Freelance work is growing at a rate of 15% per year. We are in the 4th Industrial Revolution and the gig economy is booming! It’s a period of rapid change spurred by automation, and is transforming the way we do business. Now, is one of the first times disruptive technology is truly benefiting everyone at the table.
Upwork, one of the leading digital platforms in the world, estimates that by 2027, there will be 86.5 million freelancers globally. The majority of the workers in the United States will be self-employed by then. That’s a whole bunch of people calling the shots on work arrangements.
They’re not the only happy campers. Companies big and small are reaping the benefits of this alternative workforce saving time, money, and forever altering the relationship between employer and employee. The future of work lies in the hands of the independent contractor.
Gig Economy Definition
A gig economy is a labor market in which independent workers are hired for short-term commitments, rather than salaried employees. In this free market system, temporary positions are common and work is characterized by the prevalence of small contracts known as “gigs.”
Understanding the Gig Economy
Although the gig economy may lack security for some workers, it more than makes up for it in opportunities.
Traditionally, the term “gig” was used by artists to define a performance, but the definition has expanded to included any type of short-term, independent work. Some may refer to this as a small business, while others call it a side-hustle. Whatever the case, people make a full-time living in the gig economy, every day.
Common types of gig workers include independent contractors, freelancers, temporary staff, part-time hires, and project-based workers. Gig apps and digital platforms are what is typically used to connect customers and gig workers.
The gig economy trend has a number of factors contributing to it’s rise, including:
- The pandemic has caused people to seek employment elsewhere
- The global workforce has become more mobile
- Work is increasingly performed remotely via digital platforms
As a result of the gig economy, locations and jobs are being decoupled. Workers can take a job with an employer anywhere in the world. At the same time, companies also have the advantage of selecting the best person for a specific job, from a larger talent pool.
The gig economy is part of a shifting business environment that includes the gift economy, sharing economy, barter economy, and flexible jobs. As it continues to grow, it is affected by societal changes such as the COVID-19 pandemic and the larger economy overall.
Who is Jiving with the Gig Economy?
Secret: it’s not just millennials. Besides the companies hiring, who else is sticking their hands in the honeypot? It doesn’t take much to freelance, and independent workers find themselves wearing many hats. A few of the terms that apply to this role are:
- Freelancers
- Consultants
- Independent contractors and/or professionals
- Temps (temporary contract workers)
- Free-agent
- Supplier
Freelancing encompasses all sorts of contingent business models. You’ll also find this type of work in every industry (although roles differ). For example, a doctor may not freelance office hours, but they could invoice as a consultant to an author, lawyer, or other professional. On the contrary, social media marketing is a form of self-employment that typically benefits from the freelancing model and is viewed as a full-time job.
The opportunity is there for anyone, in any form.
3 Types of Gig Economy Workers
Gig economy workers can be broken down into three sub-categories:
Full-time Independent
Anyone working 15 hours or more from home and getting paid for it is typically on their way to full-time independent employment. These contractors do not plan on altering their situation in the foreseeable future and are likely to have retirement plans.
Part-time Independent
These are contractors who regularly work a few hours a week on a part-time basis. They treat the gig as supplemental income. Many of these people are trying to break out of minimum wage, move away from traditional jobs, or start new careers.
Occasional Independent
Those who do independent or on-demand work sporadically, but at least once a month.
One common trait is the knowledge that work is short-term. Generally, if a company wants a freelancer to be there indefinitely, they will hire them permanently.
Examples of Gig Economy Jobs and Industries
Gig economy jobs include positions found in diverse industries, including:
- Administration – Receptionist, admin assistants, and small jobs like Taskrabbit
- Construction – Carpenters, masonry, and project management
- Design – Graphics artists and web designers
- Education – Substitute teachers and tutors
- Finance – Consultant and mortgage reps
- IT – Security, engineering, and network analysts
- Media – Tech writers, musicians, and photographers
- Real estate – Subletting like AirBnB
- Software – DevOps and UX
- Transportation – Ride-hailing like Uber and Lyft
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7 Benefits of the Gig Economy Business Model
The gig economy is altering our business interactions in a myriad of ways. Here are 7 benefits of the gig economy business model:
#1 – Flexible Environment
The gig economy is flexible in every sense of the matter. It creates a more pliable business environment for everyone. There is no time lost on commuting or socializing in the office. Employees are ready to go the minute the clock starts. In fact, 49% of gig workers said the ability to set their own hours is the most important factor when working in the gig economy.
However, because workers are in different time zones, real-time communication can be challenging. People also choose to work when they want. There is no set schedule (unless agreed upon in advance) so the expectations for where time is placed, should be low.
A company cannot tell a contractor when to work. They do not have the legal right. They must accommodate a freelancer‘s schedule. However, if the project needs specific hours the contractor is not working, the business has every right to terminate the contract.
#2 – Important Legalities
The gig economy is changing and has been under much scrutiny for the past few years. That’s because technology (like smartphones and marketplaces) has enabled an unprecedented number of full-time workers to enter the freelancing market. Anyone can Google to get started. This is both a good and bad thing for modern business models.
44% of freelancers in the gig economy use it as their primary source of income. This means, there’s no playing around with the money. In the past, many companies have blurred the line between employee and contractor—which can be illegal. It’s running high expectations with a low payout and not exactly an ethical way of doing business.
One of the main questions for business owners should always be the legality surrounding independent contractors. Concerns over employee misclassification have come to a head and California has passed Assembly Bill 5. It turns app-based workers and freelancers into full-fledged employees. The bill states that the burden of proof for classification is on the employer and once properly classified, the worker must receive the same pay and benefits as everyone else.
The law codifies what’s known as the “ABC test” which is a three-prong assessment to determine if a worker is misclassified. It looks at:
- A) Whether the individual is “free from direction and control,” applicable both “under his contract for the performance of service and in fact.”
- B) That “the service is performed outside the usual course of business of the employer.”
- C) That the “individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.”
The fine line between a freelancer and an employee is still being adjudicated around the world, but really all it requires is common sense. If a business is asking an employee to clock in every day, expecting them to come into the office, participate in every meeting, etc., common sense will tell you they are an employee and need to be paid accordingly.
The freelancer should be looking out for their own well-being too. No one should cave on principles. Don’t go through the motions of a full-time employee with no benefits or health insurance. If covered health care is important, full-time permanent employment is the best route.
#3- Driven Telecommuting
When people work from home, they’re telecommuting. They are making use of the internet, email, and phone to do business. But it’s so much more than just saving on gas and time. Here are a few recent stats to demonstrate why telecommuting, as a result of the gig economy, is changing how we do business:
- The global freelance market is expected to grow at a compound annual growth rate (CAGR) of 15% through 2026.
- 36% of freelancers do it as a full-time job.
- It is estimated that by 2028, 73% of all departments will have remote workers.
Telecommuting saves time, money, and it makes people happier. Who doesn’t like working in pajamas? In fact:
- 82% of telecommuters reported lower stress levels.
- 44% of freelancers say they make more than they would for a traditional employer.
- 80% of telecommuters report higher morale.
- 69% of telecommuters reported lower absenteeism.
It’s good stuff.
#4 – Batch Work
The future of work is in batches. Freelancing and online platforms are redefining how jobs are actually performed. Because everything is being done on a temporary basis, there is more of a sense of urgency. Work typically has a beginning, middle, and end. There is no ongoing work with a freelancer. Most are paid for contract work on a per-project basis. This means parameters, formats, and deadlines must be clear from the get-go.
Performing work in batches has advantages and disadvantages. As a business, if you have to revisit work, chances are the person who performed the gist of it is no longer there. It also makes the freelancer‘s job harder. That’s because when the batch work ends, they must hunt for more to keep a steady income. Job searching is not a paid part of a gig worker‘s role.
#5 – Greater Expectations
Everyone has greater expectations these days and consumers are driving business. Buyers want what they want, when they want it, and are unwilling to compromise. This trend in consumerism has also been a driving force in the gig economy. Smart companies find a way to leverage expectations by hiring more freelancers. This type of strategy is particularly prevalent during the holiday seasons when consumer demands skyrocket.
A brand can anticipate high quality from a contractor. They tend to be more current on their job skills, industry knowledge, and tools of the trade. That’s essential in order to consistently draw new work. Adding an on-demand angle to a business model means greater expectations are more consistently met by all parties involved (contractor, company, and consumer).
#6 -Culture
Freelance workers in corporate culture can bring both positive and negative elements to the table. Contingent contractors tend to work harder and faster. Especially when being paid a fixed price. They want to get the job done quickly and meet deadlines, but also efficiently and with a quality that will award them future work. This can drive productivity and influence surrounding employees to work harder. They don’t want to be outshined. It can also naturally motivate people into healthy competition towards a shared goal.
On the flip side, hiring skilled workers that are not “part of the team” can backfire when it comes to employee morale. Oftentimes, freelancers are paid at a higher rate than regular staff. If this comes to light, it could ruin the vibe in the office. It can also confuse levels of seniority and roles within the culture.
Temporary workers can be out of step. They are not as invested in what the business is selling on a social level. Most freelancers aren’t physically in the office. Therefore, policies and standards must be properly delineated during the contract process. A business should remember, however, the legalities that define this type of work and not try and overstep bounds. Especially when it comes to putting something in writing.
#7 – No Commitment
This is a positive aspect for all parties if you go into a gig with no expectations. It’s more than just an at-will labor market, it’s entirely non-committal. Some companies will use the gig economy as a trial period to fill permanent positions. This is a more healthy approach to hiring, as a worker goes into it without the assumption of permanent employment.
A business should also understand that freelancers can’t be micromanaged. They are their own boss. There must be a clear level of trust and loyalty on behalf of both parties to make this arrangement work. Ultimately, however, if and when most people want to walk away, they generally do with few strings attached.
Honorable Mentions:
- Hiring and job creation
- Increase in job satisfaction
- Higher rate of productivity
- More resources
- Better experience for customers
The list goes on. There are pros and cons to anything in life depending on perspective. It has to be measured before you dive in. Whether you are looking to start as a contract worker or a business seeking to integrate an on-demand strategy, understanding the simple tenets of the gig economy is a brilliant start.
Once you fully understand this segmented market, there are unlimited possibilities for doing business.
Potential Pitfalls of the Gig Economy Business Model
It’s also smart to look at the disadvantages of the gig economy business model to understand if it’s the right fit for you. Some potential pitfalls include:
Work-Life Balance
There can be some work-life management challenges when it comes to the gig economy. After all, people are working where they sleep and eat. So, naturally, there will be some blurred boundaries. If you’re not used to making your own schedule, freelance work can be disruptive at first. Inexperienced workers can easily take on too much and become overwhelmed or fail to meet all of their promised deadlines. This can lead to overwork, burnout, and a bad business rep.
As a business, it may also be hard to track gig workers and know when they are being productive. Unless you use a time tracker, there is no real way to know if they are working.
Lack of Benefits
One of the biggest pitfalls of the gig economy is the lack of benefits. Employers are not committed to the worker and do not foot the cost of additional benefits. Payment is cut and dry. Service is performed and a transaction is made. Companies are also not required to pay contract workers overtime or even minimum wage.
Inconsistency
There comes a certain sense of insecurity when a worker doesn’t have a permanent job. The same goes for a business hiring contract workers. Those contractors will not be as heavily invested in the brand and can leave on a whim. Many gig workers find it hard to have a stable sense of income.
Work Culture
Temp and contract workers can make it difficult to maintain consistent relationships within an organization. Essentially, working from home is the exact opposite of building a company culture. This can affect any long-term relationships.
Job Market
When temp positions are all that is available, workers may find it more difficult to develop and establish careers.
Biggest Factors that Impact the Gig Economy
Culture, business, and politics all affect the gig economy. Changing regulations around the employment status of gig workers can alter the gig workforce. As was evidenced by the passing of California’s Assembly Bill 5 (AB5). This bill required companies to reclassify independent contractors as employees. However, in direct opposition, California voters approved Proposition 22. This allowed app-based ride and delivery service drivers (like Uber drivers) to remain independent contractors. So, things can get confusing.
The pandemic also shifted the way in which we do business. For example, delivery service usage skyrocketed when everyone was staying home—for obvious reasons.
Additional factors include:
- The need for business flexibility to expand
- The introduction of online marketplaces and digitization
- Generational effects where younger workers change jobs more frequently
- The need for businesses to remain visible and solvent (especially after the COVID-19 pandemic)
Some traditional brick-and-mortar stores have formed a hybrid solution. They’ve added food-delivery apps like DoorDash and Instacart to pad revenue. This, subsequently, increases the number of gig workers and drives the gig economy.
Importance of the Gig Economy
There are quite a bit of perks to the gig economy. For a business owner, gig work saves money and resources. A company doesn’t have to worry about providing employee benefits, like health insurance and sick leave. The paper trail is much shorter and easier to manage. Oftentimes, workers also don’t require office space, training, or equipment. They are ready to work! The gig economy enables an organization to contract with experts who may be too expensive to hire full-time.
From the worker’s perspective, the gig economy improves their work-life balance compared to many traditional jobs. Freelancers are open to accepting new types of work that interest them, and can fit around their individual schedules. You never get stuck in a full-time, boring job, nor do you have to stick to a set workday.
Consumers also benefit from the freelance economy. Gig workers provide more choices and convenience for services offered. In many cases, service can be of higher quality, at a lower price. There is also more flexibility around services for consumers, as well as times and locations.
Summing It Up
The gig economy isn’t going anywhere. It’s expected to be valued at $455 billion by 2023. Shifting societal changes and the way in which we work are the driving forces behind the gig economy. Younger workers want a sense of freedom and ownership over their jobs. Older workers were forced to reconsider based on societal changes like the pandemic. All types, ages, and nationalities of workers are looking to perform gigs to pay the bills.
And in many cases, people are making a great living with gig work. In fact, 21% of full-time independent contractors earn $100,000 per year or more. That’s because gig work is generally paid at a higher rate than a salaried employee performing the same task. There is a payoff to the risk involved with freelancing. Both a business and an individual worker can greatly benefit from this type of economy, which continues to grow exponentially, every year.
What happens when it’s time to pay contractors? Consult our latest e-book, Contractor Payments, for everything you need to know.
