Know the Perils of the Gig Economy

By Lin Grensing-Pophal July 18, 2019

​The gig economy is getting a lot of attention these days—some good, some not so good. Gig work is increasingly attractive to a growing percentage of the workforce, particularly Millennials and members of Generation Z, who value autonomy, flexibility and work/life balance. It can also provide benefits to employers that may not need full-time staff year-round or that may be struggling to fill jobs.

The trend is definitely moving toward nontraditional workers, said Ravin Jesuthasan, a managing director with Willis Towers Watson who leads the financial services firm's Future of Work initiatives. "If we started out with 100 percent of work being done by employees in full-time jobs back in the early 1900s, essentially we are getting down close to where the average is now about 75 percent," he said. And, that number is expected to continue to decline.

[SHRM Podcast: Ravin Jesuthasan discusses the future of work]

According to global management consulting firm Korn Ferry, more than half (60 percent) of HR professionals say that, compared to three years ago, gig workers now make up a larger percentage of their professional workforce and 42 percent say they plan to hire more contingent workers in the future. But experts advise that organizations proceed cautiously. While there can be benefits to using gig workers rather than full-time staff, there are some key downsides.

If You Think Engaging Traditional Staff Is Tough …

According to Gallup's State of the American Workplace report, only 33 percent of U.S. employees are engaged. If managers struggle with engaging the staff they work with every day, how will they engage remote staff who they may never see and rarely interact with?

It's a definite challenge and one of the potential perils of a growing gig economy. While gig workers are widely available—independently and through services like Upwork and Fiverr, the quality of the work and the reliability of the workers can vary widely.

"We know the perils of hiring gig workers," said Vivek Kumar, CEO of Qlicket, a software startup firm that uses employee feedback from interactive kiosks to help companies retain workers. Qlicket has hired gig workers through Upwork to help with website and marketing materials, with mixed success. At one point, Kumar said, "we spent hundreds of dollars on a Web developer in Turkey who suddenly stopped responding to our messages and never delivered on his assignment."

Rebecca Cenni-Leventhal, founder and CEO of Atrium Staffing, a talent management firm specializing in contingent workforce and staffing solutions, pointed to the uncertain availability of gig workers. "Let's say you hire someone for a six-month gig. They're doing great work and you've come to depend on this person for essential work. You now want to extend the contract you have, but the gig worker is already committed to another opportunity. You're stuck."

While full-time workers can also leave a job, gig workers are typically viewed as less engaged and more likely to embrace new opportunities that come their way.

Another concern with gig workers, Cenni-Leventhal said, is if they're working for other employers simultaneously, you may not be their top priority.

And What About Classification?

Classifying workers can also be a challenging issue, said Brian Cairns, founder of ProStrategix Consulting in New York City. The risks of misclassifying workers as independent contractors include violation of wage and hour laws; unpaid income tax withholdings and Social Security, Medicare and unemployment insurance contributions; and gaps in workers' compensation insurance coverage.

"Large companies shield themselves by using hiring agencies, but this is a huge problem for small to medium-size businesses that cannot afford that luxury," Cairns said, noting that three clients hired him after state agencies pursued them for back payroll taxes. "State agencies care because W-2 employees fund states' workmans' comp[ensation], unemployment and other payroll funding programs such as family leave. The gig economy is taking a large bite from these revenues."

Large companies aren't immune, of course. Just ask Uber and Lyft, two well-known firms that have been fighting highly publicized lawsuits alleging that their contract workers are really employees. Uber recently lost the battle, agreeing to pay drivers $20 million to settle a lawsuit.

Cairns advises his clients to follow a simple rule: "If you direct the work, play it on the safe side and classify the worker as an employee. Conversely, if they tell you how they will do the work, they are more likely a true contractor."

He also suggested documenting the relationship with a statement of work agreement developed by the contractor. "The purpose … is to have the contractor specify his or her methods, timing and check-in points," Cairns said.

It's Not an 'All or Nothing' Approach

A blended approach to staffing works best, according to Jeanne McDonald, president of global talent solutions for Korn Ferry's recruitment outsourcing and professional search business. She said the gig economy will not entirely replace traditional models of work. Employers need to think strategically about the right balance of different types of staff members—full-time, part-time and contractors.

In addition, while companies must ensure that gig workers aren't being treated like regular employees from a legal perspective, that doesn't mean communication with them is any less important. Gig workers need to be onboarded in much the same way as traditional staff, informed about the company and its products and processes, and kept in the loop on issues that impact their work—and yours.

Lin Grensing-Pophal is a freelance writer in Chippewa Falls, Wis.



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