Benefits are just an appealing name given to anything an employer chooses to spend money on instead of paying you that money (and the trade typically works in their favor).
Certainly, there are cases where contract employment is offered with pay that does not compete well against full-time employment/salary plus benefits, but that is not always the case.
Anecdotally, I've seen contracts done as W2 with benefits, even as a part-time employee. And I've seen 1099 contracts that far outpaid the W2 equivalent - in my case allowing me not only to pick and choose my benefits with plenty of money left over (even after paying self-employment taxes), but also using the U.S. tax system to great advantage, putting a very large portion of my gross pay into tax-advantaged accounts[0].
I work as a contractor without benefits. I got a 75% raise over my last job which was w2. I can easily pay for my own benefits, got the bonus of being able to allocate more to retirement via my i401k and can write off a ton of stuff to reduce my taxable income that I would have to pay for anyway working a w2 remote job. New laptop, portions of my power bill, phone bill, internet etc. I think the best part is mental, I no longer care about promotions, office politics or getting recognition from leadership. I just clock in do my work and clock out, if they want me to work more hours that's cool too, I just charge them for it at my hourly rate. I really like it. Your mileage may vary of course.
Edit: Another benefit is health care premiums are tax deductible as long as you are not eligible to go under a spouses employer plan.
Companies of any real size tend to get better rates than most individuals can get because they can average things out over a larger group of people, since odds are a decent % of the people won't need to spend a significant amount on health care any given year. So while there is some cost to the employee it is still probably doing better than if they simply put that money directly in your pocket. But yes US healthcare is insane.
In my experience, healthcare.gov pricing for health insurance and the premiums paid by employers are all roughly the same for comparable level plans (by metal level).
Are you saying that you are unable to purchase health insurance in your hell world? I live in the United States, and when I was working as a 1099 contract worker, I bought health insurance for my family for little more than what an employer deducts from my paycheck. It was actually a very nice plan.
> when I was working as a 1099 contract worker, I bought health insurance for my family for little more than what an employer deducts from my paycheck.
How long has it been since then?
What most people would consider "good" insurance costs $1500-2000 per month for a family.
I've never seen an employer chip in less than 50% of that cost.
It's been about 2.5 years. Was paying under $700 for the two of us.
The difference in pay between W2 and 1099 was $30,000 / year. This more than covered all taxes and health insurance costs. (And even the W2 rate was much higher than typical full-time salaries.)
The main difference in taxes is the 15.3% you pay towards FICA, where an employer has to cover most of it for W-2 (you still pay 6.2%.) I don't remember all the exact numbers any more, but if 1099 is ~25% more than W-2, odds are pretty good you can do better on your own, especially if you take advantage of the solo 401(k) to reduce your tax load.
What did this buy, though? That premium sounds like either a "health sharing ministry" or some kind of barebones catastrophic plan. Both are smart options if a person has good income and a financial cushion, but they're a much lesser coverage than what most big employers would provide.
> if 1099 is ~25% more than W-2, odds are pretty good you can do better on your own
I've used a wider margin as a rule of thumb when considering it in the past. I'll have to rerun numbers based on my current income and benefits.
> especially if you take advantage of the solo 401(k) to reduce your tax load.
That secret $54k deduction... probably the biggest benefit for anyone who is moderately high-income and retirement-minded.
As I said, it was a good plan. I don't remember exact numbers, but low deductible (maybe $2000), low co-pays, lots of things covered such as (some) fertility, mental health, etc. We were 39/34 at the time.
It was not a health share ministry or barebones catastrophic. It was something like Blue Cross Silver, though I don't remember the exact name (and the name would reveal more about my location than I probably should share.)
My comparison was to a plan with a previous employer that cost me $400/month (my portion) and was worse. So paying "$300 more" for a better plan also took a lot of the sting out of it.
A silver level high deductible health plan in a high cost of living state is about $400 per person for early 30 year olds. You can assume health insurance costs $350 per person, plus or minus 10%, in healthy years. Then you have to multiply by age rating factors. So a family of 4 with parents around 40 will be ~$1,500 per month for a silver HDHP.
Thanks, but I can only work part-time due to my disabilities. I have 2 rare neurological diseases affecting my peripheral nervous system plus type 1 diabetes. Even as an electrical engineering graduate student this is a bad situation, being American. Not every person working in tech is able-bodied.
Via the Affordable Care Act, I am heavily disadvantaged. Not only do I meet the maximum out-of-pocket (both in network/out-of-pocket yearly), but I have a lot of uncovered costs. My out-of-pocket costs as an individual are well over $20K/year. Also, where I am from in the US, the ACA plans are only HMO plans. One of the immune-mediated neurological diseases I have is very rare, and I am lucky to be alive, as this disease has been life-threatening in the past. It is in remission now. However, the disease was discovered on NIH grant funds in the 2000s, so I really am tremendously lucky to be alive.
That being said, HMOs are a problem. There are only certain doctors who really know how to treat my very rare disease. If I want to stay alive, I really cannot be on an ACA plan.
The system is @#$% and I suggest you check your privilege at the door. I currently live abroad as I want to (need to?) stay alive. I also rely on certain, hard-to-obtain treatments, too.
>Benefits are just an appealing name given to anything an employer chooses to spend money on instead of paying you that money (and the trade typically works in their favor).
Nominally, this works out for both employer and employee, since those benefits can be paid for with pre tax money. Really, it gives big businesses an advantage over small businesses that cannot afford the costs to administer these benefits or the non discrimination testing. And it advantages businesses over employees by obfuscating what their true pay is.
It also gets hairy for a married couple where one spouse is a W-2 employee with the standard retirement contribution and subsidized health insurance benefits, but the other does not.
> those benefits can be paid for with pre tax money
The standard deduction largely gobbled up this scenario - paying towards health insurance premiums is tax deductible, but unless you can itemize beyond that standard deduction, it no longer matters. So in that case, yes there's somewhat of an advantage. Overall it can lead to complicated math trying to determine which scenario (W2 or 1099) will leave you with the most money/benefits.
And yes - with things like pooling resources, big business can often get better negotiated healthcare premiums than small business, let alone individuals.
For couples, it just varies by situation. Sometimes the W-2 member of the couple can get family health insurance, if that's a better deal than what the 1099 can get. If that's not an option, then yes, the 1099 member has to fend for themselves and buy an individual health insurance plan.
> The standard deduction largely gobbled up this scenario - paying towards health insurance premiums is tax deductible
It is not deductible, unless you are self employed. For example, a W-2 person working for a business with less than 50 employees which does not offer employer subsidized health insurance is not allowed to deduct health insurance premiums. You also cannot deduct if you are even eligible under a spouse’s employer subsidized health plan (although I do not know how they could audit you and find this out).
> And yes - with things like pooling resources, big business can often get better negotiated healthcare premiums than small business, let alone individuals.
Not really, healthcare.gov premiums and employer premiums are pretty close for the most part. The difference is in being able to pay with pre tax versus post tax income.
> For couples, it just varies by situation. Sometimes the W-2 member of the couple can get family health insurance, if that's a better deal than what the 1099 can get. If that's not an option, then yes, the 1099 member has to fend for themselves and buy an individual health insurance plan.
I was referring to the complications arising from determining limits for retirement contributions when one spouse is W-2 and the other is non W-2. For most people this will introduce the need for an accountant. For the amount of money that the vast, vast majority of Americans earn, I think they would easily come out ahead being W-2 employees with subsidized benefits via large employers.
> but also using the U.S. tax system to great advantage, putting a very large portion of my gross pay into tax-advantaged accounts[0]
Yep, I'm not an accountant but a 401k for 2021 says you can contribute up to $19,500. But a SEP account for 2021 maxes out at $58,000.
A SEP account is something a contractor or any self employed person can contribute to. It's a tax deferred account meaning the amount you put in is taken off your income right now but then you pay taxes on it later when you withdraw it. Like a 401k, the catch is you need to wait until 59.5 years old to touch it. You can also invest it.
Being able to defer an extra ~40k of income every year is a lot. You could take that 40k and invest it. At 0% interest over 15 years that's $640,000, 3% interest yields $828,593 and 5% interest is $989,456. If you took out your 40k / year at 60 years old, you'd be paying almost no tax on it since your income will be $0 since you're retired and your 828k (middle ground of 3%) would last you another 20 years.
Then there's 15 years of not being taxed on 40k of income at a 35%+ bracket which is roughly 14k a year or another 210k (not counting state taxes which are quite high in places like California and NY). Even if you had to pay $10k a year out of pocket for your own health insurance for 15 years you're coming out way ahead.
100%! I recently opened a SEP account; its amazing. I throw as much into it as I can and it reduces both my personal taxable income and that of my companies. It's great.
Benefits are usually tax advantaged in some way, so it costs the company less to pay for my healthcare than to pay me sufficient cash to pay for my healthcare.
If you get more $ in return... I don't see much downside. People will have to learn to run themselves as a business/contractor, and have a bit more discipline re: taxes. Getting a check for $3000 doesn't mean you can spend all $3000 immediately, etc.
If we move in this direction more, we'll potentially chip away at some of the "employer=healthinsurance" mindset that has trapped so many people in less than optimal jobs.
There’s a lot of overhead to being an independent contractor period, but they’re definitely not all manual labor who are on the hook for their equipment’s gas, insurance, maintenance, fees etc in “designed markets”
Are they offering rates that offset the cost of that stuff? Most contracts I see absolutely suck because they just offer what an equivalent full time roles would with an additional tax burden.
I think it depends on the role. I got a 75% raise when I switched to contracting. I have a year to year contract but everyone else here on the same contract has been here multiple years. I work for a contracting company and they contract me out to a unicorn company. Pay is good, hours are good and when they aren't I get paid OT.
This is my first one so don't take my advice as gospel, I may have just gotten lucky. What I have always done is updated my resume on Monster and linked In and set whatever settings are needed to allow recruiters to contact me. The calls and emails just start coming in then. Sometimes those calls are from people that don't speak the best of English or have a thick accent, those are the ones I have gotten my current job and another really good W2 job with. Helps if you are not desperate to switch jobs. I was able to negotiate a higher wage as I was willing to walk after giving 2 great interviews. Negotiated an extra 30k onto my salary and I get paid hourly OT if I work over 40 hours a week or for any weekend work.
This could actually be an interesting path to get out of the "employer sponsored health care" mess that we have now. Pay people a bit more and create a bigger incentive for carriers to offer interesting plans to individuals.
All legislators have to do is not offer a tax break for employer subsidized benefits. However, this will be lobbied against by the large employers because they maintain a competitive advantage over small employers since they can afford to do all the paperwork that goes into offering the benefits.
