Are you wondering how the Gig Economy might affect your small business?
For many small businesses, I guess “to gig or not to gig” isn’t much of a question anymore. I just saw an infographic about the accelerating pace of small businesses hiring contractors, and I wonder about the short and long term implications.
If you dig into the data, you’ll find that 1 in 5 businesses are replacing employees with contractors. In the short run, it can make a lot of sense. You don’t have to worry about the long term commitment, fluctuating demands and capacity, health insurance, etc. On the other hand, I’m a little worried for the small business owner who thinks there isn’t much of a difference between an employee and a contract worker. If you treat your contract workers like employees, the IRS might classify them as employees, and that can be an accounting (and financial) disaster.
I have a friend who runs a service business. She has employees and also uses contract workers to meet fluctuating demand. She stopped using one of the contractors because the need for their services dried up. The contractor called the IRS, the Department of Labor, etc. My friend ended up having to pay taxes and penalties and the contractor also ended up receiving unemployment compensation. It would have been easier and better for my friend (and the contractor) if the contractor had been classified correctly in the first place (or the work had been structured differently so that the contractor was truly a contractor).
If you have questions about how to classify a worker (employee or contract), I urge you to get clarity from the appropriate governing body. The IRS has a helpful website which you can access here. If you need further clarification, you can contact the Department of Labor. I do NOT recommend doing whatever you think you can get away with and praying nobody finds out. It’s not the right thing to do and, if you do get caught, it will make things worse than they might have otherwise been.
As far as the long-term implications of the gig economy, I expect we’ll see further erosion of the employer-worker relationship. In the past there was within many companies a sense of mutual trust and loyalty between the organization and the people that worked there (whether or not this was a net positive might be debated, but it certainly created more stability in the workplace) . In the right circumstances, workplace stability can lead to improved morale and worker productivity. I’ve seen it time and time again in my own companies and the companies of those I’ve consulted with. Does it always? Of course not. This is business, not physics. But the trend was positive. These days I see so many companies and workers tossing one another aside like yesterday’s rubbish. Maybe in some cases that’s a good thing, but in lots of others it’s probably not.
One positive trend I’m seeing with the rise in the gig economy is the infusion of new ideas into an organization’s DNA. I recently hired a leader for one of my companies from outside the organization. She’s great at what she does, super knowledgeable. Initially we had some blowback from long-term employees that were concerned that she wasn’t doing things the way we were used to, but over time she’s been able to gain our colleagues’ trust by communicating her ideas (as well as the reason behind the ideas), then proving her actions by the results they produced. It isn’t necessarily easy to integrate someone new but, in our case, it’s definitely been worth it. You don’t know what you don’t know and sometimes it takes an outside perspective to move things forward.
What am I doing about the growing gig economy? In a sense, I’m having it both ways. In healthcare, we have lots of people who only want to work sometimes or occasionally. Even though they are employees, not contract workers, we’re able to use them on an as needed basis that serves them and us well. At the same time, I’ve had some good results hiring contract workers for specific tasks (such as doing design work and research). I’ll share some ideas on how to find the right contract workers in a future post. In the end, we’re still primarily hiring employees, but I do see the benefits of hiring contractors as well.
How about you? Are you hiring contract workers? Are you replacing employees with them? What’s motivated you to make the choices you’ve made? Are you happy you’ve made those choices?
Comment below and let me know what you’re thinking.
And thanks for reading!