If an individual has ever worked as a freelancer or independent contractor, they have participated in the gig economy. The gig economy is the economic system in which a workforce of individuals, called gig workers, who engage in freelance employment.
The gig economy is a labor market that is characterized by on-demand work, typically involving small projects or tasks. Compared to traditional employment, workers in this economy are only paid for the tasks they complete, and their work arrangement is usually temporary.
The gig economy is made of workers, consumers, and corporate entities. The Internal Revenue Service (IRS) defines the gig economy as activities where individuals earn income by providing on-demand services, goods, or work.
These activities are commonly facilitated using digital platforms, such as websites or mobile apps. In this type of work, gig workers typically earn cash, virtual currency, property, or goods as compensation.
The term “gig” comes from the slang term that is used for individual appearances performed by artists, such as comedians and musicians. Gig workers, instead of being paid regular salaries, are paid for the individual gigs they perform.
A corporate entity may employ workers for a short-term commitment or a temporary employment assignment. This can allow the corporate entity to provide a different type of product or service. This is because, under this business model, the corporation does not have to provide health insurance benefits, sick leave, office equipment, and other items usually rendered under a full-time scope of employment.
Companies may be able to hire gig workers under many different titles, such as:
- Freelancers
- Independent contractors
- Project-based workers
- Temporary hires
- Part-time hires
These workers have greater flexibility to control their schedule and work-life balance. Examples of common types of goods and services provided by these workers in the gig economy include:
- Rideshare services
- Food delivery services
- Package delivery services
- Crafts and handmade item marketplaces
- On-demand repair and labor services
- Property rentals
Advancements in technology have increased the availability of freelance workers and an expansion of the gig economy. There are many examples of third-party apps that allow freelancers to work, including Lyft, Uber, and more.
Although this type of work offers individuals flexibility, it can also involve legal issues that may be challenging to fully understand. The laws governing this type of work will continue to evolve as the gig economy itself evolves and expands.
What Is a Freelancer?
A freelancer is an individual who is hired on a temporary basis and works independently. These workers complete specific tasks or projects instead of serving as a regular employee.
Freelance work is common in certain business areas, including:
- Writing
- Painting and working in other media
- Photography
- Editing
- Copywriting
- Screenwriting
- Business consulting
- Web design and development
Freelance workers can work directly with clients or as a subcontractor for a company or agency. It is common for businesses to employ a small number of full-time employees and subcontract parts of a project to freelance workers.
Freelance workers may also find jobs through online freelance marketplace websites. These websites match freelancers with jobs and keep a small amount of the payment as a transaction fee.
All of these methods have unique advantages, disadvantages, and legal implications. Freelancers may face legal challenges regarding ownership of their creative work and employment protections.
How Does the Gig Economy Impact Traditional Employment?
Due to the increase in the availability of gig work opportunities, there are some workers who have quit their traditional employment positions to pursue greater flexibility offered by gig work opportunities. Employers have also begun to favor gig work, as it may offer them significant cost savings and access to a larger pool of talent.
The main difference between an employee and an independent contractor is the amount of control the employer has over the worker they hire. With employees, the employer has a significant amount of control over how the work is completed.
When an employer hires an independent contractor, they can avoid having to pay:
- Worker’s compensation insurance
- Federal taxes
- State unemployment compensation insurance
- Health insurance
- 401K matching
A gig worker is typically paid on a project or hourly basis. They also have more flexibility in how they complete their work.
It is important to note, however, that gig workers typically have more responsibilities, such as:
- Self-employment taxes
- Benefits
- Maintaining equipment
- Professional liability insurance
What Are Some Legal Issues Associated With the Gig Economy?
Although a gig worker may benefit from their work arrangement, they can also face legal challenges, including misclassification. It is important for gig workers to understand their legal rights and protections while participating in the gig economy.
Classification of a gig worker
One of the main issues that gig workers may face is being incorrectly classified by their employer. An employer may classify a gig worker as an independent contractor when, instead, they should be classified as an employee.
When this type of misclassification occurs, the worker may not receive the pay or benefits that they would be entitled to if they were classified as an employee. Additionally, they may not be afforded the same legal rights and protections.
For example, an independent contractor does not have the right to claim unemployment compensation. The United States Department of Labor has made attempts to clarify classification of workers under the Fair Labor Standards Act (FLSA). However, the nature of work in the gig economy continues to create challenges for both employers and gig workers.
Legal rights and protections for gig workers
In addition to the protections provided under the FLSA, gig workers may also have other legal rights and protections. For example, in states such as California, Proposition 22 makes sure that gig workers earn more than the minimum wages, and it provides healthcare subsidies for workers who work a certain number of hours per week. In addition, this pay provides legal protections from employment discrimination.
These protections, however, are not uniform across the United States. Gig workers, however, do have to contribute to Social Security through self-employment taxes.
What Are Other Legal Issues Associated With Freelancing?
Each form of freelance work may have its own specific legal issues. Some common examples of legal issues that arise related to freelance work include:
- Licensing: There are some professions that require a worker to have a license. Even when a professional license is not required, the worker may need a business license in the state in which they work.
- Disputes about benefits: Freelancers are usually not entitled to employment benefits unless it is specifically provided for in their contract. If the contract does not include information about benefits, the worker should assume they will not be provided.
- Liability issues: There can be liability issues for illegal acts and negligence committed by a freelancer.
- Ownership of the work product: In some types of work, the ownership of a final work product can be an issue. It is commonly addressed in the employment contract.
- Breach of contract: If a party breaches the employment agreement, they may be required to use alternative dispute resolution processes. They may also have to file a lawsuit.
What Are Some Tips for Employers in the Gig Economy?
With many businesses now relying on gig workers to complete projects, it is important for employers to understand the employment law issues that will apply as well as best practices for managing gig workers.
Compliance with employment laws
All businesses have legal obligations when working with freelancers and independent contractors. For example, a business professional will need to be familiar with federal labor laws as well as state labor laws to avoid legal issues.
This is especially important when classifying workers, as a misclassification may lead to serious legal issues for the employer. The best way to avoid these types of issues is to schedule a legal consultation with a local attorney who can explain the laws that will apply and how the employer can best comply with those requirements.
Best practices for managing gig workers
There are some best practices that employers can follow to legally manage their gig workers. It is important to have contracts with gig workers that clearly outline their responsibilities, roles, and expectations of the employer.
Employers should also maintain detailed records of all gig workers and the work they complete. Although a gig worker may not be entitled to the same benefits as an employee, an employer should be familiar with the legal protections in their state, for example, minimum wage protections or rights to health benefits.
An employer should also be familiar with the FLSA and the guidelines it provides for properly classifying independent contractors and employees. An attorney can help a business ensure that their workers are properly classified and receive all benefits they are entitled to under federal and state laws.
Do I Need a Lawyer for My Gig Economy Issue?
If you have any issues, questions, or concerns about the gig economy, whether you are a worker or an employer, an employment lawyer can help. As a gig worker, your lawyer can ensure that you are receiving all of the benefits you are entitled to and that you are properly classified.
As an employer, your lawyer can help ensure that you are in compliance with all applicable laws and are properly classifying all of your workers. Your attorney can also help you draft employment contracts for your workers to sign to ensure that all of the details related to their work are clearly provided.
LegalMatch’s lawyer matching service can help you find an employment lawyer near you who can help ease your mind about your gig working concerns. Simply submit your issue or question on the website, and you will quickly receive responses from lawyers in your area who can help.
