The Independent Contractor Gig Economy

Aug 31, 2021

man working independently on a gig as a contractor

Practically all gig economy workers would be classified as independent contractors instead of employees due to the nature of the agreement between workers and gig economy companies. Gig economy contractors work within the gig economy providing their services on a self-employed basis and undertake specific jobs or projects for an agreed-upon payment.

Are Gig Workers Independent Contractors?

Are gig-economy workers independent contractors? This is a good question and one that needs to be fully understood by both workers in the gig and the companies using these independent workers. The reason for this is that employment laws are different for independent contractors and employees.

The differences between being or hiring an employee or an independent contractor include how work is carried out and how payment is made. For example, if employment law classifies workers as independent contractors then they are responsible for their own tax and bookkeeping whereas with employees companies are responsible for payroll taxes. Employees are also entitled to paid leave, family and medical leave as well as health insurance that gig workers generally do not get.

Gig Economy Worker Classification

Gig economy workers are essentially anyone whose income-earning activities fall outside of traditional longstanding employee/employer relationships, and of course, we are talking about legal gig work rather than illegal income-earning activities.

Gig workers still pay taxes but they are responsible for doing this themselves rather than employers taking tax out of their wages before they are paid. Gig workers are generally not paid a wage or salary but instead are short-term or project workers engaged for a specific period of time or to complete a specific task.

Where the line is drawn between independent contractors and employees is not always simple. It has been argued that due to the nature of their engagement Uber and Lyft drivers are employees rather than independent contractors. In the UK the Supreme Court ruling that they should indeed be treated as employees and therefore be entitled to certain workers’ protections such as minimum wage and annual leave. However, this does not apply in the US.

Advantages and Disadvantages of Gig Economy Contractors

There are advantages and disadvantages of the gig economy for both gig workers and the companies that hire them. Gig workers, also known as platform workers, temporary workers, independent contractors, and freelancers, have more control over the work they do but are subject to different labor laws which often mean they have fewer rights than contracted employees. They are able to provide on-demand services which are of benefit to both sides and they take care of their own personal finance which again can be of benefit to both contractors and companies.

One of the main advantages for a gig economy worker of working as an independent contractor is that they are able to have a much more flexible schedule choosing when they work and how much. And with more and more companies seeing the benefits of using a contingent workforce the independent contractor gig economy is steadily growing meaning there are more options available.

For companies, as well as the flexibility afforded by being able to hire independent contractors on demand. The ability to classify workers as independent contractors also means employers don’t have to guarantee work in the same way they do with permanent employees, neither do they have to provide health care, paid leave, or other benefits associated with full-time employment.

There are concerns that to classify workers as self-employed, when in fact they are being treated as employees, harms workers. For example, the family and medical leave act doesn’t cover gig economy workers meaning they have no entitlement to job protection for medical leave. Neither are they covered by the fair labor standards act which covers minimum wage and overtime entitlements.

Importantly Title VII of the civil rights act, which covers workplace discrimination and harassment including racial discrimination, age discrimination, and sexual harassment only covers employees and not those that are classified as independent contractors leading to concerns that gig workers are more likely to face workplace discrimination and wrongful termination as they are not protected by the law.

As the gig economy grows there is a movement towards more protection and fair labor laws that cover independent workers. Covid19s employment support was extended to give gig workers access to unemployment insurance. And the Trump administration’s decision that would have made it more difficult for gig workers such as uber drivers that work full-time hours for a single employer to be classified as employees was nullified by the Biden administration.