What's wrong with the new economy – and how it could be fixed

When Will Hurley and a partner founded Honest Dollar in 2014, they wanted to provide and manage low-cost employee retirement plans for small businesses.

But something curious happened.

When the first wave of signups started coming in, the two noticed scores of applications being started, filled out almost to completion, but never finished.

“We started reaching out to them, and a lot of these people were independent contractors” or freelancers, says Mr. Hurley. When they got to the end of the application, they had to abandon it because they had no Employer Identification Number.

For the startup, it was the spark of a business opportunity. These people “were looking for a retirement plan they could manage themselves,” Hurley says.

For the nation, however, the story highlights how much harder the evolving economy is making many American workers’ lives – and what can be done to help.

Estimates suggest that 1 in 3 American workers have no full-time employer. They are cobbling together multiple income streams to make ends meet – stay-at-home moms selling jewelry on Etsy five hours a week or part-time adjunct professors filling in the gaps by driving for ride-sharing services like Uber or Lyft.

Such work arrangements offer flexibility and relative freedom, but not benefits. Without full-time, salaried work, there is no government-sponsored health care, no federally mandated parental leave or vacation time. Even if companies wanted to provide some provisions for workers who aren’t full-time employees, current labor laws say they can’t.

That’s where Honest Dollar comes in.

It is part of a growing effort to answer one of the thorniest questions of the new part-time economy: As the number of workers outside traditional employment relationships multiply, will there be adequate support system for them?

“We come from a system where people chase benefits that are tied to where they work,” says David Mack, Lyft’s director of public affairs. “That doesn’t make sense. The benefits should follow individuals.”

Employer? No. Benefits? Yes.

A new ecosystem of companies and services is aiming to fill that gap.

There’s Peers, which helps workers organize à la carte benefits packages that can follow them from job to job. It also helps them organize benefit contributions from disparate income streams. The Freelancers Union (not an actual union) does some of the same things, and StrideHealth, out of San Francisco, helps workers comparison shop for health care coverage.

From vision plans to disability insurance, “people have to figure out so many different things” that are more straightforward in traditional employment, says Sara Horowitz, founder and CEO of the Freelancers Union in New York. “Our job is to help them navigate it and help our members communicate with each other.”

In this push, Honest Dollar is a leader. In November, it partnered with Lyft to give drivers first crack at a low-cost retirement savings option. For $1 to $3 per month, signees get access to a traditional or Roth IRA and options to split their money up between four different targeted funds from Vanguard, a leading asset management firm. There are no minimum contributions, and Honest Dollar employees, Hurley stresses, are invested in the same funds.

Honest Dollar wouldn’t give exact numbers for how many Lyft drivers had signed up so far, but Hurley says he was “blown away” by the initial response.

Emily Bush was one of the interested drivers. She began driving for Lyft in November, during a six week gap between jobs as a Boston-based attorney, and the Honest Dollar plan caught her eye.

“My old job didn’t offer a retirement plan, so I was looking into that for the first time anyway,” she says.

Ms. Bush signed on even after meeting with a few traditional financial planners, drawn by the startup’s low costs and easy usability. “It makes this kind of financial planning very accessible,” she says.

So Honest Dollar will continue taking a small sum from her checking account every week – even after she starts her new job in January – and putting it into a Roth IRA. If she switches jobs again, she can keep the contributions going without interruption.

“I don’t know if I’ll keep my money in there forever, but it’s a good starting point for me,” she says.

Honest Dollar is planning to expand its retirement vehicle to all self-employed workers in the near future.

Lyft, too, is taking its own steps. It offers its drivers access to an online health exchange, as well as perks including gas rewards, Starbucks discounts, and deals on tax preparation software.

What is an 'employee'?

But fundamental question remain about how workers in app-based, peer-to-peer services like Lyft fit into the job market.

A Lyft driver, for example, has some of the characteristics of an independent contractor: She sets her own hours and can work as little or as much as she wants. At the same time, she is subject to other controls that a typical freelancer isn’t: Lyft sets fares, provides equipment, and set strict parameters on things like the age of the car she uses for rides.

In June, the California Labor Commissioner’s office ruled that an Uber driver in San Francisco should be classified as an employee. On Dec. 14, the Seattle City Council voted to give Uber and Lyft drivers the right to unionize.

Lyft and Uber continue to fight such moves, and the home-sharing service Airbnb spent millions to defeat a ballot measure in San Francisco that would have drastically curbed its reach there.

But other on-demand service startups are going the other way. Hello Alfred, a personal assistant service, and Munchery, a food deliverer, fully employ their workers. Courier service Shyp has announced it will transition all of its workers to employee status in the coming year.

There could also be a third option. In a paper released earlier this month, economists Seth Harris and Alan Krueger propose creating a third legal classification of “independent workers.” Such workers would get some, but not all, of the protections offered by traditional employment. The classification wouldn’t apply just to app-based middlemen, Mr. Harris says. “We argue most taxi drivers fit regardless of if they are using an app or not.”

It’s too soon to tell if such efforts will calm worries that the growing reliance on freelancers is creating a new sphere of inequality in the US. There are certain things, like employer matches in 401(k)s and a thoroughly predictable paycheck, that independent work still can’t provide.

Plus, the nature of work in much of the “gig” economy – chauffeuring, cleaning houses, delivering groceries and mail – combined with deepening wealth inequality overall can smell a lot like the beginnings of a servant class for the digital age. But skilled workers like computer programmers and consultants are opting for independent status, too.

Companies like Honest Dollar, Peers, and Stride Health want to be ready for them, and to make portable plans accessible to everyone and at least somewhat competitive with employee-sponsored counterparts. 

“It’s something being fought from the boardroom to Capitol Hill,” Hurley says. “That makes it a sizable marketplace.”