ABOUT THE GIG ECONOMY
Angela Stringfellow is a writer with 10+ years of experience. She focuses on news, trends, and insights in marketing, business, and technology.
What is the Gig Economy? How It Works, Benefits, and More
Freelancing has been a thing for decades, but in recent years, the number of independent contractors has skyrocketed. Whether you attribute the shift to a tumultuous economic climate or generational trends (milennials place a higher value on flexbile work and a meaningful work purpose than they do salary, for instance), it’s clear that the gig economy is here to stay.
Definition of the Gig Economy
The term “gig economy” refers to a general workforce environment in which short-term engagements, temporary contracts, and independent contracting is commonplace. It’s also referred to as the “freelancer economy,” “agile workforce,” “sharing economy,” or “independent workforce.” You might think it’s a buzzword, and you’d be right, but the widespread growth of startups supporting the gig economy (and the number of workers leveraging them) are a sure indication that the nature of work as we know it is changing.
The freelancer economy (or freelance economy) differs from traditional employment in that jobs are not permanent, but more specifically, the term relates to many one-off tasks or individual shift assignments. However, the term may also be used to reference longer-term freelance arrangements and independent contracting assignments.
How the Gig Economy Works
Individually, a gig (an individual task, assignment, or job) represents a small portion of a worker’s income. When workers aggregate a variety of tasks or shifts for different clients or companies, their cumulative earnings can be similar to that of full-time employment. Others leverage short-term gigs as a way to earn a part-time income or supplemental income on the side. It works both ways, with workers seeking flexible, short-term working arrangements and companies seeking to hire temporary contract workers in lieu of full-time employees.
Increasingly, the gig economy operates on technology platforms that aim to connect workers looking for flexible work arrangements with the companies who need them in a centralized location, such as an app or website. Some platforms are focused on certain niches, such as hospitality and warehouse workers, dog-walking services, or other specific services, while others are broader, connecting gig workers with companies and clients for tasks ranging from housekeeping services to writing.
In the freelance economy, workers operate as independent contractors, meaning their clients pay them an agreed-upon rate for services rendered. In an independent contracting arrangement, workers are responsible for saving and paying their own taxes and aren’t eligible for the typical benefits of full-time employment such as access to group health insurance or retirement investments and savings accounts. But thanks to the rise of the independent workforce, benefits such as health insurance coverage, independent retirement accounts (IRAs), and liability and accident insurance are more accessible than ever before. Plus, workers operating as independent contractors get to take advantage of the tax benefits of operating their own business, including tax deductions for non-reimbursed operating expenses such as travel, supplies, and the like.
Benefits of the Gig Economy
Workers who leverage the freelance economy to earn or supplement their incomes often cite flexibility as the biggest appeal. When a professional isn’t committed to a single employer in a full-time employment arrangement, they maintain greater control over their work schedules thanks to the ability to accept only the gigs, assignments, or shifts that don’t interfere with their other commitments.
Members of the workforce with full-time careers who want to supplement their income can easily pick up a few gigs in the evenings or on weekends. Skilled professionals can exert more control over their career trajectory by engaging in challenging projects and building an impressive resume of results, enabling them to secure higher-level and better-paying full-time positions. Many, however, simply opt to remain a part of the independent workforce thanks to the flexibility and earnings potential it affords them.
The rise of the independent workforce benefits not only workers but also companies who can reap the cost savings of enlisting short-term help to accommodate demand without the administrative costs of hiring full-time staff. Companies aren’t making employer contributions to retirement savings accounts, for instance, or contributing to the cost of group health insurance coverage for gig workers, so the overall cost of hiring help is often less compared to the cost of hiring a full-time employee.
Companies can easily leverage skilled professionals for specific, short-term projects who would otherwise be too costly for a growing company to maintain as a full-time staffer. As an example, a growing startup may not have the capital to fund a six-figure executive salary, but a five-figure fee for a three-month consulting engagement may be within budget.
Additionally, it boosts the economy at large by making it possible to deliver goods and services faster and more efficiently. Studies estimate that by the year 2020, 43 percent of the American workforce will consist of independent contractors. With digitization and automation threatening some traditional jobs, the freelance economy can provide job security, but not in the traditional sense. While that may seem backwards (how can embracing temporary work possibly contribute to long-term job security?), it pays homage to the idea that you shouldn’t put all your eggs in one basket; in the independent workforce, having your position downsized doesn’t mean you’ve suddenly lost your entire income.
Best Practices for Leveraging the Gig Economy
It’s easier than ever for companies in practically every sector to leverage the gig economy, and workers with a variety of skills at all levels can readily secure short-term gigs to earn a living or supplement an existing income, particularly if you follow a few best practices:
Find your niche. Utilize your existing skills and interests, but also follow your passions.
Leverage technology platforms. Once you’ve identified your focus (the type of work you’re interested in and qualified for), sign up for technology platforms that connect workers with your skills to the companies who need them. These platforms make it easy to secure temporary work without the time-consuming task of seeking out clients on your own and marketing your services.
Set your schedule. While one of the biggest benefits of the gig economy is flexibility, determining your availability ahead of time makes it easier to weed out gigs that work with your schedule and reduces the likelihood that you’ll need to make changes or bow out of a previously-accepted gig.
Manage your finances. As an independent worker, developing a budget and organizing your finances is key. Determine how much you’ll need to set aside for taxes and develop a system for documenting your income and expenses. Tax time will be less stressful, and your tax preparer will thank you.
Treat every gig as if it’s an audition. Give every job your all – even if you’re working a single shift for a company. Some on-demand staffing platforms have employer feedback loops, allowing companies to rate and review temporary workers, which can significantly impact your ability to secure future work. Even if there’s no formal review mechanism in place, your reputation is key to your success, and exceeding expectations can earn you referrals and recommendations.
The gig economy offers abundant opportunities for the workforce and employers alike. The rise of the independent workforce is here to stay, thanks to technology advancements that make it easier than ever for workers to find temporary jobs that afford them the freedom and flexibility they want.