The IRS defines gig economy as “activity where people earn income providing on-demand work, services or goods.” Put another way, the gig economy is a job space for temporary, contract, or freelance professionals.
The gig economy covers almost every industry, and according to Statista, there are an estimated 73.3 million freelancers in the US as of 2023.
What are some examples of the gig economy?
Gig economy workers cover various industries, from health and fitness to education. These jobs are often one-time or short-term contract jobs. Here are few examples of gig economy workers:
- Website developers
- UX designers
- Fitness trainers
- Food delivery drivers
- Personal shoppers
- Pet sitters
- Freelance writers
What are the advantages and disadvantages of the gig economy?
Many businesses hire gig workers for several reasons, but there are also a few drawbacks to this popular working model.
The advantages
Businesses that can’t afford to hire full-time employees can utilize gig workers as a great alternative, especially during busier times or for projects that require extra manpower. For less than the cost of a full-time employee, businesses can access expertise or certain skill sets that allow the company to continue growing.
Additionally, gig workers aren’t considered employees, which works to the business’s benefit. If a gig worker isn’t providing the right skills, the employer can let them go without legal issues or without needing to pay unemployment.
The disadvantages
Gig workers are temporary workers and may feel less loyal to the business or lack a strong relationship with the employer. A gig worker may also have multiple jobs, making them less reliable.
Organizations may also lack knowledge of all the regulations required to hire contractors. Every region has its own laws, and businesses need to remain compliant or they’ll face financial and legal penalties. More specifically, hiring contractors requires paperwork and specific processes to correctly file taxes. All of these regulations require more effort from businesses and often the right partners to stay compliant.
What are the steps of hiring gig economy workers?
Employers must treat gig workers or independent contractors differently than full-time employees. While employers fill out W-2s for full-time employees, they use Form 1099 to report payments made to independent contractors. Businesses need two copies of the 1099, one for the independent contractor (Copy A) and one to submit to the IRS (copy B).
Independent contractors must submit a W-9 form, which includes:
- The worker’s taxpayer ID or social security number
- Worker name and address
- Federal tax classification
- Exemptions from backup withholding and FATCA reporting
The company doesn’t need to submit the W-9 to the IRS, but will need to keep it on file in case of audits.
Finally, all businesses will need a written contract outlining the working agreement details between the company and the independent contractor. This document will protect the business and the contractor in case of a dispute. A few items to include in the contract include: specified tasks, deadlines, amounts and payment schedule, what occurs if payments aren’t made, an explanation of ownership of work (the contractor or hiring company), and a statement that the worker is an independent contractor to clarify that they’re responsible for paying their income taxes, Medicare, and social security.
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