Understanding 5 Risks of the Gig Economy

gig economy

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.

It’s easy to understand why the gig economy exists – the connectivity afforded today makes working remotely easier than ever. Teams can exist in different cities and still feel like they’re intimately working together.

The growth of the gig economy is caused by the people who are currently entering the workforce. They’re looking for experience and growth rather than stability, and they no longer feel loyalty to one company. Additionally, companies are looking for specialised skill sets. The problem is, though, that if companies employed someone for every unique set of skills, there’d be way too many people on the books. This is where the gig economy comes in.

While many associate the gig economy with companies like Uber and Airtasker, it’s more than that. It actually encompasses even the most senior roles such as CFOs or CTOs working on a freelance basis within organisations.

However, there’s a dark side to the gig economy. And if you currently work in the gig economy, or you’re planning on joining, it’s important to understand the risks.

The negative perception

Traditionally, the work we do becomes a part of our identity. In fact, it’s often one of the first questions you get asked when you meet someone – “what do you do?”. While in the past, the answer has been relatively simple (with straight-forward jobs being the norm), nowadays it’s a lot trickier to nut down exactly what a gig economy worker does.

While there will be some people who are “freelance graphic designers,” for example, there will be others who do lots of odd jobs during the day to maintain a steady income and keep themselves busy. Alternatively, there are also plenty of freelance writers or graphic artists who are also salaried professionals or tradespeople.

For those who come from a traditional employment background, this can be difficult to understand. Many people working in the gig economy get a bad rap, with old school thinkers believing they don’t have direction and are lacking in maturity and focus.

Freelancer, contractor or casual employee?

While usually you’d be classified as either a full-time, part-time or casual employee, now there is a whole range of other titles you can be referred to as. And the legislation is struggling to keep up. Indeed, as a freelancer, what rights, if any, do you have as a worker? Are you a contractor or an employee of the business hired to do a short-term job?

It’s crucial to ensure you understand your employment role prior to doing any work. But with information around the gig economy still in its early stages, sometimes the company won’t even be able to tell you where you stand (but a startup accountant can).

Payment and income issues

A big issue with the gig economy is the lack of a steady income. While many love the idea of flexibility, the payment process can be a major killjoy. Not only that but once invoices are submitted, it can be a very slow process to actually receive the money into your account.

Plus, there’s no knowing exactly how you’re much you’re going to make in a single month, so budgeting, paying bills and anticipating the cost of living can be difficult. Additionally, many companies have different payment terms and schedules, and sometimes this isn’t communicated to the freelancer.

This can then cause problems with the freelancer’s ability to move forward in their lives. For example, without a steady income, obtaining a loan or rental agreement can be exceptionally difficult. As David Alexander, Director of Student Services at The International Career Institute says, “the dark side of the gig economy results in the absence of steady income, job security and employment benefits. It ultimately leads to the exploitation of contractors. While it provides ad-hoc employment and flexibility, it also leads contractors to a precarious position where obtaining a loan can become next to impossible.”

Taking up multiple roles in your own business

Imagine a world where you’re the CEO, marketing team, sales team, finance team and employee all at once. Now you have some sort of understanding about what being part of the gig economy is like. Being everything at once can be exhausting, especially as we’re not all trained as such. Kudos if you are, but for many in the gig economy, it becomes a process of learning on the job to obtain these crucial skills.

Allotting time for your clients

For many gig economy workers, it doesn’t come down to one single client who’ll ensure all the bills are paid. Rather, there are usually a few being juggled at once. While many gig economy workers will have plans in place to handle this, it can be tough for employers to realise that the freelancer is not at their every beck and call, nor are they full-time employees. Some clients believe they have control over when you take leave or where you work, and communicating otherwise can be challenging.

Know the benefits and risks

The gig economy definitely has some positive points – ask any freelancer and they’ll list them off without a second thought. Flexibility and being your own boss is a big tick. However, alongside every attraction, there’s a challenge, and being prepared for them is crucial to success.

If you need assistance with managing your tax obligations whilst working in the gig economy, reach out to our accountants today.

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Stuart Reynolds is the founder of Fullstack Advisory, an award-winning accounting firm for businesses leading the future. He is a 3rd generation accountant who specialises in tech & online companies.

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