The 'gig economy' has transformed, as well as still transforming, the way that we work and has provided us not only with convenience and a flexible workforce, but also with many opportunities. Unlike the common perception, the gig economy spans a wide range of sectors, from couriers to white collar jobs.
In this article we will take a look at what a gig economy actually is, and whether it is sustainable in the long term.
The gig economy is best defined by the Oxford English Dictionary, which describes it as “a labour market characterised by the prevalence of short-term contracts or freelance work as opposed to permanent jobs”.
In reality, gig workers (i.e. independent contractors) play a huge and ever evolving role, and according to the European Commission's Joint Research Centre, approximately 2% of EU adults' main source of income comes from the gig economy. This number is set to increase, as COVID-19 continues to disrupt labour markets worldwide, causing the demand for short-term and flexible labour to grow while recruitment for permanent positions remains stagnant, according to statistics from KPMG and the REC.
Advantages and Disadvantages of the Gig Economy
Independent contractors are the perfect way to provide a skilled and short-term solution because they are responsible for their own tax and NICs, which makes them more appealing and cost-efficient for a business. They also lack the statutory rights that employees and workers possess, such as holiday pay or redundancy rights, which saves the business money and lowers the risk of a potential employment dispute.
Whilst the gig economy was once seen as the perfect solution to businesses and helped the economy, of recent years this sector has become a headache for all.
While it may be obvious if someone is self-employed or an employee, this question becomes more difficult when it comes to the self-employed and workers. The concept of a 'worker' is fairly new, and the legal test has evolved largely through case law which considers the individual facts of the case. This can produce both unpredictable and inconsistent results.
In addition, an individual can be an employee for tax purposes and be self-employed for employment status purposes. This is because tax law does not recognise the concept of a 'worker' and only recognises the self-employed or the employed. This has produced what is often called 'zero rights employment', with contractors shouldering the costs of being self-employed (such as sick pay and holiday pay) but being taxed as employees without being given the corresponding legal rights.
The problem of 'zero rights employment' and the growth in demand for gig workers has meant that there has been a rapid rise in the number of contractors successfully challenging their 'independent contractor' employment status. This has led the gig economy to be an issue which is at the forefront of everyone's mind.
One of the biggest risks for companies who operate in the gig economy is that if an individual brings a claim successfully and gains employee or worker status, claims by the whole workforce can follow, leaving companies owing huge amounts of holiday pay as well as tax. In addition, the inconsistent decisions worldwide have made compliance for global companies particularly difficult and have heightened their risks considerably.
This issue doesn't stop with hirers, as many businesses try spread the risk through the supply chain and pass the costs on to recruitment businesses through contracts, for example through the use of indemnity clauses.
The recent trend in the EU has been for courts to find that individuals who had been operating as self-employed contractors are in fact workers. In March of this year France's highest court considered an Uber driver to be an employee. Similar decisions have come from other countries, such as Spain. In Germany Uber has been banned and operates through a subcontractor whose licensed drivers are employees with full benefits.
There have also been various legal challenges in the US, with California confusingly bringing in the AB 5 and then voting in favour of Proposition 22, which allows gig economy workers such as those working for Uber to remain self-employed, albeit with some additional protections. Other countries like Italy are also trialling various methods of overcoming the issues presented by the gig economy.
Elsewhere in the world, in February a Brazilian higher court for labour ruled there was no employment relationship between Uber and its drivers. In June, Canada's Supreme Court ruled in favour of a driver being an employee.
The UK and the Gig Economy
In the UK there have been investigations into the gig economy, which have resulted in the Taylor Review and the Good Work Plan. Some of the recommendations from the Taylor Review have been followed and there have been some minor changes such as the abolition of the Swedish Derogation principle. The changes were undermined by the widely criticised IR35 reforms, but HMRC has stated that the government is still committed to the Good Work Plan.
Will the UK take a similar approach to the US and recognise that employment as we know it has changed? One option is to adopt the California model and introduce a 'minimum floor' of benefits. The other would be to follow the Taylor Review's suggestion of aligning tax and employment status, therefore eliminating 'zero rights' employment.
A decision from the Supreme Court on the Uber case, which has been ongoing since 2015, is due shortly, and may help to clarify the law somewhat. However, as the UK is leaving the EU it is unclear whether we will follow in the EU's footsteps.
What is clear is that the gig economy is here to stay, but what continues to be unclear is how we will adapt considering the issues outlined above. Perhaps what is necessary is a new model to encompass the new reality of the labour market.
As we have yet to see how the government plans to approach the gig economy or what changes the Employment Bill 2020 will potentially bring in, the Uber decision may be of most help for any recruiters and business' as it will establish a precedent for employment law.