What Is the Gig Economy-and How Does It Impact Employees?

Gig Economy workers will double by 2020. Learn how it will affect employees.

Employees who use TSheets track time from Idaho to Australia, from a route stop on Route 66 to the tech towers of Silicon Valley.

This means that global trends in business that impact employees of all types-full-time, part-time, freelance and the newest type of employee, the gig worker-are always on our mind.

In the coming decade, employees will be faced with a new set of opportunities and challenges centered around the so-called "on demand workforce," "shared economy," "gig economy" or, as Natasha Singer of the New York Times calls it, "Twisting Words to Make 'Sharing' Apps Seem Selfless".

Intuit recently released compelling data suggesting that the on-demand economy -- a rising tide of freelancers and 1099 independent contractors drawn to growing opportunities anchored in developing technlogy -- will more than double in size by 2020 (a jump from 3.2 million on-demand employees to a workforce of 7.6 million strong.) The on-demand services range from accounting to taxi rides to home cleaning, but the common denominator is a workforce of employees that work when and how they choose.

Understanding the implications of the gig economy is critical for employees, managers and business owners to make informed decisions, navigate potential pitfalls and find success in a rapidly evolving business landscape.

To start, what new challenges and opportunities does the gig economy entail for employees?

In a Nutshell

On one level, the rising shared economy simply means more options and a broader horizon for employees. Increasingly, the market supports freelance and contract employees who join the on-demand market by choice rather than in response to crisis or the loss of a traditional job. Gone are the days when "self-employed" was a thinly veiled term for unemployment. Increasingly, freelance work and self-employment are associated with greater freedom, flexibility, options, new possibilities, and a safety cushion.

The barriers to being a freelance professional...are going away. Tweet This

As Fabio Rosati, CEO of Upwork stated, "The 53 million Americans who are freelancing already contribute more than $700 billion to our national economy and help U.S. businesses compete and find the skills that they need. This is just the start: The connected era we live in is liberating our workforce. The barriers to being a freelance professional - finding work, collaborating with clients and getting paid on time - are going away."

However, for some employees gig work can also mean inconsistent income, less stability, greater incurred costs (gas, health insurance and work supplies) and the absence of protections generally afforded to W-2 employees. The gray areas and challenges of the gig economy are hotly debated right now, both in terms of employee classification and regulations particularly surrounding the largest hubs of on-demand employment (like Airbnb and Uber).

Benefits

Flexibility

For employees, flexibility is one of the biggest draws of on-demand work. The availability and prevalence of freelance opportunities at the tips of employees' fingers reveals options in flexibility that a few years ago were minimal in middle America. It's now possible to work from home while supporting younger children, pursue a passion project part time while bringing in enough cash to pay the bills, and take as much time off to travel as a given situation allows. In a study of 601 Uber driver-partners, the drivers were asked the following question: "If both were available to you, at this point in your life, would you rather have a steady 9-to-5 job with some benefits and a set salary or a job where you choose your own schedule and be your own boss?" 73 percent of the drivers chose flexibility over a traditional job.

Options

With low barriers to entry and endless opportunities for freelance employment (and more popping up daily) literally at their fingertips, employees' biggest hurdles to joining the on-demand workforce is often determining which freelance employment opportunities are the best fit for their lifestyle, skillset, and time. What is the cost-benefit analysis for a freelancer's particular situation, and what assets does he or she have to leverage? A vehicle: Lyft or Uber are options. An extra room: Airbnb. Great organizational abilities and some technical skills: Zirtual. The list is growing daily.

Anyone who wants to can do microtasks, no matter their gender, nationality, or socio-economic status Tweet This

The rising gig economy also offers new inroads to many career paths that were previously limited entry. Employees have new ways to get a foot in the door by freelancing as a way to bootstrap new skill sets. "Anyone who wants to can do microtasks," said Lukas Biewald, the CEO of CrowdFlower, "no matter their gender, nationality, or socio-economic status, and can do so in a way that is entirely of their choosing and unique to them."

Employees can take inventory of their interests and skills (whether or not they have a degree to prove them) and specialize in and become an expert at the freelance opportunities that appeal to them and best complement their skill sets and assets.

Safety Cushions

Gone are the days of a mad scramble to find a job-any job-if traditional employment falls through. Now employees have higher quality, varied options for stop-gap employment (that may well turn into a long-term situation by choice for many). Rising options for on-demand, gig-style employment can take some of the stress out of job searching, by giving employees a sustainable cushion of income and allowing them to take their time finding the best fit for new employment.

Risks and Challenges

Inconsistent Income

The benefit of on-demand platforms that support low barriers to entry comes with an inherent drawback for employees: low barriers to exit. Any given source of contract work can dry up quickly, in some cases because of negative reviews of a freelancer's performance (especially reviews that are publically available, in apps like Uber and Airbnb), and most sources of freelance work depend on the sometimes arbitrary satisfaction of a client.

As Joseph G. Davis, Professor of Information Services and Systems at University of Sydney, says of Amazon's Mechanical Turk, "Data-driven algorithms for continuous monitoring of worker performance and reputation enable requesters to pick and choose the workers. They also have the unilateral right to reject all or part of the work completed by a worker without payment, which adds to the pressure on workers."

Lilly Irani, a developer who helped create Turkopticon, a forum that helps Amazon's Mechanical Turk users identify and avoid shady employers said, "If you have a 99.8 percent approval rating and then you work for some jack-wagon who rejects 500 of your HITs, you're toast. Because for every rejection, you have to get 100 HITs that are approved to get your rating back up. Do you know how long that takes? It can take months; it can take years."

There's also the ever-present possibility of an app going out of business in response to litigation or funding issues, or a sudden lack of demand caused by new competitors in the market or other economic factors.

New Costs

Contractors may find that costs like health insurance and other work-related expenses have a significant impact on their net take-home pay. The cost-benefit analysis might look good at first -- and less rosy when all costs have been accounted for. While W-2 employees are reimbursed for work-related costs, like gas. While some of these out-of-pocket costs can be written off come tax time, the day-to-day expenses can add up.

Another significant – and sometimes unanticipated – cost for freelancers is employment taxes. Employers aren't required to pay this tax for contractors. And at close to 15 percent, this cost alone can take a sizeable amount out of a paycheck.

Fewer Protections

Contract work typically means that most of the safeguards available to W-2 employees are absent in the on-demand dynamic. Severance pay, disability leave, PTO, sick days, and workers comp are just a few of the protections and benefits afforded to full- and part-time employees but not contractors. It's also far easier for employers to terminate a relationship with a freelancer as opposed to a full- or part-time employee.

While contractors are technically allowed to unionize, they aren't afforded the same legal protections as W-2 employees. Employers aren't required to negotiate with contractors on contract terms, and they are freely allowed to take action against contractors who go on strike. Wages can be changed without notice, and minimum wage laws do not apply.

While contract work carries greater risk than traditional employment in ways (most notably in the lack of employer-subsidized benefits and unpredictability of work), the benefits of independence and options are compelling enough that the number of employees who either embrace the gig economy full-time or moonlight to supplement traditional employment are growing--and rapidly. As the numbers increase, bolstered by new options in cloud-based "employers," understanding the implications and changing landscape for employees, managers and business owners alike will be key.

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