Top talent doesn’t just come to you. You have to attract it.
But your best team members might not even be employees. In fact, many teams today are a mix of traditional employees and independent contractors (also known as 1099 workers).
If you’re wondering if it’s worth it to provide health insurance for 1099 employees, you’re in the right place.
This article covers all you need to know about offering health insurance and other benefits for contractors. We also discuss how to avoid the risk of contractor misclassification.
Let’s learn more.
Can you offer 1099 employees benefits?
You can offer 1099 workers benefits, but it’s important to note that these workers are not employees.
Technically, there is no such thing as a “1099 employee.” 1099 refers to a form used for reporting income, not a type of employment. The correct term to use is “independent contractor,” though “1099 worker” can be used as well.
According to US regulations, employers are not prohibited from offering benefits to independent contractors if they choose to do so. However, independent contractors aren’t eligible for tax-free benefits like traditional employees are.
It’s also important to understand any specific legal and regulatory requirements your business has to follow.
So what types of benefits can you offer 1099 workers?
Some examples of things you may see in a contractor benefits package are health, dental, and vision insurance. Although they are not required, offering these can be a competitive advantage during the recruiting and hiring process.
Contractors might also get access to retirement plans or stipends for professional development. Your company can create its own policies around the availability and accessibility of these benefits.
Why more companies are hiring 1099 and global independent contractors
1099 workers are self-employed and work under a contract with a company. They have more freedom in how they work, but they’re often responsible for their own benefits and taxes. This includes finding their health insurance.
True employees, on the other hand, typically receive health insurance through the company they work for. Their employer even covers part of the premium.
Tapping into contractor talent can even be powerful for small to medium-sized businesses. It’s an opportunity for them to stay lean and access global talent.
The gig economy is growing rapidly thanks to changes in technology, the economy, and the workforce. This means more workers than ever are turning to contract work. Common 1099 jobs include the following:
Roles in the tech space
Creatives and knowledge workers
Consultants
According to Barbara Matthews, Chief People Officer at Remote:
“Many companies in the startup stage are not yet ready to set up global entities to hire international employees, which can make hiring contractors an attractive alternative.”
Businesses turn to contract workers when they need to scale and when they require niche talent for special projects. Contractors can offer their skills and knowledge part-time or short-term without having to be onboarded as full-time employees.
For contractors with valuable skills who don’t want to settle down with one company, freelancing can be the best of both worlds.
Why offer benefits to 1099 and global independent contractors?
Francesco Cardi, VP of Operations, Lifecycle at Remote, believes that contractors are a key part of our evolving digital workforce.
“Rules of employment are changing, and the world is moving ever closer to a contractor-driven economy.”
Contractors play important roles in the companies they join. In today’s competitive talent market, companies need to consider fair equity for all of their workers. They need to create an environment that’ll attract top talent and keep their contractors engaged and happy.
This starts with understanding the challenges contractors face and working to make their experience easier.
For many self-employed workers, the biggest struggle is not having benefits. And no benefit is more top of mind than health insurance.
As of 2022, over half of freelancers in the US reported having no access to regular employee benefits. This means no sick leave, unemployment, paid time off, or access to health insurance.
At Remote, we have partnered with Allianz Global to make it easy for independent contractors to access important benefits. Contractors hired through Remote can select an International Health Insurance plan, giving them access to the security and peace of mind so often sacrificed by self-employed workers.
Contractors can sometimes feel like “second-class” members of the team. Benefits such as a health insurance plan relieve some of these feelings.
Not only that but offering benefits to your contractors can go a long way toward building trust with them. It’s especially important to consider this for long-term individuals.
Plus, offering benefits is a win-win. Companies that take care of their contract workers foster belonging among everyone on their team. This type of culture creates a workspace that can drive innovation and collaboration.
With freelance talent more in demand than ever, companies that don’t offer benefits to their contract workers risk falling behind.
On the employer side, there are money-saving advantages of offering benefits for contractors:
In some cases, it can help you become eligible for a group health insurance plan.
Having more participants in a group health insurance plan can reduce your benefits premiums.
Also, offering benefits to contractors helps make 1099 workers feel more valued and included, which can boost engagement and retention.
The top US benefit: health insurance for 1099 employees
In the US, the most important benefit you can offer your independent workers is healthcare.
These workers have to find other options, such as:
Privately purchased insurance
Medicaid
Medicare
A spouse’s health plan
A parent’s plan
In these cases, separate health insurance is written off as a tax deduction.
Given the high cost of health insurance, it’s understandable that freelance workers and gig workers value company-sponsored health insurance benefits or health stipends.
There are several options for business owners to choose from to offer health benefits, such as the following:
Health reimbursement arrangements (HRAs)
In these arrangements, companies reimburse contractors for their healthcare costs. Individual Coverage HRAs (ICHRAs) allow employers to set a monthly allowance for contractors to purchase their own health insurance policy.
Benefits: This arrangement offers flexibility for contractors and cost control for companies.
Drawbacks: The company has no control over the individual health plans contractors choose, leading to a variance in coverage.
Association health plans (AHPs)
Small businesses, including those with 1099 workers, can band together to obtain health insurance coverage just as a single large employer would.
Benefits: AHPs can provide lower rates due to the pooled risk of many businesses.
Drawbacks: AHPs may lack comprehensive coverage, and new regulations can potentially affect their availability.
Private health exchanges
A company can provide a fixed stipend for contractors to purchase health coverage from a private exchange.
Benefits: This solution offers a variety of plan options and potential cost savings.
Drawbacks: Contractors may find navigating the exchange and choosing the right plan too complex.
Direct contractor insurance assistance
Companies can subsidize a portion of a contractor’s health insurance premium.
Benefits: This approach helps contractors afford insurance and can have a favorable impact on attracting and retaining talent.
Drawbacks: It could be more costly for the company, and tax implications need to be carefully considered.
How to offer health benefits for international contractors
Of course, the US isn’t the only country where employer-sponsored health benefits matter.
In Europe, most countries have a primary healthcare system that anyone can access. But, more specialized care typically requires secondary insurance, which can come through employment.
Partnering with a Global HR platform that helps hire and manage contractors — especially if you’d like to extend health plan options to independent contractors abroad.
A global HR platform is a third-party organization that handles various employment responsibilities, including providing benefits such as health insurance in partnership with insurance providers.
HR platforms like Remote have expertise in:
Local labor laws
Regulations
And healthcare systems
Managed health plan options for employees can include the following:
Local health insurance plans : Provide access to local health insurance plans, which are often more suited to a contractor’s needs in their home country. These plans are generally compliant with local healthcare regulations.
International health insurance plans : Offer international health insurance plans for contractors who travel often or work in multiple countries. These plans provide comprehensive coverage across multiple countries and often include additional benefits, like medical evacuation.
Group health insurance : Leverage their larger employee base to negotiate group health insurance plans. These plans can provide better coverage at lower costs due to the larger risk pool.
One way to extend these same benefits to independent contractors is to convert them into standard employees. This conversion is something to consider if a company wants to keep top independent contractor talent.
At Remote, we facilitate other benefits avenues as well. We help businesses offer benefits to workers all over the world.
In many of these countries, we have partnerships with industry leaders in benefits management to give contractors the option to sign up for their own affordable plans.
Our specialists are also available to advise companies on how to cover these costs through stipends.
Other coveted benefits to offer 1099 and global independent contractors
In addition to offering health insurance options, consider offering 1099 workers and global contractors benefits like the following:
Paid time off
Needing time off for personal matters and engaging in self-care doesn’t end because someone is a freelancer.
While freelancers have the option for greater flexibility and control over their schedules, often they end up working just as much, if not more, than their full-time peers.
If you have long-term contractors on your team, consider offering them paid time off. A global leave policy is a simple way to create fair equity and a culture of belonging among all the workers in your organization.
Remember to consider misclassification risk if you’re considering an annual leave policy for contract workers.
Worker classification laws in most countries stipulate that contractors should maintain the ability to control their schedules. Otherwise, the worker may be considered an employee.
Home office and continued learning budgets
Offering workers a stipend for their home office and continued learning is an investment in your workforce that’ll bring direct returns to your business.
When workers are comfortable in their office space, they’re more efficient and productive.
When you invest in your workers to help them learn new skills, they bring that new knowledge to their work and enrich your organization. Stipends also show workers that you care about their well-being and ongoing development.
That concern for their well-being leads to:
Better satisfaction
Engagement
And retention
Stock options
Stock options are a great way to keep workers motivated. If you’re offering stock options to your actual employees, you can consider offering stock options to your contractors as a reward or an incentive!
A retirement savings plan allows workers to set aside a portion of their salary for retirement. Offering this benefit is a great way to empower contractors to take control of their financial future. It also demonstrates that you care about their well-being, which supports retention in the long run.
Travel and equipment discounts
Offering these work-related discounts can be a valuable incentive, making it easier for 1099 workers to get their job done. It’s especially useful for those who travel regularly.
Risks to consider when offering benefits to independent contractors
When hiring contractors — whether they’re 1099s in the US or contractors in other countries — employers must consider the potential risks. Contractor misclassification can be a pitfall for companies hiring abroad. Incorrectly classifying a worker who is believed to be in an employee relationship under local law can lead to significant fines and penalties.
Francesco explains that misclassification is a constant business risk that can have lasting consequences without the right consideration;
“The biggest risk is the chance that a local authority will determine that the worker is actually an employee. Since most countries’ laws see the employee versus independent contractor issue as binary, companies that offer increased employee-like benefits to contractors run the risk that the contractors will be deemed their employees. This can result in substantial tax and regulatory liability.”
To avoid these risks, consult a legal expert in the country where you’re hiring. If you want a long-term solution to enable scalable hiring, Remote is purpose-built to handle the complexities of hiring and paying contractors while keeping you globally compliant at all times.
Offering benefits to 1099 workers is not a must, as it’s not required by law. However, it can be especially valuable for several reasons. Specifically, a more attractive benefits package can help you retain talent in today’s competitive market.
If you choose to move forward with offering benefits to contractors, there are other important things to consider to avoid misclassification. For instance, your 1099 workers will need to declare their benefits as taxable income. And if you give a contractor annual leave as a benefit, the government may consider the worker an employee.
Remote makes hiring independent contractors easy
We hope you are considering providing health insurance for 1099 employees. Not only is it better for them, but it can also give your company a huge boost.
If you’re interested in hiring contractors or exploring benefits for your contract workforce, Remote offers the most simple, secure, and cost-effective solution for contractors all over the world.
With Remote, you can:
Create localized contracts to onboard contractors in 180+ quickly.
Make payments to workers, all in one invoice in your local currency, and set up automated invoices to manage payments.
Allow contractors to buy discounted health insurance for themselves.
Our hiring specialists can help you stay compliant with local labor laws and advise on the best benefits to offer all members of your team.
