5 Things Employers Should Know Before Hiring Gig Workers

Julie CalliBy Julie Calli
December 8th, 2022 • 6 Minutes

Those in business these days are well aware that the explosion of digital and online resources facilitated such things as virtual companies and a significant increase in organizations engaging consultants and gig workers. For the latter, the proliferation of online resources and freelancing platforms afforded these workers freedom, autonomy and the ability to earn according to their efforts. For employers, a major upside has been the relative low cost of not having to support as many full-time employees.

Then, the COVID-19 pandemic hit. This touched off a major disruption in labor markets and an unprecedented change in the nature of operations for many companies. Widespread job losses in the early months of the pandemic resulted in tight labor markets in 2021, followed by what’s come to be known as the Great Resignation. Due to the many disruptions brought on by the pandemic, extended unemployment benefits and other stressors, workers began resigning from jobs in record numbers. According to the U.S. Bureau of Labor Statistics (BLS), 4 million Americans quit their jobs in July 2021 alone, and a Pew Research study reported that the rate of resignations reached a 20-year high in November 2021.

For many companies, this dramatic swing necessitated the engagement of many more gig workers; companies that had been using gig workers were compelled to step up their use, while companies that had never done so now had managers vigorously seeking them out.

For these companies, one of the most significant advantages of hiring gig workers is cost savings. These workers are technically independent contractors rather than statutory employees; thus, they don’t receive traditional employee benefits like insurance, retirement, sick days or holiday and disability pay. Consequently, they represent less financial overhead for the employer even if the gig worker is receiving better pay per hour or per project than the statutory worker would receive for the same work.

In this article, we’ll detail the top 5 things employers should know before hiring gig workers. 

1. Understand the Gig Worker

What this means is that it’s important for employers to understand their motivations in general, as well as those of the individual gig workers they hire. According to Harvard Business Review, most gig workers take on gig roles because they prefer the autonomy, flexibility and acknowledgment of their skills. 

It also bears mentioning that the Pew study mentioned above cited a lack of opportunities for advancement and feeling disrespected as key motivators for those who quit their jobs during the Great Resignation. So, it’s important to understand that gig workers see themselves as skilled professionals and wish to be treated as such.

Also, the traditional roles between employee and employer are transformed, and workers can have the freedom to choose when they work and what they want to work on. With this, gig workers tend to be more accommodating, happier and passionate about the work they do – since many pick projects based on their interests and skill sets.

2. Understand the Dynamic

An essential component to effectively engage gig workers lies in realizing that this is a significant shift from the traditional HR function. The mentality of gig workers is different in some ways from that of your employees, and they’ll likely have different expectations. Additionally, managers will need to know how to bring gig workers up to speed regarding projects, often in a more expedited fashion than they’re used to with regular employees. With this, project descriptions will need to be far more comprehensive so gig workers are able to complete the job efficiently and understand expectations. This is especially important if you’re paying the gig worker at an hourly rate — poor communication can cost you money in work that has to be repeated.

Managing gig workers requires a different skill set than when you’re managing office workers. This means that managers need to handle project planning and oversight differently, particularly since the majority of gig workers work remotely. This can include using different communication platforms or scheduling different styles of check-ins for projects being done.

Managers working directly with gig workers will also need to be familiar with the various online freelancing platforms (for example, UpWork), their culture and agreements. You may need to draft some boilerplate contracts to use with your gig workers when engaging them directly and be prepared to use those offered by others (assuming the terms are acceptable, of course).

Finally, remember that regardless of what industry you happen to be in, independents will have the same overall needs as your employees. They’ll require clarity of communication and an understanding of how you do things in your company. They’ll also need to feel appreciated, which can be a bit more difficult to get across than with full-time employees due to the nature of the relationship.

3. Make Sure the Relationship Is Clear

There’s a distinct and very important difference between the legal status of a statutory employee and a contractor, freelancer or gig worker. These distinctions carry a lot of weight with the Internal Revenue Service (IRS), so it is critical that this relationship is understood (and preferably in writing) prior to any work being done. 

There have been instances where companies have gotten into disputes with the IRS because a contractor claimed after the fact that they believed themselves to be statutory employees.

The key clerical difference is that the IRS uses the 1099-MISC and the W-2 forms to separate these types of roles. The 1099-MISC is used to report payments to independent contractors (gig workers), who cover their own employment taxes. The W-2 form is used for statutory employees whose payroll taxes are withheld by the employer.

While it can be a little difficult to determine who qualifies as an independent contractor versus an employee in some cases, the IRS has a series of questions which are meant to serve as guidelines for evaluating these roles:

  • Does the company control or have the right to control what the worker does and how the worker does their job?
  • Are the business aspects of the worker’s job controlled by the payer?
  • Are there written contracts or employee-type benefits (e.g, pension plans, insurance, vacation pay, etc.)?
  • Will the relationship continue and is the work performed a key aspect of the business?

If an employer can answer “yes” to all of these questions, it’s highly likely that the individual qualifies as an employee rather than an independent contractor (gig worker). As we examine these questions however, it’s clear that they leave employers a certain latitude—which is what can make the determination a little difficult. What constitutes “control” over a worker and how they do their job? This is hard to define. Will the relationship continue? It may or may not.

In the end, it’s up to the employer to consider the overall relationship and the degree to which they’re directing the worker. In the case of online freelancing platforms or gig workers who offer contracts themselves, these roles tend to be more clearly spelled out.

4. Understand the Real Benefits

Cost savings. While we’ve already mentioned cost savings being a primary motivator for companies hiring gig workers, it bears reiteration: When using independent contractors, companies don’t have to support expenditures such as unemployment, benefits and worker’s compensation. This will allow your business to save money, all while accomplishing the projects that need to be done – which can contribute to your financial growth.

More engagement. Workers who have the autonomy gig workers enjoy are often happier and more accommodating. Their lifestyles also tend to make them more creative and innovative, since they’re flexible and have cultivated the discipline that freelancing demands.

Expert resources. Many gig workers, particularly older ones, are individuals who’ve worked in your industry for many years and decided to strike out on their own, or were laid off from traditional jobs at some point. Often, these workers will possess skills and knowledge which far surpasses that of many of your statutory employees.

Avoiding bad hires. The current high availability of gig workers allows companies to fill open positions with these skilled individuals. This also allows companies the opportunity to part ways without the legal entanglements involved with statutory employees if the contractor doesn’t pan out for any reason.

Gig-to-hire. Similarly to the above, companies can use gig workers to vet potential candidates for full-time positions. If a company likes the work produced by the gig workers, it’s not uncommon for gig workers to be hired onto the team – given an attractive enough offer. Also, having proven themselves beforehand, the employer isn’t dealing with unknown talent when they make the offer of employment.

Highly accommodating. According to the US Chamber of Commerce, it’s been shown that since gig workers are flexible and independent, they are often capable of ramping up quickly and are suited to filling in when a company has a higher volume of work or needs someone on short notice.

5. Understand the Downsides

While there are certainly clear benefits to engaging gig workers, there are aspects of this model that may not make them the best option for your organization.

  • Although it is often more cost-effective to hire a contractor overall, there are hidden costs involved, such as onboarding time, which may or may not be less than with a statutory employee.
  • Time lost or a lack of prioritization if a gig worker is juggling multiple clients at once (which many often do).
  • Gig workers can be less loyal to you than a full-time employee might be, since they’re not as invested in the long-term success of your business. This tends to be less the case if you’ve cultivated an ongoing relationship with a freelancer.
  • If a gig worker is performing their job on-site, you could wind up legally liable if something happens to them. Employees are covered by workers’ compensation insurance, while contractors are not. So, a gig worker might be more inclined to litigate against you if something untoward, such as an injury, occurs.

The gig economy has provided excellent options for both individuals and businesses, particularly in the wake of the pandemic and the Great Resignation. It’s also been a boon for workers of all ages—GenZers, Millennials, GenXers and Baby Boomers alike. As a business owner, manager or recruiter, hiring gig workers may be the way for you to secure skilled candidates without the overhead associated with a full complement of statutory employees.

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