Navigating the Growing Gig Economy

You’ve probably heard the term, “gig economy.” But what exactly is it? Is it the same as temporary work, where staffing companies hire people to fill project-based or seasonal needs for employers? Yes, and no. It comes down to who is defining what.

In the media, the gig economy is a broad term that includes everyone from computer programmers to food delivery drivers and freelance writers finding work on global platforms like Upwork and Fiverr. It’s a dynamic landscape where people take up short-term contracts or freelance gigs, often facilitated by digital platforms and apps. But here’s the thing—workplace data has been elusive; the government admits it’s having a hard time counting these workers accurately.

Defining Gig Work

As our environment evolves, so does the terminology. In the staffing industry, we see gig work as a subset of temporary or contract work, with some distinctions.

• Temporary or contract work typically involves hiring workers for a specific period or project, often with a defined end date. These workers are considered employees of the staffing company and are provided to client companies to fulfill short-term needs. They may receive benefits and protections as mandated by labor laws, and the staffing company handles payroll, taxes, and other administrative tasks.
• On the other hand, gig work often refers to short-term, on-demand tasks or projects performed by independent contractors or freelancers. (Think drivers on Uber, Lyft, and DoorDash, or creatives using Upwork, for example.) Gig workers are not considered employees of the platform they use to find work. Instead, they are self-employed individuals who have more control over their schedules and work arrangements. They are responsible for managing their own taxes and benefits.

Data Trends and Predictions

While there are similarities between temporary and gig work, the main difference lies in the employment relationship and the level of control and benefits provided to the workers. This difference is not factored into the data accrued by what the media is including as “the gig economy” in the below trend data.

• Before 2020, the gig economy was already on a growth trajectory. Based on available statistics, it was estimated that about 36% of U.S. workers were freelancers or independent workers, and it was projected that more than half of the workforce would be part of the gig economy by 2027.
• The pandemic, however, created a blip: 10% of the U.S. workforce was forced to pause freelancing because of the global health crisis, but 12% of the U.S. workforce started taking freelance jobs during that time. With work shutdowns and economic uncertainty, people turned to gig work to make ends meet, and digital platforms like Doordash saw a surge in popularity.
• The foot seems to be on the gas as the pandemic moves toward the rearview mirror. Recent forecasts put the number of freelancers in the U.S. at 86.5 million by 2027.

Why People Like Gig Work

So, what’s going on beneath the numbers that supports the feeling that the gig economy is here to stay? Well, it turns out that both workers and employers have their reasons for embracing this trend. For workers, gigs offer flexibility and autonomy. They can set their own schedules, work when and where they want, and strike a better work-life balance. Studies show that gig workers tend to be happier and more satisfied with their work arrangements. (This aligns with reasons cited by our candidates, too, as to why project work and staffing assignments are appealing.)

• 78% of gig workers say they’re happier than those working traditional jobs, while 68% say they’re healthier. (McKinsey)
• 84% of freelancers are living their preferred lifestyle compared to just 54% of those working in traditional jobs. (Upwork)

Benefits for Employers

On the employer side, the gig economy offers much-needed flexibility. Businesses can quickly scale their workforce based on demand, tapping into a pool of skilled and diverse workers. The pandemic underscored the importance of adaptability, and the gig economy provides employers with the agility they need to navigate uncertain times. Employers can access specialized skills for specific projects without committing to long-term employment.

Risks to be Mitigated

However, amidst the excitement about the benefits the gig economy offers, there are guidelines and practices employers must heed to prevent misclassification of workers. The case of Uber in New Jersey serves as a yellow flag for employers to proceed with caution. Employee misclassification, where workers are wrongly categorized as independent contractors, can lead to hefty penalties and legal consequences. Uber paid a significant sum of $100 million to resolve allegations of misclassifying its drivers and failing to pay unemployment insurance taxes.

An Evolution in Progress

The gig economy is a transformative trend that has taken the world of work by storm. It’s a dynamic landscape where individuals have the freedom to choose their work arrangements and employers gain the flexibility they need. While the pandemic created a ripple in the trend, experts anticipate the growth of gigs to come. However, it’s crucial for employers to proceed with caution, ensuring they classify workers correctly to avoid misclassification and its associated penalties.

By understanding the gig economy’s dynamics and adhering to labor laws, employers can create flexibility that supports the needs and desires of people and businesses. If you’ve got questions about IC compliance, we’re here to help.