Numerous businesses rely on digital platforms to connect consumers and service providers in the sharing economy – otherwise known as gig economy. While it can be lucrative for both parties involved, it does carry some inherent risks that should be carefully considered before diving in.
Gig workers do not receive traditional employee benefits like health insurance and paid vacations, nor any protection as they may move quickly from job to job.
Opportunities
The gig economy offers both workers and businesses many opportunities. Workers can work whenever and wherever they please, while companies gain access to an abundance of talent. But this form of employment also presents some risks which must be carefully considered before jumping in.
Gig work can be an excellent way for many individuals to earn extra income and can especially help those needing flexibility with family or other personal commitments. Furthermore, gig work may lead to discovering new passions or exploring potential paths towards future career success.
The gig economy has often been described as being “asset light.” This means businesses utilizing this business model depend less on tangible assets like buildings, equipment and employees for success; hiring contractors instead of employee benefits is easier; however this model creates risks of exploitative relationships; according to Nicholas Vrousalis’ definition a company exploits someone when (a) its actions take unfair advantage of their attributes; (b) is aware of their vulnerabilities; and (c) extracts a net profit from them.
Risks
Gig workers face risks both in their labor and ownership of capital. Without direct control over firms they invest in, their capital may become vulnerable and exploited for profits; unlike full-time employees who can choose a more traditional career path with all its associated benefits.
The gig economy exacerbates power and information disparities between employers and workers, leading to information gaps and creating power imbalances between them. Furthermore, gig work tends to be less sustainable than more secure forms of employment as it denies workers access to reproductive and care work.
There are numerous technology systems designed to assist companies with managing contingent worker relationships and ensure compliance with tax, wage and hour, and employment-related laws. However, for optimal success it is vital to have an established process for verifying background of gig workers, communicating with them directly, and training them on company policies and risk tolerances.
Taxes
Taxes associated with gig work create significant impediments to its expansion. Self-employment taxes can be difficult and require quarterly payments; additionally, many who engage in gig work fail to file sufficient taxes due to misreporting income or improper deductions.
Additionally, the tax system places different demands on workers compared to employers and may discourage gig work engagement. For instance, meeting the de minimis threshold for reporting earnings can be particularly challenging for on-demand workers; decreasing this threshold would increase compliance rates and help individuals make informed choices regarding participation in gig economy activities.
Overall, the gig economy undermines traditional models of employment by externalizing risk and decreasing wages, so its regulation must aim at maximizing social benefits while mitigating potential harms. Determining an optimal level of regulation involves significant judgment about its nature and magnitude as well as weighing various reform options’ costs/benefits in weighing them all out.
Insurance
Gig work involves risks not only to one’s labor but also personal assets like cars and phones, unlike full-time employment which usually provides employee protection through insurance policies. Without this protection in place gig workers could easily find themselves without income if unable to find another position and may lead to financial instability if their current gig cannot be replaced quickly enough.
Psychological damage associated with lack of stability is especially prevalent for individuals from low socioeconomic status backgrounds. Therefore, it’s crucial that gig workers carefully consider all risks involved with gig work and ways they might be mitigated.
As important as it is to focus on soft aspects of benefits for gig workers, they must also have access to insurance. While this might seem like a minor consideration, this issue could have severe repercussions for businesses who rely on gig workers – due to verification issues, providing them with insurance can help minimize risk for customers.
