Portable Benefits Are Coming — The Modern Worker Security Act Paves the Way
In February 2025, Representative Kevin Kiley (R-CA) introduced The Modern Worker Security Act, which creates a federal safe harbor that allows companies to contribute to their independent workers’ portable benefits accounts without those workers being reclassified as employees.
This legislation is critically important because an increasing number of Americans – more than 72M – are choosing independent work as a means of earning a living. Full-time independent workers grew 6.5% to 27.7 million from 2023 to 2024 – making them 16.7% of the American workforce (State of Independence study, MBO Partners). These independent workers, which include nurses, truck drivers, musicians, and app-based gig workers, value the flexibility and autonomy that comes from independent work, and they deserve the financial security that their employed co-workers obtain by virtue of their status as employees.
Under the Modern Worker Security Act, workers can remain independent, while simultaneously pooling their own savings with contributions from the companies that hire them to save for things like health insurance, retirement, paid time off, and other benefits that typically are provided via traditional employment relationships. Portable benefits—benefits that are not tied to a single employer but move with the worker—are increasingly seen as essential in a flexible labor market. The Modern Worker Security Act aligns with this perspective by facilitating the provision of such benefits to independent contractors. By doing so, it acknowledges the need for a modernized benefits system that reflects the realities of contemporary work arrangements.
The Modern Worker Security Act is not the only portable benefits bill out there — but it is the first-ever Federal Safe Harbor bill for independent workers. Utah passed a first-in-the-nation portable benefits bill in 2023 and, since then, bills have been introduced in Alabama, Arkansas, Florida, Hawaii, Massachusetts, Tennessee, Nevada, New Jersey, and Rhode Island. Alabama’s legislation is particularly exciting because it excludes the contributions that workers receive from their gross income and allows companies to deduct the cost of those contributions, creating tax parity between 1099 and W-2 workers. We also hear rumors that more bills will be introduced later this year, both on the state and (possibly) federal levels.
With portable benefits bursting onto the legislative scene, here are some thoughts for businesses about how to prepare for their eventual arrival.
Implications for Business Leaders
For companies with 1099 contractors, part-time W-2 workers, or any kind of flexible workforce model, portable benefits offer a pathway to attract and retain top talent by enhancing the appeal of independent contractor roles through benefits offerings. It reduces the legal uncertainties or grey areas associated with providing these benefits to independent contractors, allowing companies to design more competitive and supportive compensation packages. This proactive approach can enhance a company's reputation and ability to compete for talent.
Implications for Workforce Strategy Teams
Workforce strategy teams should reassess their talent management frameworks in light of the increasing availability of portable benefits. These new laws encourage the integration of independent contractors into the broader workforce strategy, promoting a more inclusive approach to talent acquisition and retention. Teams should evaluate how portable benefits can be structured to support both organizational goals and worker satisfaction.
Implications for Workers
Independent contractors stand to gain significantly from the Modern Worker Security Act and related state bills. Access to benefits such as health insurance, retirement savings, and paid leave can provide greater financial security and job satisfaction. According to the 2024 Stride and Mastercard study Bridging the Benefits Gap, 59% of 1099 workers find saving for retirement extremely or very challenging, and 50% find budgeting for a major expense and creating emergency savings extremely or very challenging. This development narrows the disparity between traditional employees and independent contractors, offering more equitable working conditions.
Preparatory Steps for Companies
To prepare for portable benefits companies should:
Assess Workforce Composition: Identify the proportion of independent contractors and unbenefitted workers (like part-time W-2 employees) and evaluate their roles within the organization.
Design Benefit Packages: Develop portable benefit options that cater to the needs of independent contractors and other non-benefitted workers, ensuring they complement existing employee benefits without causing classification issues.
Legal Consultation: Engage with legal experts to understand the parameters of the safe harbor provisions and ensure compliance with federal and state regulations.
Technology Integration: Invest in systems that can manage and track benefits for a diverse workforce, ensuring scalability and efficiency.
Implementing Compliant, Scalable Benefits Offerings
Businesses can implement compliant and scalable benefits offerings by:
Partnering with a Portable Benefits Administrator: Collaborate with third-party vendors specializing in portable benefits so you can offer tailored solutions for your independent contractors and unbenefitted employees. Make sure that your administrator has a track record of success, understands how to scale these unique benefits, has experience educating this historically underserved segment of the workforce, and has a stellar compliance record.
Utilizing Digital Platforms: Leverage technology platforms that facilitate the administration of portable benefits, ensuring accessibility and transparency for all workers while reducing operational burden for teams.
Continuous Monitoring: Establish mechanisms to regularly review and adjust portable benefit offerings in response to regulatory changes and workforce feedback. Notably, all of the current legislative initiatives allow companies and workers to select the benefits that matter most to them, so you can contribute to benefits that your workers really value most, like paid time off, health insurance or retirement, and increase your value to your workforce.
By proactively staying ahead of upcoming portable benefits legislation, companies can create a more inclusive and supportive workplace that values the diverse needs of today’s workforce.
