The gig economy brings new opportunities for employees and employers, but also new challenges.
The number of gig workers has gone up since the pandemic hit, and it’s expected to keep rising. This has many implications for businesses that need to get ready for new challenges.
In this article you’ll learn about:
- The challenges of the gig economy: from the employee’s point of view as well as from business, legal and societal perspectives
- The challenges of regulating the gig economy (and their impact on businesses hiring gig workers)
- The challenges related to using new gig apps and digital processes (and what it means for businesses and employers)
Download our Gig Economy Guide to get ready for the future of work and new employment trends!
What is the gig economy?
The gig economy (a.k.a. digital platform work) allows companies to hire independent workers for short-term commitments: freelancers, independent contractors, project-based workers, part-time hires, or other temporary workers.
Digital platforms connect freelancers/gig workers with potential clients.
Examples of gig economy jobs include:
- Independent consultants
- Admin assistants
- Graphic designers
- DevOps engineers
- Security engineers
- Project managers
- Ride-hailing drivers
Top gig economy platforms include:
Digital platform work is getting bigger
The gig economy (a.k.a. digital platform work) is growing. In America, around a third of the working population is already in some gig capacity.
In 2020, the gig economy experienced significant increases, mainly in response to COVID-19. This was the effect of significant job losses, but also the new independent work opportunities the pandemic created.
The new digital platform work opportunities made:
- Many workers reevaluate their priorities
- Many companies reevaluate their budgets
The bottom line:
The gig economy is getting bigger and the world of work keeps changing.
What does it mean for employees?
The gig economy creates job opportunities, mostly due to the rising demand for delivery apps and services. Furthermore, it offers alternatives for employees who don’t want to be stuck in 9-to-5 office jobs and/or prefer more flexible lifestyles.
What does it mean for businesses and employers?
First, using gig workers benefits high-volume recruiting environments. Second, it’s beneficial for companies that can’t afford or don’t need full-time employees. Third, hiring part-time or temporary workers makes sense during busier times or for specific projects.
It’s also worth mentioning that using the alternative, on-demand workforce is gaining popularity in the economic downturn. Many organizations are opening up to new ways of doing business to cut costs in uncertain times.
Your company can surely benefit from the gig economy.
But the world of digital platform work is also full of challenges. Are you ready to overcome them? Do you have the right technology in place?
The challenges of the gig economy: the employee’s perspective
The growth of the gig economy brings not only opportunities, but also challenges.
From the employee’s perspective, for instance, there’s the issue of job security and medical coverage. The self-employed lifestyle doesn’t come ready-made with benefits such as a healthcare plan. However, in the USA, 84% of workers cite health insurance as the benefit they care about most, followed by sick time off (83%).
Furthermore, platform workers miss out on “soft” benefits like corporate discount programmes and subsidized gym memberships. It’s also more difficult for them to find advice and mentorship without a workplace.
According to Brodmin:
- 54% of gig workers don’t have access to employer benefits
- 40% have medical insurance
- 20% receive life insurance
In a nutshell, gig employees are concerned about:
- The lack of job security, proper contracts, medical coverage and workplace benefits
- The lack of transparency and predictability in working conditions
- The increasing isolation of gig work
- Income instability
- Retirement planning
- Setting boundaries at work
The challenges of the gig economy: business, legal and societal perspectives
The gig economy also poses challenges for employers and society as a whole.
From the employer’s perspective, hiring gig workers means lower costs. However by moving to a more on-demand model, businesses lose the institutional knowledge historically held by regular employees.
Employers are also concerned about:
- The erosion of traditional relationships between workers, businesses and clients
- Tax implications
- The cross-border dimension of platform work and the issue of algorithmic management
- An increasing number of legal cases and worker protests, e.g. due to unfair dismissals
From a wider social perspective, the gig economy can resemble a modern servant economy with underprivileged social groups that have to choose between flexibility and stability.
From a legal perspective, digital platform work remains unregulated and has numerous legal loopholes and outdated laws. This may have long-term consequences for both employees and employers.
For this reason, the EU is planning to better regulate digital platform work and improve the protection of gig workers.
Technology, automated solutions and digital apps can also help centralize and optimize many processes, especially if one gig worker has multiple employers.
Ready to take your HR strategy and business to the next level? Plan 2023 with this HR Calendar and improve employee retention!
The challenges of regulating digital platform work: the EU example
Over 28 million people in the EU are currently working via digital platforms. Now the big debate is over the working conditions of platform workers, which may affect up to 4.1 million employees.
In December 2021, the European Commission proposed legislation on improving the working conditions for gig workers.
Thanks to the EU Directive, EU-based gig workers would be reclassified as employees (if they meet certain criteria) and would enjoy the same labor rights as other traditional employees. The remaining could be recognized as genuinely self-employed.
Gig workers classified as employees would gain the right to:
- A minimum wage
- Safety protections
- Insurance against workplace accidents
- Paid leave
- Old-age pensions
- Unemployment benefits
- Collective bargaining
The EU has set a deadline of 2025 for the rules to be written into national law books. This should happen before the gig economy becomes too big to handle.
In a nutshell, regulating the gig economy will help:
- Bring more legal certainty for platforms and employees
- Close existing loopholes and end fake self-employment
- Set international labor standards
- Ensure workers can keep the same profile, including its ratings, across different platforms
- Reduce the number of court cases with sometimes contradictory outcomes (especially related to the employment status of platform workers or when gig workers have to go to court against a massive opponent such as Uber)
- Minimize the risk of building a system that will resemble a modern servant economy with underprivileged social groups
The real impact of regulating the gig economy
Regulating the gig economy affects not only employees, but also consumers, restaurants, lawyers and the wider economy. This is especially the case in the ride-hailing and food-delivery industries.
Unfortunately, the legislation is expected to bring more legal clarity, but also a number of challenges.
Regulating the gig economy can bring disappointment. For instance, employees may need more protections, but not all of them want to go through a contract. Some of them like their current flexibility and wages.Piotr Smolen, CEO at Symmetrical
Potential negative consequences related to the new regulations include:
- Limited flexibility and lower salaries for gig workers
- Shrinking job opportunities and job losses (e.g. reclassification can force gig companies to shut down operations in cities with fewer inhabitants)
- Higher costs for employers
- Higher costs of services (where consumers expect lower prices, e.g. Bolt).
- Some platforms changing their business models or leaving a particular market or region
- Gig companies stretching the rules and competing unlawfully with firms that do comply
- The risk of black market practices
- The issue of covering the additional costs associated with the new rules
- The regulated model may not be sustainable long-term
The challenges of regulating the gig economy: Spain’s example
In August 2021, Spain became the first European country to significantly regulate the gig economy. The so-called riders’ law was the Spanish government’s response to protests against low wages and job insecurity in the gig economy.
The law requires that delivery companies:
- Directly hire their riders
- Stay transparent about how the app’s algorithms affect working conditions as well as hiring and firing decisions
However, a law to improve the working conditions of gig workers in Spain backfired as companies were reluctant to implement it. Many employees, in turn, got paid less and had to work more hours, which made riders confront their employers.
The challenges of the gig economy: algorithm management
Digital platforms connecting gig workers to jobs usually use algorithms and automated systems to monitor workers, allocate tasks, organize shifts and set prices.
Algorithmic management is about a set of practices whereby decision-making functions are assigned to AI-driven software and apps. Unfortunately, this automated decision-making system may leave some workers unable to understand the logic behind their chores and earnings.
Hence, the EU directive aims at increasing algorithm transparency. The goal is to make gig workers feel comfortable using platforms and automated systems. It’s also important to strengthen human monitoring of automated decisions and, if they’re incorrect or unfair, introduce the right to contest and rectify them.
Additionally, workers will be able to obtain more information on how they’re being supervised and evaluated. Platforms won’t be allowed to collect personal data that is not related to the workplace.
It’s worth mentioning that using Artificial Intelligence also requires a regulatory framework.
Using automation to keep up with the dynamic gig economy environment
With platform workers using new gig apps and digital processes, the new digital engagement opens up unexplored territory in gig work.
- The bottom line: Businesses can expect some rapid changes.
- The question is: Will companies have the technology to meet the new gig reality?
It may be challenging to keep up with a dynamic job market, especially in the case of high-volume hiring and flexible workforce. That’s why you shouldn’t wait to prepare your business for the future. You need to be smarter than your competitors!Piotr Smolen, CEO at Symmetrical
One thing is certain: companies employing gig workers will need software and digital apps that simplify complex processes.
Take Uber’s as an example. Uber has been so successful as it delivers a data-driven unified experience. For instance, its app shows drivers what goals they need to accomplish (and how). This model shows the importance of simplicity in gig work.
The gig economy needs only apps that simplify processes. This is the future of the gig economy.
Now think about payroll: one of the most important aspects for HR and finance departments to deal with when hiring gig workers. Flexible work, high-volume recruitment and global hiring opportunities mean much more complex and volatile hiring and payroll operations, especially when gig workers sell their skills and services ad hoc.
The truth is that manual work and multiple spreadsheets are not an option any more. Simplicity, flexibility and efficiency are essential. Unfortunately, most payroll solutions are not ready for this change.
Therefore, the Symmetrical payroll solution allows you to hire at scale and pay people on time by automating your payroll. Symmetrical offers you easy management of employees, contractors, documents, payroll events and payments as well as better onboarding conversion rates thanks to a candidate-friendly hiring experience.
Download our FREE guide to avoid costly payroll mistakes, assess your payroll and identify areas for improvement!
The challenges of the gig economy: conclusion
The gig economy creates new opportunities for employees, but also for employers who can attract the right talent at the right time.
However, it also poses new challenges on business, social, human, legal and technological levels. With more and more participants, it will soon require new legislation to regulate it.
Still, the fact is that the gig economy is growing fast. This process is unstoppable. If digital platform work continues to expand so rapidly, it can overtake the traditional job market.
For this reason, your company must be ready to welcome more platform workers and face any new challenges that may bring.
Is your payroll solution ready for the gig economy?
Symmetrical is the first payroll solution you won’t hate. We enable fast-paced companies to onboard at scale and run their payroll invisibly. To run your payroll hassle-free, on auto-pilot, contact our experts to learn more!
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