someone is expensive. Paying someone to not work is even more expensive if you have to bring in someone else to do the job.
Which brings me to employer-provided benefits. For historical reasons that trace back to at least FDR’s economic tinkering around WWII, we have decided that employers should provide employee benefits outside of basic salaries. While this has certainly been a boon to many employees, it also hides employees’ real pay, making job compensation comparison all but impossible.
For example, I once had a job where our comprehensive health insurance’s copay was only $100 for a 4 month’s stay in the hospital. Had we used our current health insurance, it would have easily hit our $20,000 max out-of-pocket.
Right there is a $20,000 benefit. And as is common with health insurances, I wasn’t even told about it until AFTER I was already hired.
The comparison issue has become all the more pronounced as more people are trying the freelance and self-employment path, only to discover that a dollar of freelance wages is only about 75% of employee wages (or less).
We could require employers to pay just a wage and have the benefits handled by (a) the government or (b) a third-party provider. But it doesn’t take much imagination to see potential pitfalls here.
Or perhaps employers could be required to show the value of their entire benefit package from the start, though different people will find different amounts of value in each benefit. Like those who rarely use health insurance will find no benefit in their employer paying more for a better plan.
Of course, ultimately the monetary piece is only one part of the benefits given by any job. If the non-monetary benefits of freelance — or any other position — are still an improvement over what an employer offers, people will figure out a way to make it work.
Whether it’s between employers or when jumping on the freelance train, benefits make everything more confusing. Have you faced these struggles? Have you found a way to handle it?
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