The phenomenon of the gig economy has transformed the world of work over the past decade or so, and has had a significant impact upon the economy as a whole.
Countless businesses – both large and small – have taken advantage of the flexibility of ad-hoc contracts, which often meet the needs of both employer and employee. But what exactly is the gig economy, and how can SMEs benefit from it, particularly during the company formation stage and beyond?
What is the gig economy?
The gig economy refers to the system of finding people to complete unique time-limited tasks required by a business, normally using a technology platform. There are several different definitions of gig economy work, but here are some key features:
Temporary
Virtually all gig economy contracts are limited to individually defined tasks or projects, with a limited time frame. Although there may be an endless stream of unique tasks, these are generally disparate and contracted on an ad-hoc basis. This is in stark contrast to permanent employment contracts.
Self-employment
One of the defining features of the gig economy is that it’s essentially a business-to-business operation. Rather than companies employing members of staff, they will instead be contracting out work to self-employed individuals.
Although this has been challenged in court, particularly in the case of Uber, in general, it is assumed that gig economy “workers” are self-employed contractors (as opposed to the legal definition of workers or employees).
Flexibility
Normally the contracts are relatively flexible in their nature, allowing both employer and employee to define their terms. For example, although some “gigs” may require a worker to be present in a specific geographical location, if the work can be completed remotely then it will generally be up to the worker to decide where to carry out their contract.
Zero-hours
Contracts that do not have any guarantee of specific hours of work are known as “zero-hours” contracts. But it’s important to distinguish between zero-hours employment contracts where there is an employment relationship, and gig economy work which is essentially all provided on the basis of zero-hours but is not intended to form an employment relationship.
Technology
Most gig economy systems rely on various types of technology, including platforms and algorithms. Perhaps one of the most famous examples is Uber, whose business model relies on a software platform used by drivers and passengers, involving a sophisticated algorithm that assigns specific gigs (journeys) based on a set of criteria such as geographical proximity.
There are generally three different parties involved in any gig economy work:
- Business – the company or organisation will define the specific tasks or jobs which it requires to be completed, either at a fixed or hourly rate.
- Contractor – this is normally an individual who undertakes the set tasks, usually on a self-employed basis.
- Platform – the software which acts as an interface between the contractors and businesses, often managing the various tasks using an algorithm. Although the platform is sometimes owned and operated by the business, it will often be provided by third parties which will either charge a licence to the business for using the software or else take a commission from the business and/or the contractors.
What are the pros and cons of the gig economy for my business?
There can be several benefits of taking advantage of gig economy tools, depending on the desired outcomes of the business:
- Simplicity – it’s generally more straightforward to find contractors for a business compared to taking on employees or going through a temping agency.
- Cost – it’s a lot cheaper to find workers on a gig economy platform compared to recruiting them.
- Regulations – using self-employed contractors avoids all the complexity of employment law.
- Speed – gig economy platforms often provide the fastest way of finding someone to fill a business need that suddenly arises.
But there are also some downsides and potential issues which should be kept in mind:
- Training – as a result of the temporary nature of the gig economy, contractors will often go elsewhere after the initial job. This means that any investment in training will be lost following the contract.
- Short-termism – providing one-off jobs through a platform is often merely a stop-gap and won’t help with the long-term expansion strategy of a business. Companies that want to build a team will need to invest in the future by employing staff.
- Legal challenges – there have been several challenges over recent years regarding the legality of classifying contractors on a gig economy platform as self-employed individuals as opposed to workers or employees. A landmark Supreme Court judgment in 2021 decided that Uber drivers should be classified as workers – which means they are entitled to various employment law rights.
How do I use the gig economy for my business?
Businesses that want to actually build a gig economy platform will need a significant budget for software development, alongside maintenance of apps and online resources. The cost of developing their own platforms will generally be prohibitive for most SMEs, which is why many turn to a company formation agent for guidance and support when setting up their operations efficiently. Instead, the best option will be to make use of an existing resource, such as:
- Upwork – this platform focuses on skilled contractors, such as IT developers, finance and accounting specialists, and design professionals.
- Fiverr – this is comparable to Upwork but arguably has less of a focus on skills, so may be more suitable for work that does not require specific experience.
- Deliveroo – restaurants and catering businesses that want to have their food delivered to customers will often become Deliveroo partners, rather than hiring their own delivery drivers. As well as taking care of the delivery aspect, businesses can find new customers on an online food delivery platform, so it doubles up as a valuable marketing tool.
- Limber – this app focuses on placing workers in hospitality settings. It guarantees a minimum wage for its contractors, as well as a pension for those who meet certain thresholds, and generally holds itself out as an ethical gig economy platform.
- Flex Legal – this is an example of a highly skilled gig economy provider. It is geared towards placing paralegals and lawyers within law firms, barrister chambers, and in-house legal teams.