There’s no denying the workforce is changing. With the emergence of the gig economy, more Americans are earning income outside of traditional 9-5 jobs, opting instead for contingent, highly-specialized work on-demand.
For small businesses navigating this new uncharted era, finding full-time talent can seem next to impossible. But business owners who prepare for this changing landscape will not only get ahead, but will thrive in the gig economy. And for agents, how can this shift in the workforce impact the type of insurance your small businesses may need? It’s important to pay attention to the shifts in the workforce and anticipate and plan for changes to be successful in the emerging gig economy.
What is the Gig Economy?
When you hear the term “gig economy,” it’s common to think of independent workers or freelancers providing services like rideshares, home repair or even short-term living accommodations. But the definition of the gig economy can also refer to a growing sector of knowledge-based workers like writers, marketers and accountants who complete specific projects (aka “gigs”) in exchange for compensation as independent contractors.
These gig workers represent a diverse pool of professional skills, backgrounds and experiences. Some take on contingent roles to supplement income from a full-time job, while others make a living as independent contractors. Either way, one thing is clear: gig workers are not going away.
In fact, the
Bureau of Labor Statistics estimates that around 53 million Americans — or 1 in 3 workers — engage in the gig economy. That number is projected to grow 40 percent by 2020, according to the
Intuit 2020 Report, especially as new technologies and digital talent platforms emerge.
No matter how you slice it, the gig economy will have a major impact on your small business. As the future of work unfolds, prepare for monumental shifts in the following five areas.
5 Ways the Gig Economy Affects Small Businesses
1. Recruiting an on-demand workforce
As gig work goes mainstream, many small businesses are recruiting people to perform fewer, but more specialized tasks. By hiring workers on a project-to-project basis, small businesses will expose their business to a wide pool of on-demand talent while freeing themselves from the commitment of long-term employment.
2. New considerations for legal compliance
Most gig workers are considered independent contractors — not employees. Small business owners need to understand the legal difference between the two and classify workers accordingly. Employees and independent contractors are taxed differently, so businesses could find themselves in legal hot water if a mistake is made. We recommend consulting an attorney if there’s any confusion. But as a rule of thumb, the more restraints put on a contract worker, the more likely they are to be an employee.
3. Less overhead, more money in your pocket
A small business owner is obligated to compensate gig workers solely for their time in exchange for a service. This means business owners can cut costs related to hiring an employee, including:
- Salary
- Benefits
- Retirement plan
- Sick days
- Paid time off
- Office space
- Equipment
- Payroll taxes
Depending on the task, hiring an independent contractor may be smart for the bottom line. Consider the skills and time commitment required for each project and hire accordingly.
4. Virtual collaboration through digital workspaces
With apps connecting companies to contingent talent and cloud-based collaboration tools like Slack, Dropbox and Google Drive, some traditional offices will evolve into a digital workspace. This creates an environment where gig workers can find and complete jobs anytime, from anywhere in the world.
5. Gig economy insurance that meets your needs
Whether you are a business owner hiring a contractor or a gig worker doing your own work, it’s important to know how to navigate the insurance market in the gig economy.
If you’re hiring a contract worker, look for someone who carries general liability insurance. This protects your small business if the contractor delivers shoddy work, doesn’t complete an assignment on time or makes a mistake that ultimately costs you.
On the flipside, if you are an independent contractor representing yourself as your own business, we encourage you to carry some form of liability or small business insurance. This also demonstrates an advanced level of professionalism and shows you take your work seriously.
What about workers’ compensation? As a business owner, if you have independent contractors working remotely or onsite, you are not required to cover them under workers’ compensation. However, if an employer has incorrectly classified an employee as an independent contractor, this could cause issues if an injury or accident occurred on the job. See our above recommendation to consult an attorney when classifying employees if there is any confusion.
Embrace Change as We Move Towards a Growing Gig Economy
The gig economy offers many benefits for both small businesses and workers, including more flexibility and increased productivity. The new labor market may have a huge impact on small businesses and the commercial insurance they need, but by preparing for these five trends, companies will continue to thrive.
AmTrust Financial is a multinational property and casualty insurer specializing in
coverage for small businesses. To learn more about our small business solutions, please
contact us today.
This material is for informational purposes only and is not legal or business advice. Neither AmTrust Financial Services, Inc. nor any of its subsidiaries or affiliates represents or warrants that the information contained herein is appropriate or suitable for any specific business or legal purpose. Readers seeking resolution of specific questions should consult their business and/or legal advisors. Coverages may vary by location. Contact with your local RSM for more information.