Freelancer working on laptop at home.
From dental coverage to corporate perks, there are several insurance and non-insurance benefits that business owners can voluntarily offer freelance workers. — Getty Images/Deagreez

As the gig economy continues to grow, businesses are increasingly relying on freelancers and contract labor to meet their operational needs. These 1099 workers are different from employees who receive a standard W-2 as there are more regulations on how much they can contribute to your company and what you as an employer can offer them.

If you want to develop strong, long-term relationships with 1099 contractors who can help your business grow, it may be wise to consider offering voluntary benefits to these workers.

“Employers who do not consider including benefits for 1099 employees are going to miss out on a growing number of skilled professionals,” said Marcie O’Dwyer, vice president of business development at Associated Benefits Consulting.

[Read: W-2 vs. 1099 Contractors: Tax Differences Explained]

Why offer benefits to 1099 workers?

The number of people who describe themselves as self-employed or contract workers is rapidly increasing year after year. According to Upwork and the Freelancer Union’s annual Freelancing in America study, 57 million Americans freelance and contribute $1 trillion to the national economy. That’s approximately 5% of the U.S. GDP, which exceeds both the construction and transportation industries, O’Dwyer explained.

If your business uses 1099 contractors, there are some valid reasons why you should consider offering them benefits — even though you’re not legally obligated to do so.

It helps recruit and retain 1099 workers

As more and more businesses rely on freelance labor, it pays to build a strong, loyal team of contractors who want to continue working with your company.

“Benefits offerings not only get these 1099 contractors in the door, but [they are] what is keeping them in the door, resulting in higher retention rates,” O’Dwyer told CO—.

It may qualify you for group medical insurance

If you don’t have enough W-2 employees to qualify for a small business health insurance policy, including your 1099 workers may make you eligible for a group health insurance plan. By having a larger group, you may be able to lower your premiums and qualify for better insurance offers for your workers. You may also be able to take advantage of the small business health care tax credit.

[Read: 6 Employee Benefits Costs You Can Deduct from Your Taxes]

It can reduce benefits premiums

In addition to lower healthcare premiums, many other types of benefits become more affordable per employee when you have a larger group of plan participants.

Benefits offerings not only get these 1099 contractors in the door, but [they are] what is keeping them in the door, resulting in higher retention rates.

Marcie O’Dwyer, vice president of business development, Associated Benefits Consulting

What benefits can you offer 1099 workers?

There are a number of different benefits you can offer your 1099 workers.

  • Health insurance, dental and vision coverage:Self-employed contractors and freelancers may have a more difficult time finding health coverage than that of a standard employee. Giving them the option to buy a plan or covering a plan for them could allow them to have this coverage they may not have otherwise. You could also offer access to your group’s insurance plans.
  • Access to retirement savings plan: 1099 employees can access their own 401(k) pension plans or your business can offer them a Simplified Employee Pension (SEP) IRA plan, or a Simple IRA. Offering a retirement savings plan and contributing to your employees’ accounts allows a greater chance employees will want to continue working with you knowing they have a safety net in place.
  • Educational resources: Training and certifications are valuable assets that 1099 workers can bring to other jobs. Therefore, offering educational resources including seminars, classes and programs to further their skill set can incentivize 1099 workers to want to work with you, since they can simultaneously develop their professional skills.
  • Travel and corporate discounts: In order to efficiently do their work, 1099 employees may find it beneficial to have travel or equipment discounts your company has access to.
  • Voluntary worker-paid benefits. Voluntary digital benefits programs can help employers affordably offer insurance and non-insurance benefits to 1099 employees who are typically not eligible for employer-sponsored, traditional employee benefits, said O’Dwyer. These benefits are typically purchased and paid for by the worker (instead of the employer) and may include things like life insurance, disability insurance, pet insurance, retailer discounts and more.

While the benefits you offer can be insurance-related, they don’t have to be in order to be an effective recruiting and retention tool, said O’Dwyer.

“Many employers do not consider benefit offerings for contract workers due to the complications of eligibility laws,” said O’Dwyer. “However, non-insurance benefits can be just as valuable and do not have the same type of regulations. Early adoption of [1099 worker] benefits can increase the retention and recruitment of this growing sector of our workforce.”

[Read: Running Your Business Alone? 10 Things You Can Outsource to Free Up Time]

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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CO— is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce.

Published March 08, 2021