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Ways the Gig Economy Is Risky for Independent Contractors

As most of us know by now, the percentage of individuals who are working as independent contractors either part time or full time continues to grow. Many employers have embraced this trend and continued to hire more and more contractors who work alongside the regular labor force and meet specific needs. Other employers opt for nearly exclusive use of contractors to meet their labor needs.

Gig

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From an individual’s perspective, there are benefits like more autonomy over hours and typically a lot of flexibility. But there are a lot of downsides to consider, as well. Here are a few downsides to gig economy work from the contractor’s perspective:

  • No benefits. Contract workers typically aren’t entitled to an employer’s benefit structure, even if they work the equivalent of full-time hours. This means if a contract worker wants health insurance, for example, he or she must pay out of pocket, typically at higher premiums than he or she would get under an employer plan. Of course, health insurance is just one example; any other benefits typically aren’t available either.
  • Lack of safety protections. There are no firm safety regulations for nonemployees, and contract workers are not necessarily covered by existing workers’ compensation policies in case of injuries. This leaves open safety gaps when problems occur and is becoming more of an issue over time as more contract jobs in higher-risk industries like transportation and delivery become commonplace. Independent contractors also may not be versed in an employer’s safety policies and may be less likely to bring up safety concerns, creating more risk.
  • No pay protections. The Fair Labor Standards Act (FLSA) guarantees minimum wage to be paid and overtime when conditions are met—but again, these rules apply to employees, not contractors. If a contractor agrees to do a job for $X and ends up working hours that amount to less than minimum wage, there are no protections to keep that from happening or get compensation.
  • No paid time off (PTO). No PTO means no pay for illness, injury, vacation, or anything. This is another risk of this type of setup. (Granted, PTO is not a right for all employees, but it is, nonetheless, a common benefit.)
  • Higher financial risk. In some instances, there’s a higher expectation for contract workers to take on the majority of the financial risk associated with the role. They typically have to furnish their own equipment, software, and tools, which can be expensive, especially in the case of gig workers who are making deliveries or driving people, requiring use of their own vehicles.
    • Contractors also have to fund their own retirement savings without the benefit of employer 401(k) contributions.
    • They also are responsible for a higher tax rate, as they must pay both the employee and the employer portion of their payroll tax on a quarterly basis or face penalties.
  • No protection from other labor laws. For example, if a contractor is let go, there are no unemployment protections to offer a cushion until he or she lands the next gig.

Employers that want to address these issues have an opportunity to convert gig workers into permanent employees if they choose to do so, which obviously has pros and cons. The downside is, of course, the costs associated with the items above, but the upside could include better labor retention, better morale for everyone, and better consistency of output for customers.