Side-Gig Nation: How to Handle Freelancing Staffers

​The data suggests it's inevitable that managers will have workers with side gigs: 33 percent of career professionals perform freelance work outside their regular jobs, according to a 2021 survey from Zapier, a workplace automation company in Sunnyvale, Calif.

The motive to pick up freelance work is often financial. Annual raises don't always keep pace with inflation, for example, and unforeseen expenses can decimate personal savings.

"While workers might be receiving a few dollars per hour more in their weekly salaries, their child care, rent, groceries and utility expenses rise by tens, if not, hundreds of dollars per year," said Lester Mclaughlin, vice president of operations at Blue National HVAC in Wilmington, Del. "In many cases, their regular full-time jobs are simply not enough to pay for the bare minimum of goods and services to survive, and they're forced to get a side gig."

That freelance work can have a big impact on the practitioner's day job, and on the managers who find themselves dealing with a team member who may be preoccupied by a side hustle.

Managers who discover that a talented worker is running a freelance gig after hours (or worse, during the workday) may have to deal with a sleep-deprived employee. They also may risk losing key talent to a successful side hustle. Hence, business leaders need a plan to deal with employees who have a side job before problems are triggered inside the company.

These tips can help avoid conflicts between managers and staffers with side hustles:

Consider clarity. Whether a side hustle is allowed by a company depends on a few key factors, workplace experts say.

"Side hustles, also known as 'moonlighting,' are generally considered a no-no for salaried employees if your side gig is competitive with the interests of your current company," said Kelly DuFord Williams, founder of Slate Law Group in San Diego. "For example, if you're a lawyer working for a law firm as a W-2 employee, you cannot also work for another law firm, as the job conflicts with the work you do for your [first] firm."

Other than that, restricting someone from doing a second job is not legal. "However, if you are an employer and you are truly trying to prevent this from happening, it's best to spell it out clearly in the employee handbook or policy [for W-2 employees] or, for 1099 employees, in their contracts," DuFord Williams said.

A manager should clarify what's allowed and what isn't allowed at the beginning of a worker's employment.

"This helps to establish a high level of transparency and increases trust," said Jared Stern, founder of Uplift Legal Funding in Los Angeles. "An employee can also choose not to reveal all plans about the gig for any reason whatsoever. Such a personal boundary must be respected."

Practice awareness. "Just like in the aftermath of a bad breakup, employers frequently comment to me that the signs were always there, they just weren't paying attention," said Michael Elkins, Esq., founder and partner at Fort Lauderdale, Fla.-based MLE Law. "Employees running a successful side hustle may start to show less enthusiasm, may start to drastically lose focus and may become more irritable."

In Elkins' experience, it's easier to spot the signs if the side hustle is successful.

"If it's very successful, you have an employee that may [soon] be out the door and will act as such," he added.

Pay attention to boundaries. An employee with a freelancing gig can't cross certain workplace thresholds.

"For instance, if an employee uses office time and office resources to pursue their side gig, a manager has all rights to legally forbid them from doing so," Stern said. "If the employee is using your company's confidential documents, data and tools for the side gig, you can avoid headaches by making them sign a nondisclosure agreement."

While labor laws may differ on a state-by-state and contract-by-contract basis, an employer can fire a staffer whose freelance job is banned by the terms of the employment contract or whose side gig is impacting the employee's performance.

"Employers are within their rights to demand their employees pay full attention to their obligations during work hours," said Hutch Ashoo, CEO at Pillar Wealth Management in San Francisco. "A contract's language on employees performing outside work should be pretty straightforward, and this will primarily restrict an employee from operating their own business during work hours, absent an agreement with their employer to the contrary."

Outside of work hours, external activities are often governed by rules prohibiting conflicts of interest and direct rivalry.

"The critical point is to avoid using the employer's intellectual property, resources or confidential information and to ensure that the activity does not create a conflict of interest. Direct competition is not permissible," Ashoo said.

Stern said he's dealt with an employee who had a side business.

"One time, I saw the employee finishing up documents for an upcoming meeting," he recalled. "At a glance, I understood it was not work-related. I had a one-on-one conversation with the employee to understand what those documents were. I made it crystal clear that there were strict boundaries on office time and office work. It's also crucial to deal with these matters with a good level of sensitivity."

Harness the energy. Employees who take on side gigs often demonstrate the traits that companies want. They're hardworking, unafraid to take risks, and willing to learn new skills and trades.

These are attributes a smart manager can leverage.

"A side gig might not be carried out by an employee merely for the sake of money," said Ruben Gamez, CEO at SignWell, a technology company based in Portland, Ore., that advises B2B clients on business contracts and e-signatures. "They might want to develop new skills. It could also be something they are passionate about [outside] of work."

Gamez believes managers must encourage such creative personnel. "This adds to the diversity of the team," he said. "It also helps to have a person who has a variety of skill sets."

Brian O'Connell is a freelance writer based in Bucks County, Pa. A former Wall Street trader, he is the author of the books CNBC Creating Wealth (John Wiley & Sons, 2001) and The Career Survival Guide (McGraw-Hill, 2004).