JJ Conway
Most of us learn about the gig economy sitting in the back of an Uber or Lyft. Our knowledge is primarily anecdotal. In discussions with ride-sharing drivers, we hear the many reasons why someone might want to strike out on their own and become self-employed. No matter where you are hailing a ride, the reasons for self-employment sound pretty similar.
For example, some gig economy workers want freedom from an office job. Others find gig economy work when relocating to a new city (with the added bonus of learning the streets and byways while on the job). For still others, the gig economy is merely a second job to supplement income. One driver I met shared a story of a profound personal loss. He was donating the ridesharing proceeds he earned to a foundation that he created in memory of his daughter.
There are, of course, many other features of the gig economy besides ride sharing. There is contracting work, which is actually performed in a traditional office setting, as well as grocery and meal delivery jobs, among other commonly available positions.
Depending on the company, some contractors may receive excellent fringe benefits such as healthcare, disability coverage and, less common, access to retirement savings plans. Some major companies use national contracting services that provide benefits that most workers would find competitive in the marketplace. These are all of the good points for gig economy workers, but there are also some aspects that could improve before they become a major source of concern.
Estimates vary, but reliable surveying sources put the number of gig economy workers at around 10% of the total U.S. workforce. According to recent surveys, approximately 24% of gig economy workers have no health insurance coverage. Among the reasons for failing to secure health insurance, affordability remains the single largest cause of the gig worker’s uninsured status. The second most cited cause was a lack of awareness of the availability of health benefit options in the marketplace. This data has acute and long-term implications.
Around a quarter of all gig economy workers have no retirement savings. There are similar reasons cited in surveys for this problem. Here, however, the long-term financial implications are more considerable. Retirement benefits are designed, in part, to be there when a person can no longer work. A lack of any form of personal safety net can have real consequences, particularly if the gig economy worker has not been regularly keeping up with self-employment tax responsibilities. This can cause a loss of Social Security benefits.
The good news is there are remarkably tax-efficient retirement savings vehicles available to gig economy workers. These savings plans, if properly used, can lead to transformational wealth building and provide for a comfortable retirement. Among the options available to gig workers are the individual 401(k) plan, the Self Employed Pension (SEP) Plan, and pre-tax and post-tax Individual Retirement Accounts (IRAs). For those who establish formal savings plan structures, it may be possible to defer as much as $61,000 annually toward their retirement. Those limits increase regularly allowing up to 25% of a worker’s gross income to be saved on a pretax basis.
It is hard to tell what long-term impact the gig economy will have on such fundamental aspects of financial planning as the availability of retirement income benefits. Those workers who choose self-employment do have plenty of options available, but they, themselves, will be responsible for designing their own employee benefit plans and their financial futures.
—————
John Joseph (J.J.) Conway is an employee benefits and ERISA attorney and founder of J.J. Conway Law in Royal Oak.
––––––––––––––––––––
Subscribe to the Legal News!
http://legalnews.com/subscriptions
Full access to public notices, articles, columns, archives, statistics, calendar and more
Day Pass Only $4.95!
One-County $80/year
Three-County & Full Pass also available
––––––––––––––––––––
Subscribe to the Legal News!
https://legalnews.com/Home/Subscription
Full access to public notices, articles, columns, archives, statistics, calendar and more
Day Pass Only $4.95!
One-County $80/year
Three-County & Full Pass also available
