Is This the End of the Gig Economy?

Is This the End of the Gig Economy?

There are a lot of confusing statistics about the gig economy … the realm of workers for Uber, TaskRabbit, Upwork, or themselves. According to a survey by Upwork, there were 57.3 million Americans freelancing in 2017, and that by 2027, more than half of American workers will be freelancing. But is that so?

Will the gig economy continue to grow? Will it shrink? Will it disappear?

How are things for freelancers?

Earlier this year, an academic study from Cornell on the agony and ecstasy in the gig economy found that “workers experience stark emotional tensions encompassing both the anxiety and fulfillment of working in precarious and personal conditions.” As the Cornell study indicates, there are emotional issues for workers in the gig economy. Unlike employees who fit into an organizational framework (their companies), gig workers are on their own.

What’s more gig workers must provide their own benefits, including health insurance and retirement savings. In contrast, employers are increasingly offering list of benefits to attract and retain valued employees in this tightening job market.

How are companies being challenged?

In broad terms, companies may prefer to engage independent contractors rather than hire employees. The reason: it costs about 20% or more to have employees (including compensation, payroll taxes, workers’ compensation, and various fringe benefits) than engaging independent contractors. However, the ability of companies to choose — for economic or other reasons — whether to use independent contractors or employees may be restricted. The federal government and the states (including their agencies) generally seek to classify workers as employees. This purportedly is meant to protect workers. Here’s how it’s done:

  • IRS. The IRS uses a 3-prong test for assessing worker classification. These are: (1) behavioral control (telling the worker when, where, and how the work gets done), (2) financial control (who invests and who profits), and (3) relationship (how the parties perceive the arrangement). These are derived from a 20-factor test established years ago.
  • Some states. California has joined Massachusetts and New Jersey in basing worker classification (employee or independent contractor) on the ABC test. According to the California court, “a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes: (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.”

My predictions

Despite government efforts to classify workers as employees and a tightening job market in which employers offer an enticing menu of benefits, the gig economy won’t disappear anytime soon. Many freelancers like their arrangement:

  • They like to be independent and work for themselves
  • They may use freelancing to supplement a paycheck or test a business concept

Historian Danial Boorstin said,  “Freedom means the opportunity to be what we never thought we would be.”

Freelancers and others working in the gig economy are exploring what they can be.

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