What is the gig economy?

The term “gig economy” is used a lot these days. But what does it really mean? And what impact does it have on small business owners and sole traders?

In short, the answer is – a big one. 

It’s not going overboard to say that it’s changed the way loads of people go about their working life. In a lot of ways, for better or worse, it has completely changed the job market.

So let’s talk about the gig economy.

Specifically, we’ll be answering these questions:

• What is the gig economy?
• Where did it come from?
• What are some examples of the gig economy?
• What are the benefits for small business owners and sole traders?
• What are the drawbacks for small businesses and sole traders?

Nowadays, working and hiring in the gig economy is pretty common. So understanding it will help you make the most of it. 

The gig economy is the name we give to the way people work on a freelance basis, usually on short term contracts. People work for different companies for short amounts of time, so we call them “gigs”.

Traditionally, employees stayed in one field, even one company, for their entire professional lives. Nowadays, however, employees can move around, work remotely, and have multiple jobs (or “side hustles”) at the same time. 

Though the gig economy has affected most employment sectors, the most common examples are food delivery and travel services like:

A rideshare app which allows drivers to use their own cars to offer taxi services. 

A food delivery app that uses cyclists, assigning them to any restaurants in their area that might need their services. 

Both these business models allow their employees to work whenever they want to, for as long as they like. This is similar to a “zero-hour contract,” but the hours are set by the employee rather than the employer. 

Uber and Deliveroo are the two most prominent examples, but these “gig” based businesses can now take many different forms. 

Generally speaking, we can split them into three categories:

Employers will offer contracts on a fixed term or ongoing basis. The rate of pay is negotiated between the agency and the contractor. Working through freelance agencies usually means you are self-employed, so you’ll have to complete a Self Assessment tax return on your taxable income. 

Like agencies, but a little more relaxed. Websites like Fiverr allow private individuals to sign up and request/offer their services to one another. They are not beholden to any overarching company. It’s an agreement between people who set their own prices. 

Apps like Uber and Deliveroo are similar, but their pay rate is set by the app itself and depends on availability and distance travelled. Both apps charge their users a percentage of their total earnings, like a subscription fee. 

Working through freelance apps and websites means you’re self-employed, so you’ll have to complete a self-assessment tax return on your taxable income. 

They employ freelance workers on temporary contractors. The main difference is that an umbrella company will act as your employer. So, they will be responsible for income tax and national insurance contributions and often deduct fees for running costs. 

The gig economy sort of came out of nowhere, but it was always on its way thanks to the increase in mobile technology. 

The internet has connected people and companies all over the world, allowing them to communicate with each other worldwide. Now we can trade goods and services all over the world, far easier than we could before.

Mobile technology allows people to work on a freelance basis for multiple different agencies to make a living. Or they might just have a side hustle to supplement their regular income.

The gig economy has brought a lot of new opportunities for sole traders and small business owners. 

The increased reach offered by the gig economy has made it easier than ever before for sole traders to seek out and arrange contracts. They can advertise their services on sites like Fiverr or reach out to short term employers themselves. 

On the other hand, small businesses who need staff on a short term basis now have a whole internet full of potential candidates. 

Sole-traders and small businesses can pick up gigs when they like, for as long as they like. 

This means they have more control over their workload, no longer stuck to the traditional nine to five, seven-day work schedule. 

That increased reach we mentioned earlier has an unfortunate flip-side. There are now so many other freelancers out there that competition can be fierce for those looking to pick up freelance contracts. 

Those working on a freelance basis have fewer safeguards against unemployment compared to traditional employment structures. 

This has technically always been the case with sole traders and small business owners. However, it’s particularly true of one-off contracts, like the kind you’d find on Fiverr, and there’s no guarantee that you’ll be able to stay with the same company for a significant period of time.

That said, Fiverr is addressing this issue by introducing 3 – 6 month contracts as an option. 

Working on a freelance basis generally means you won’t be entitled to the same rights as those in traditional employment, like holiday and sick pay. 

Again, this has always been the case for the self-employed. But the prevalence of short-term contracts has put pressure on larger companies, like Uber, to classify their staff as workers, securing basic workers rights. Deliveroo is taking similar steps, and umbrella companies are usually required to treat their contractors as employees. 

Contractors and freelance workers are self-employed, so they don’t really report to anybody. So there aren’t less consequences if they do a bad job (other than losing repeat business). 

There are usually review and rating systems to try to help you choose the best contractor. But these can sometimes be tricked with spammy ratings. 

Best to work through recommendations and references. Ask your peers who they’ve worked with before and who they’d recommend. 

The gig economy has changed everything. For some, it’s an exciting new opportunity. For others, it’s a challenging new idea, 

One thing that hasn’t changed is the need for proper financial management. Things like tax returns, financial compliance, and good bookkeeping will always be a part of business.

Countingup is the app that automates time consuming bookkeeping for thousands of self-employed people across the UK. 

It’s a two in one business current account with built in accounting software. With automatic expense categorisation, receipt capture tools and cash flow insights, you’ll be able to keep organised when it comes to your business finances, no matter how many side hustles you choose to take on. 

Find out more here and sign up for free today.