The rise of the gig economy

Gig EconomyWorking practices are changing. Keith Tully explores the so-called gig economy and how freelancers and businesses are benefitting from life outside the nine to five.

The term gig economy refers to an increasing number of people who are working for themselves as freelancers for a range of different clients, rather than working in traditional nine to five employment.

Advances in technology have given people the opportunity to choose their work location and hours, providing unprecedented flexibility, often without the need to compromise on financial security.

This change in working practices has been facilitated in part by the emergence of online marketplaces, which have connected freelancers with clients who are looking for specific knowledge and expertise, a 'talent on demand' approach.

Having full autonomy in the projects taken on, with a great deal of freedom when compared with employees, has significantly changed the working lives of many people.  

How does the gig economy work?

Online talent marketplaces allow freelancers to demonstrate their expertise using portfolios of work and recommendations from former and current clients. Freelancers build a profile, and businesses search for a particular skill or level of expertise.  

Forecasts by PwC (reported by the BBC) show that global online marketplaces that fuel the gig economy could be worth around £43 billion by 2020. One of the largest freelancer marketplaces in the UK, People Per Hour, reported an increase of 64 per cent in the number of UK freelancers using their platform between 2012 and 2015.

Significant savings can be made by businesses, in terms of time and money. There is no need to pay the often significant costs of recruitment, or conduct in-person interviews, when hiring within the gig economy.

Communications take place using the cloud-based platforms, where payments can also be made and accepted, and feedback is given by both client and freelancer.   

Benefits to business and the general economy

The client business has access to a wide range of expertise – to a system that offers flexibility, convenience, cost-savings, and huge potential in terms of increased productivity. This can be particularly beneficial to SMEs that often don’t have the financial resources to attract the best talent, allowing them to compete with larger organisations on an equal footing.

Greater market competition also benefits the economy as a whole, but larger corporations are having to adjust their working practices to take into account the gig economy and attract the best talent, whether on an employed or freelance basis.

Four main types of worker in the gig economy

Independent workers in the gig economy can be divided into four broad categories:

  • Those who actively choose to freelance full-time and it's their primary source of income.
  • People in full- or part-time employment who supplement their earnings by taking on freelance work.
  • The self-employed who reluctantly earn money within the gig economy, but would prefer to work under a contract of employment.
  • Those who feel they have no alternative but to take on freelance work.

Advantages for the self-employed

Though well-documented cases have highlighted concerns from some quarters, there are clear benefits to being an independent worker in the gig economy, compared with working in an employed position, including:

  • greater autonomy in the projects taken on
  • better work/life balance
  • flexibility of working location and hours of work
  • ability to address issues such as job dissatisfaction and dysfunction in the labour market

The gig economy and artificial intelligence

Artificial intelligence software and apps may have replaced some administrative and customer-facing roles, such as data entry and the customer helpline representative, causing displaced workers to learn new skills or put existing talents to better use within the gig economy.

Freelancing was once associated with creative work such as editing or graphic design, with computer programming and other similar IT work generally being carried out by contractors, but a subtle change has taken place.

Freelancing platforms now encompass all types of expertise at varying levels, from beginner to senior executive consultants, in sectors including management, finance and marketing.   

The Treasury and lost tax

One factor that may affect the gig economy is the sharp increase in the number of self-employed and their associated tax liability. The Treasury has recently expressed concern about lost revenues, and this has materialised in the form of a proposed increase in class 4 national insurance contributions for the self-employed, as well as changes to the IR35 legislation for public sector contractors.

The gig economy has been fuelled by demands for flexibility, reduced employment costs and access to specific expertise. Its growth is unlikely to stall, given the benefits to both sides of the hiring equation.

About the author

Keith Tully is a partner at Real Business Rescue and has more than 25 years’ experience of advising business owners on areas such as finance, recovery and insolvency.