“Gig Economy” is a fast and growing trend in the world, especially the UK where the likes of Deliveroo and Uber have flourished. As it grows, it is becoming clear that there is a grey area drawing significant scrutiny regarding the legitimacy of the gig economy. Are the workers truly self-employed or is it all just an elaborate dress-up?
Gig Economy – a labour market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs. In this article we discuss some of the risk and rewards of using short-term contracts or free-lancers in your business.
Many companies, such as UK headquartered Deliveroo, really benefit from freelance workers.
Gig Economy Benefits for Companies
Flexible workloads
Companies using the gig economy only pays for the work done when there is demand for their product meaning there is no wastage on salary during down times. Scaling up and down the size of the company is easy with the gig economy.
Employment benefits and taxes
Freelancer or self-employed workers do not benefit from employment benefits that a permanent worker may enjoy such as healthcare plans, paid holidays, sick leave or even the new Work Place Pension. This all helps to reduce costs for the employer.
National Insurance Contribution
As the worker is not employed but rather contracted, the employer does not need to pay Employer Contributions, further reducing the cost of employment
It is important that companies are certain that the nature of the work done and the structure in which it is done is in agreement with the view of what is deemed as self employed. In a recent case, a self-employed plumber contracted by Pimlico Plumbers for six years whose contract was terminated after he had health problems, the court and court of appeal deemed the plumber to be a worker but not an employee. A worker is entitled to more rights than if on a fully self-employed basis but not to the full rights of an employee. Lord Justice Underhill stated the below regarding the case.
“Although employment lawyers will inevitably be interested in this case – the question of when a relationship is genuinely casual being a very live one at present – they should be careful about trying to draw any very general conclusions from it,” Lord Justice Underhill.
Indeed prior to this case, Uber drivers were deem to not be self-employed and should be paid the national living wage by a UK employment court.
“The notion that Uber in London is a mosaic of 30,000 small businesses linked by a common ‘platform’ is to our minds faintly ridiculous,” the judges said. “Drivers do not and cannot negotiate with passengers … They are offered and accept trips strictly on Uber’s terms.”
Citizens Advice believe up to 460,000 could be falsely classified as self-employed and many other firms are now facing legal action from their contractors/employees.
What is classified as self-employed?
When considering if someone that does work for a company is truly self-employed or not, goes beyond a written contract neither is there a legal definition. An employment tribunal will look at the nature of the work and the manner in which it is conducted. Some of the considerations (but not necessarily exhaustive) that would be considered are:
Whilst the above are factors to be considered, it is not intended to be an exhaustive or definitive list.
In March 2017 HMRC published a new online employment status tool. This can be used by workers, agencies and engagers to see whether a worker is employed or self-employed for tax purposes.
Benefits for the Individuals
Despite the apparent unfairness of the system for the self-employed individual, the gig economy does present many benefits such as:
Flexibility of work
The individual often chooses when they start and finish work and are not dictated by company requirements. If you wish to take 2 months holiday then you may!
Plenty of work
Individuals often unable to secure permanent jobs are able to obtain gig economy jobs. Whilst they may prefer permanent jobs, a gig job is certainly better than no job.
Higher Pay
With the tax and benefit savings that the company makes, they often share it with the contractor allowing them to be paid more in cash to their accounts. Cash is often much more valued than other forms of benefits.
Multiple Jobs
Deliveroo, UberEats, Amazon Restaurants – in the gig economy you can work for all three at the same time! Learn from multiple employments and live a more varied life! This has been particularly appealing to the younger generations.
The topic of the Gig economy is certainly not going away and as it grows it will face more and more scrutiny. Make sure, if you are an employer and wish to benefit from a gig economy style workforce, make sure the nature of work is truly contract-able so you don’t end up face any employment tribunals or HMRC!