Are Gig Economy Workers Employees?

The digitalized era does not only transform the way individuals view technologies but also influenced the labor market. With the usage of advanced online platforms that offer job opportunities globally, gig-economy companies shift attention from the traditional full-time employment to independent contracting. A possibility to work remotely with flexible hours attracts an increasing number of workers to the new sector.

However, when hired as independent contractors, freelancers frequently experience unfair treatment and violations of basic employee’s rights. Careful consideration of differences between gig economy and standard employee contracts, as well as related legislative issues shows that independent contracting has a high potential in the future, provided relevant governmental reforms are made.

Differences Between Gig Economy and Standard Employee Contracts

Though the scope of tasks performed by gig economy workers and standard employees may be similar, there are a number of essential differences between these two types of employment. As explained by Todolí-Signes (2017), freelancers have different labor dependency in comparison to traditional employees which can vary in the degree of supervision and way of execution. Companies hiring contractors do not have to manage their work directly, as they rely on clients’ independent evaluations when assessing freelancers’ performance (Todolí-Signes, 2017).

In this situation, customers’ reviews are so important that they may have an impact on final dismissal decisions. Also, as noted by Kaine and Josserand (2019), businesses in gig economy do not usually provide extensive training to their employees, leaving the market open to highly skilled contractors. Despite the more autonomous approach toward management, platforms working with freelancers remain partial control over their employees to maintain high quality of services.

Another important difference is the number of workers on the platform. When signing a contract with a freelancer, companies rarely provide specific instructions or fixed working hours (Kuhn, 2016). With many people employed simultaneously, clients have a freedom to choose the right fit based on their expectations and personal preferences. Frequently, independent contractors are hired only for a limited duration of time, having a set end date when working on specific projects (Todolí-Signes, 2017). In contrast, standard employees have prolonged working terms that are usually not limited by a definite period of time.

In terms of resources, freelance platforms, generally, do not provide resources for their employees, while traditional businesses ensure that all workers have access to the necessary tools. According to Kuhn (2016), unlike standard employees, gig economy workers do not receive social package, such as family and medical leave or health benefits. Simultaneously, freelancers are not required by the government to pay Social Security taxes (Kuhn, 2016).

Taxation process also differs for traditional employees and independent contractors. While, in Canada, standard workers fill either TD1 or TD4 tax forms provided by the employer, freelancers have to enter the type and amount of income earned from fees and sales commission in T2125 form (Kaine & Josserand, 2019). Consequently, the differences in the taxation process result in higher taxes for the independent contractors.

Positive and Negative Implications of Gig Economy

For Individuals

Individual freelancers experience both advantages and drawbacks of the gig economy. As mentioned by Todolí-Signes (2017), on the one hand, flexibility of remote work in terms of location, working hours, and deadlines is one of the primary benefits of contracting. Little supervision, absence of micromanagement, and greater independence may allow freelancers to feel less stressed and satisfied with their current working environment Kuhn (2016). Kaine and Josserand (2019) wrote that gig economy workers also have a wide array of job opportunities depending on the compensation, project duration, and level of seniority.

Highly skilled and experienced contractors frequently can charge high hourly rates and earn more money than a full-time employee completing the same set of tasks (Kaine & Josserand, 2019). On the other hand, gig economy workers do not receive benefits from the company, thus, obligated to purchase private insurance and execute retirement plan separately. Also, according to Kuhn (2016), freelancers have to submit quarterly taxes and plan for work-related expenses, such as unlimited Wi-fi, vehicle, gas, laptop, depending on the nature of work. Fast-pacing nature of freelancing and its seasonality may contribute to higher stress levels in independent contractors, as they fail to feel secure about their type of employment.

For Society

On a bigger scale, freelancing is one of the ways to lead a more sustainable life. When hiring independent contractors, employers save money on office space, energy resources, and equipment. As mentioned by Kuhn (2016), gig economy also opposes discrimination at the workplace, since freelancers can be chosen from a diverse pool of flexible workers regardless of the country of origin, race, or gender. In addition, contracting helps small businesses and startups to scale quickly with little initial capital (Kuhn, 2016). Despite the aforementioned pros of freelancing, it has a number of cons for the society.

Gig economy contributes to higher turnover of employees as many freelancers lack responsibility and reliability needed for remote work (Kaine & Josserand, 2019). Another significant drawback of contracting is isolation and lack of social interaction. When working remotely, gig economy workers are not exposed to the sociocultural diversity at the workplace which frequently results in depression, solitude, and narrow social circle.

Taking Advantage of Independent Contractors

Gig-economy workers are oftentimes treated unfairly by the company. Though highly skilled contractors usually charge high monetary compensation for their job, low-skilled freelancers tend to receive half of the minimum wage for the services provided (Todolí-Signes, 2017). Completing the same tasks as full-time employees, independent contractors can be subject to higher taxes, obligated to pay both income tax and self-employment tax in the US. Employers also take advantage of the traditionally provided benefits for standard employees: pension benefits, dental insurance, vacation hours, sick days, and others (Kuhn, 2016).

Gig-economy companies do not put freelancers on payroll, withholding liability for the acts of their employees. Federal and state discrimination laws also do not apply to the employers giving only licensing agreements without the “employee” status (Kaine & Josserand, 2019). While gig-economy workers make a conscious choice of joining online freelance platforms, their rights should be protected more on a legislative level.

Legislation Issues and Government Intervention

The premise of contracting work challenges the concept of labor relationship, questioning the definition of employee together with the scope of rights and obligations attached to it. Conventional labor relationship involves a two-side agreement, where a worker provides services in return to monetary compensation and social benefits (Business Human Rights & Resource Centre, 2019). Rejecting to classify freelancers using their platform as employees, most gig economy companies avoid some of the requirements traditional businesses have to adhere to legally.

According to Lee (2019), one of the examples of unmet labor rights of the independent contractors is the right to organize and bargain collectively, forming trade unions. Freelancers are also not guaranteed a minimum wage, overtime protection, insurance, and compensation for work-related accidents (Magesan, 2019). Additionally, gig-economy workers do not contribute to the Social Security and retirement plan (BHRRC, 2019). As a result, individuals frequently fail to meet their basic needs, lacking financial compensation and social package.

On the societal level, gig-economy companies may violate the anti-harassment and anti-discrimination policies, protecting the right of fair employment regardless of the demographic characteristics. As written by Maude (2017), two examples of such laws are the Modern Slavery Act (2015) and Bribery Act (2010).

Initially issued in the UK but soon adapted in Europe, US, Canada, and Australia, these documents require businesses to make legal statements regarding human-trafficking, work exploitation, human rights abuse, and usage of associated persons. In this case, associated persons refer to gig workers who complete tasks on behalf of the corporate organization (Maude, 2017). Failure to maintain safe working environment and control the work conditions due to the high number of freelancers on the platform may result in the contravention of the aforementioned policies.

The threats associated with gig-economy companies raise questions regarding the essence of government intervention. While the notion of public management of freelancing companies does not leave up to the legal scrutiny because of the Constitutional law for sole proprietorship, experts in the field call for the stricter legal regulations of such businesses. According to Todolí-Signes (2017), governments should intervene for the number of reasons. First, the chaotic organization of many gig-economy companies, together with the easiness of globalization, constitutes a threat to the economic security of workers (Todolí-Signes, 2017).

Second, as explained by Stewart and Stanford (2017), the government needs to ensure that all citizens have access to social security, healthcare, and satisfactory working conditions. In accordance with the anti-trafficking and anti-slavery laws, the government is responsible for the safety of its people (Stewart & Stanford, 2017). Close monitoring of the gig-economy companies’ legal statements regarding the nature of the freelance tasks, together with the compensation provided for it, should be established.

Third, as mentioned by Todolí-Signes (2017), the government serves as a mediator in the labor relationship, defining the scope of rights and obligations owned by independent contractors and their employers. Consequently, public authorities should intervene when freelance companies exploit the worker’s services by limiting their rights.

Court Cases and Legal Protests

One of the recent court cases regarding the gig-economy took place in Ottawa, Canada. As written in “Supreme Court set to hear Uber case” (2019), Uber challenged the recent court’s decision satisfying one of the driver’s appeal against the class-action lawsuit. The contractor wanted the company to recognize freelancers as employees and provide minimum wage, paid vacation, and other social benefits (“Supreme Court set to hear Uber case,” 2019). Uber successfully defended the case, referring to the fact that the business only issues licensing agreements without officially hiring people to the platform.

Gig-economy workers challenge the discrepancies of independent contracting outside of Canada, as well. According to Williams (2017), in London, UK, Deliveroo drivers went on a six-day strike in front of the headquarters’ building, protesting against a change in the pay structure. Dissatisfied with the newly introduced pay-per-delivery model, British workers refused to continue working which led to the loss of profit, negative media coverage, and government scrutiny.

In the end, Deliveroo agreed to fulfill freelancers’ demands and returned the original hourly rate payment (Williams, 2017). Another case in the United Kingdom was sued against Addison Lee. As explained in “Gig economy worker cases” (2018), the tribunal dismissed the appeal against the company’s failure to provide minimum wage to its employees, as the business did not specify the weekly amount of work guaranteed to every contractor. Without obligation from either side to provide or complete tasks, the court justified less-than-minimum payment of the employer.

Budget

As shown in Table 1, after graduation, I plan to earn approximately 4500 dollars per month, provided I get a job of the entry or mid-level seniority level within my degree. Among the expected monthly expenses are expenditures on rent, food, car maintenance, entertainment, healthcare, and emergencies. When I obtain my degree, I am going to rent a one-bedroom apartment in the suburbs of Toronto, spending around 2300 dollars monthly on housing.

As a healthy eater, I cook home-made meals that add up to approximately 200 dollars. Another 120 dollars are put aside for entertainment purposes: outings with friends, hobbies, and road trips. Apart from the aforementioned expenditures, I need to maintain my vehicle (400 dollars) and pay for the individual insurance (50 dollars). In addition, I prefer to save 150 dollars for emergencies which include but are not limited to accidents, diseases, or family mishaps. In total, my budgeted needs have an estimated cost of 3220 dollars.

It is hard to assess my potential capacity to pay for the budgeted needs with a gig economy independent contract. The nature, complexity, and required skills for the freelance job significantly diversify its financial compensation. Working on a low-skilled contracting position such as Uber driver or deliveryman, I would not be able to provide for myself. However, earning a living as an independent contractor in the technological field could be sufficient.

On the graduate-level, I would prefer to have conventional job, growing my networking, strengthening hard skills, and enjoying the advantages of teamwork. Yet, after 10-15 years of experience, I would consider shifting the traditional full-time employment to freelancing. With highly developed skills and wide array of completed projects, I could earn more than a standard employee holding the same position, while benefitting from flexible hours and greater independence.

Future of Gig Economy Jobs

Over the past two decades, the number of individuals shifting from traditional work arrangements to the gig economy jobs has substantially risen. Such pattern may imply that advent of gig work is not a trend isolated to a specific sector or country rather a broad shift in the economy (Healy, Nicholson, & Pekarek, 2017). In the future, technological progress and advanced platforms will likely to extend the range of professional opportunities for freelancing.

A fundamental component of current economy, gig employment is expected to undergo several significant changes. First, freelancing will be more secured, agile, and streamlined, as companies will have to be responsive to the constant changes of the labor market (Tran & Sokas, 2017). As independent contractors are seeking ownership and meaning in their work, typical full-time employment will be substituted with intensive projects, lasting from several days to months. Second, according to Stewart and Stanford (2017), HR departments are likely to be transformed into online support groups where issues of short-term contractors will be addressed more rapidly and effectively. Shaped by the age of digitalization, these online support groups will also be responsible for training of the employees.

Unlike current freelance platforms, freelance platforms of the future will be more open to the investment in the worker’s professional growth, harnessing the global talent. Finally, the basic rights of freelancers will be more protected by the government regulations (Healy et al., 2017). Though government interventions may limit the amount of autonomy independent contractors used to have, stricter policies should minimize the exploitation of workers. Transition from conventional employment to gig economy jobs is expected to come with its challenges, as some people are likely to resist the idea of flexible work, compromising its lack of stability and security. Nevertheless, with life-long learning and competition at the core of freelancing philosophy, independent contracting is likely to be the employment of the future.

Recommendations to the Government

To minimize the threats of the gig-economy discussed in the earlier sections, Canadian government is encouraged to make a series of reforms, addressing the immediate needs of independent contractors. As suggested by Stewart and Stanford (2017), officials are recommended to revisit the current definition of an employee, as well as labor relationship, its components, and purpose. As implemented by the Swedish government, every freelancer who has been working with the company for 12 months total has a right to seek legal employment, including paid vacations, sick leaves, public holidays, and guaranteed minimum wage (Stewart & Stanford, 2017), Also, gig workers should have an open access to the information regarding cost deductions and payment systems.

In addition, the government is highly advised to propose changes in taxation. To prevent instances of unfair taxes as well as tax avoidance among freelancers, authorities are to deter employers from using off-payroll working. With the increased liability of the business, gig-economy companies will be obliged to deduct withholding taxes, taking responsibility for the hired contractors (Tran & Sokas, 2017).

Apart from introducing the two aforementioned regulations, the Canadian government is also endorsed to raise awareness regarding basic employee rights in the context of formal and informal educational institutions. Schools, universities, and student activities programs should incorporate the current trend, effectively communicating the rights of workers in the digital age. To ensure compliance with the newly developed law, the government should prepare necessary materials by January 2021, distributing the information to the gig-economy companies in a timely and accessible manner.

Conclusion

Due to technological progress, gig-economy companies have a high potential to be profitable and expand their services in the future. While the benefits of independent contracting include flexible hours, little supervision, and wide array of job opportunities, drawbacks involve higher taxes, low social integration, and lack of social package. Freelancers worldwide attempt to extend legally the range of their rights as independent contractors by suing companies that abuse their labor.

In particular, gig-economy workers seek guaranteed minimum wage, social benefits, and safe working environment. To address these issues and protect basic rights of employees, the government should intervene in the established business model. Several recommendations for public authorities include redefining the concept of employee, imposing stricter regulations on taxation, and raising awareness regarding gig-economy, primarily among youth.

References

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