Compliance problems with the gig economy

The contingent workforce is growing at a rapid rate worldwide. The fast-tracked adoption of remote work scenarios is allowing more people to work from anywhere, diversify their income sources and engage in part-time or freelance online working opportunities. These changes in global workforce dynamics have also catalysed major growth of the gig economy. Task-based jobs hold many benefits for workers and companies but are also associated with several risks for both parties. 

The rise of the gig economy has led to the increased availability of digital offerings to help companies source, hire and manage contingent workers. Yet many organisations that engage independent contractors are not efficiently addressing the compliance risks and regulations that accompany non-traditional workforces. 


What is the gig economy?

The gig economy is characterised by short-term contracts and freelance work in contrast with traditional permanent and office-based employment structures. Gig workers include independent contractors, temporary workers, online platform workers and contract firm workers who enter into formal agreements with on-demand gig-based companies and provide services on a pay-per-task basis. Transportation services are some of the biggest shares of the market in the gig economy, although this type of work also extends to other industries and is quickly expanding as a result of globalisation and technological advances. 

Gig work occupies a major share of the global economy with nearly 60 million freelancers working in the US alone, according to Statista. Further to this, it is projected that more than half of the US workforce will be working in the gig economy by 2023 or would have worked as independent contractors at some point in their career by then. Brodmin reports that 44% of gig workers in the US consider freelancing to be their primary source of income while 60% of workers engage in freelance and gig-based activities at least weekly. With annual growth of 17.4%, the global gig economy is expected to reach a value of $455 billion by 2023. 

Remote work and gig-based jobs are no strangers to the professional world, although these types of work have experienced major scale-ups since the start of the pandemic due to the effects of COVID-19 on work processes and travel/movement restrictions in affected industries. As a result, many companies and organisations have over the past year or two realised the cost-benefits of remote work and the potential of accessing global talent pools. Remote work may not be the future for all industries, but it is certainly here to stay among knowledge workers. The same can be said of the growing gig economy and its opportunity for workers to enjoy flexibility in terms of hours and location and even become their own boss. 


The benefits and drawbacks of the gig economy

The gig economy presents major cost-saving and logistical benefits to companies and workers, even more so for startups and smaller businesses who rely on flexibility in their work processes. The ability to engage talent as needed can cut back on expenses, increase productivity, enhance flexibility and add unique skill value to an organisation’s offering. Gig work provides access to a more diverse and skilled talent pool while easing the process of managing temporary increases in workloads. On the other hand, gig workers benefit from the flexibility of task-based work by having more control over their workload and working hours. 

Despite the benefits associated with the gig economy, however, countless contingent workers are underpaid, misclassified, subjected to illegal working conditions and deprived of the necessary support from their employers to obtain legal rights to work. According to data captured by Statista, less than half of gig workers in the US report having medical insurance and retirement savings, which indicates the urgency of transforming the role and benefits of contingent workers within companies who benefit from the gig economy. Gig workers do not enjoy the benefits afforded by permanent employment such as sick pay, holiday leave, parental leave and pension, which leads to several other issues related to job insecurity and the ability to qualify for loans and mortgages. 


Compliance risks associated with the gig economy

The contingent workforce is associated with various compliance risks. If these risks are not managed properly and professionally, the benefits of engaging contingent workers in the gig economy become obsolete. Problems are often caused when companies engage illegitimate and untrustworthy gig work platforms to hire independent contractors. If the platform does not meet the threshold for workers’ rights, ensure that workers are paid minimum wage and adhere to immigration regulations and tax obligations, companies are putting themselves and their contingent workers at major risk. 

Activities performed by gig workers may require specific training or certification to adhere to regulatory compliance policies. Worker misclassification is also a critical concern in the processes of hiring and managing gig workers. For tax and legal purposes related to wages, workplace discrimination and employment benefits, all workers must be classified as either an employee or an independent contractor. The two classifications entail different tax, employment insurance and compensation regulations. Every region of the world is subject to different and often changing employment laws, which adds to the challenge for companies to ensure full compliance in managing their global contingent workforces. 


Ensuring contingent workforce compliance 

The approach to ensuring workforce compliance in the gig economy requires that all workers must be classified correctly and must have a clearly defined position within the company workforce. Organisations must therefore distinguish between different levels of expertise and training and must manage contingent workers with consistency in terms of employment contracts and benefits that are suitable to each gig. It is also vital to establish streamlined onboarding and worker integration processes for all workers engaged in the gig economy. 

Organisations must create plans and policies for contract vetting and payment structures for independent workers. There are various options for paying gig workers. Companies can opt to classify and pay workers directly or enlist a third party employer of record to take responsibility covering all formal employment tasks. The safest, most convenient and most efficient option is to outsource the entire process of worker classification, contract vetting, onboarding and payments to ensure full compliance across the board. This will help companies avoid costly mistakes down the line and enable them to maximise the benefits of engaging gig workers.


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