Currently, around one in three U.S. workers is classified as a "contingent worker," loosely defined as a worker who is employed outside the traditional W2 employer-employee arrangement. Contingent workers can include independent contractors, self-employed freelancers or consultants, or others whose working arrangements don't involve loyalty to or dependence upon a single employer.
A recent survey estimated that by the year 2020, around 40 percent of American workers will be taking part in a gig arrangement instead of full-time employment. With this predicted rapid rise in the gig economy, many are wondering: Is this sustainable? Or will the pendulum soon swing back toward full-time employment as the preferred arrangement for the majority of working Americans?
Read on to learn more about some of the factors that suggest the gig economy is likely to stick around, as well as some regulatory and economic changes that could affect the way gig workers do business.
What factors make the gig economy sustainable long-term?
The Great Recession drove many newly-unemployed individuals into more periodic, temporary gig work. From 2008 through 2012, the creation and rapid rise of companies like Uber, Airbnb, Lyft, and other businesses showed that more workers valued the flexibility these companies offered.
Today, the economy has significantly improved, boasting near-record low unemployment rates, but many workers have continued with their freelancing arrangements rather than moving back to full-time employment with a single company. This seemingly long-term shift is largely due to the gig economy's attractiveness on both the worker and consumer side.
Many consumers are tired of doing business with nameless, faceless corporate behemoths, and prefer to directly pay another person's wage rather than padding a company's bottom line. For workers, having transparent payment arrangements and being able to set your own schedule can be quite appealing.
Gig" businesses also tend to have exacting standards of quality, and when consumers know they can expect a certain experience every time, they're likely to remain loyal customers even amid pricing increases and other changes.
What societal shifts could compromise the way workers do business in the gig economy?
One reason many workers have transitioned to the gig economy from full-time employment is the wider availability of health insurance coverage that isn't tied to a specific employer. A repeal of the Affordable Care Act, or modifications to its provisions that operate to push insurers out of the market, could lead more workers to go back to full-time employment to maintain their health insurance.
Government regulations could also impact the way gig businesses operate. Companies like Uber and Lyft have been targeted by taxi unions, which are subject to stringent state and local rules that private taxi services aren't. Over time, gig businesses are likely to be more heavily regulated, which may change the type of working arrangements they can offer.
How can gig workers create security in their own jobs even amid economic uncertainty?
Gig workers value flexibility in their working arrangements, so should demonstrate the same level of flexibility when it comes to adapting to impending changes. Studies show the gig economy is likely here to stay, but like all industries, it's likely to go through many expansions and contractions over the coming decades.
Keeping up with changes in one's chosen line of work and developing various contingency plans in case a certain gig doesn't pan out can ensure workers remain marketable and enjoy some basic level of job security.
The first question anyone who is thinking of leaving their full-time job asks themselves is usually "How will I earn a living?" While taking part in the gig economy by working a series of short-term jobs or tasks can provide some workers with a higher salary than previously earned through full-time work, it's not a reliable income replacement for everyone.
Going into a gig with unrealistic expectations of your time investment or earning potential can lead to disappointing results. Read on to learn more about some of the personal financial opportunities the gig economy presents, as well as a few potential pitfalls you'll want to keep an eye out for.
What financial opportunities does the gig economy present?
Short-term or independent contractor positions can allow workers the flexibility to work on multiple jobs or projects at once. Many full-time employers require their employees to sign exclusivity or non-compete agreements, restricting their ability to seek outside employment, and those who put 40 hours a week or more into one job are unlikely to want to take on many other outside responsibilities in their limited free time.
In contrast, those working in the gig economy can put in as many hours as they need to achieve their financial goals–no more and no less. For some, this can mean taking on extra jobs to save for a specific purpose, like putting money into a vacation fund or paying for holiday gifts. For others, working a limited number of gigs may be a way to stay active in their career field without seeking out a 40-hour-per-week obligation.
What are some potential financial drawbacks?
While this flexibility presents nearly boundless opportunities, there are some other financial considerations you'll need to take into account, often related to services that were quietly performed by your prior employers.
Tax Issues
The U.S. Tax Code is complicated, and even those who regularly prepare and file their own taxes may find certain parts confusing. Unfortunately, those who transition from W2 to 1099 employment often find themselves struggling with tax issues.
A recent survey conducted by the National Association of the Self-Employed reported that a staggering 33 percent of respondents didn't realize they needed to file quarterly estimated tax payments on their self-employment income, while 40 percent of respondents confessed that they weren't setting aside money to pay this tax bill.
This lackadaisical approach to tax planning can have dire consequences. Failure to pay estimated taxes throughout the year can result in an underpayment penalty, and for those who aren't setting aside tax money, being hit with a giant tax bill on April 15 can be a quick path into high-interest debt. It's important to delve deeper into your required tax payment and recordkeeping requirements to ensure you don't end up in hot water with the IRS.
Budgeting Considerations
Most states have wage and hour laws that dictate the frequency with which employees must be paid, mandating weekly, biweekly, or bimonthly paychecks. However, these rules don't always apply to the self-employed, and you could find yourself being paid on an irregular or infrequent schedule.
Because of this, keeping a handle on your budget is crucial. Depending on your pay schedule, you may opt to pay all your monthly bills on the same day with the prior month's income or instead stagger your due dates to give yourself some breathing room.
