What are the Pros and Cons of the Gig Economy for Employers?

As noted in our last post, this week, the blog looks at the pros and cons of the “gig economy”. This post will examine the upsides and downsides from the employers’ point of view. Before we jump into the upsides of engaging talent through gig economy sourcing, in case anyone still isn’t clear on the definition, here’s a post from some years back wherein we answered the question, “What is the Gig Economy”? OK? Now, on to the “pros”.

It’s the cost savings. Not surprisingly, one of the most visible benefits of tapping gig economy sources of contingent labor can help an employer capture cost savings on labor. There are many reasons why an employer would need contingent labor (and we’ll discuss the top reasons below) but whatever the reason for needing contingent labor, gig workers help reduce labor costs because employers don’t pay unemployment, disability, healthcare, retirement or other benefits costs associated with full time workers. Also, many gig workers perform offsite and this saves money on job site/office-related space.

Freelancers help you scale quickly. To be responsive to fluctuations in demand is critical for many businesses. Gig workers are typically available immediately on demand and the growing array of gig economy work platforms makes this even more so. Even beyond seasonality, access to gig workers helps you hire experts for special, one-time projects quickly and easily.

The gig ecosystem is great for talent development. Beyond the immediate needs of scalability, the gig economy enables an employer to meet and try out talented freelancers without a large up-front investment of time or money in sourcing, onboarding and training. If you find a really perfect candidate working as a gig worker, you can offer them a full-time role.

On the other side of the coin, here are some of the most noted downsides facing an employer when tapping the gig economy for talent.

Issues of reliability and dependability. While many workers are naturally reliable and diligent on the job, gig work is, by definition, very impermanent. Gig workers generally prefer keeping their options open and not being tied down to any one employer. As a result, they may not be as serious-minded about their connection to your operation and overall, less likely to show any great commitment to the job. If they decide to go to the beach for the week instead of to work, they know the next gig is easy enough to find and your reference is worth far less than it would be for a former full-time worker seeking their next full-time job.

Higher compliance risks. Employers leveraging freelancers and gig workers are expected to be clear on all the regulations and laws governing independent contractor status in their state and at the federal level. Each state has its own patchwork of regulations. Some require written agreements while others consider gig workers “at-will” contractors. The tax reporting implications are often quite different for independent contractors, freelancers and gig workers and it is important for the employer to be compliant with the laws in their business locations. Failure to act in compliance with these rules can subject an employer to penalties and so forth. Plus, the laws governing gig workers are still very much in flux as the gig economy is still a relatively new phenomenon. So, this can add a layer of risk to the employer.

As with anything else, an employer should carefully weigh the potential benefits and liabilities of any workforce strategy and seek the guidance of experts like nextSource to help determine how best to engage the gig economy as a part of an effective contingent workforce management program.