What are the Different Types of Gig Workers?
- Marketplace Workers
- Self Employed
What is a Gig Worker?
As mentioned, a gig worker is the term for anyone whose primary form of employment involves seeking out “gigs,” which typically means short-term work.
Gig working has always existed in some form or another, but with the formation of workers unions and the legal structuring of companies that employ steady workers, the idea of searching for on-demand employment from a stream of clients took a backseat to earning a set salary from employers.
Today, however, gig working has seen a dramatic resurgence, especially with the explosion of marketplaces and apps like Uber, DoorDash, and Upwork, where companies or individuals can hire short-term labor to perform specific tasks without being locked into a long-term, ongoing relationship.
What are the Different Types of Gig Workers?
A freelancer is typically someone who performs specialized labor, such as writing, programming, film, or graphic design. These professionals usually have a background and education in the work they offer, and provide clients with requested work.
A freelancer might also be referred to as a contract worker or contingent worker in terms of worker classification, as defined by the companies or individuals that hire them to do work. Such freelancers, even if they operate as a sole proprietor, are not part of the company as a full-time employee, and as such lose out on certain benefits like worker’s compensation insurance.
However, most freelancers have set up their practice as a sort of business, which includes much more than just performing work. They market, network, and perform their own backend support. Additionally, they are still eligible to collect unemployment benefits in select situations, even though unemployment benefits are technically funded by companies with employees.
A marketplace worker is a specific term for a freelancer who secures employment through a marketplace or gig platform. These marketplaces are meant to connect individuals and businesses seeking specific types of labor with freelancers who can meet their needs.
These freelancers spend a portion of their workday browsing for a good gig job. Though traditional workers at a company of employees typically don’t need to hunt for work, a marketplace worker participating in a gig economy job platform might be comparable to a sales-driven professional who must constantly look for their next sale.
Platform workers have the added benefit of having all their potential sales (that is, jobs) right in front of them, on their computer. They don’t have to market themselves, place any calls, or take out ads. They just hop onto the platform(s) of choice, filter the search results, and find gig employers offering jobs that appeal to them in terms of content and price.
For many gig workers, the marketplace model allows them to thrive and find work, since operating as a freelancer who markets themselves does require more time, cash, and know-how. At the same time, a gig economy platform will take a cut of the earnings, sometimes as much as 20 percent. Because these platforms take a cut, it’s not unusual for individuals to start their freelance career through the platform and then take their services off once they have secured a steady stream of clients.
A self-employed individual is not necessarily a freelance or gig worker. For example, anyone who owns a business or engages in investing activities, like real estate investing, is self employed.
Since self-employment is entirely self-directed, gig workers and freelance workers can certainly be said to be self employed. In most cases, though, a freelance worker operates as a sole proprietor under their own name unless they have chosen to operate as an LLC or S-Corp. Knowing whether or not these vehicles can benefit your business is something you can explore with Anderson Advisors on our Tax Tuesday Webinar.
In any case, self-employment is popular with the entrepreneurially spirited because they are only beholden to themselves in terms of demands and expectations. There are downsides to being self employed, such as the need to build one’s own income stream, and the onerous federal tax rate of 15.3 percent that must be paid on earnings. This is why many self-employed individuals create a business structure around their business, not only to protect themselves from liability, but to also lower their own personal income by paying themselves a salary, which yields a lower tax burden than would otherwise be paid if they were only filing taxes as a sole proprietor.
An online gig worker is someone who almost exclusively finds their clients online, perhaps through a marketplace like Upwork, or perhaps by browsing classified ads on a digital job board like one provided by Facebook or Craigslist.
Online gig workers typically do their work from a computer, and might offer services like writing, programming, or web design. Sometimes these gig workers may offer services like consulting, marketing, or even professional tax strategies. In many ways, this category of gig worker is synonymous with the marketplace worker described above since many of today’s platforms are online. Of course, there are individuals who might find a gig employer from a bulletin board, a classified ad, or even a conversation in the parking lot of a hardware store, but by and large, most gig workers turn to the incredible scope and reach of the internet in terms of finding work.
How Much Do Gig Workers Earn?
The average gig worker salary is $29,050, according to Glassdoor. By comparison, the average mean salary for a single filing taxpayer was $35,977, according to the U.S. Census Bureau.
This means that gig workers typically earn less than employed individuals or individuals who own their own business. However, it’s important to keep in mind that many gig workers do not perform specialized labor and instead participate in programs like a rideshare. They may drive an Uber, deliver food with DoorDash, or find odd handyman jobs on gig company apps like TaskRabbit.
Gig workers who offer a specialized skill, such as computer programming, stand to make just as much as a salaried worker, if not more because they can set their own prices and work as many jobs as they’d like.
There are many international gig workers who are making less than $29,050 annually. Gig workers in other countries charge less than their American counterparts, making them an attractive outsourcing option for companies in need of tasks like programming or secretarial duties. While these freelancers might charge less, the money they do make, translated from American dollars into their local currency, is often far more attractive than the local work they might find in person.
This is known as geoarbitrage, and it has opened up new possibilities for businesses to perform tasks that might have previously required a big corporate budget. For example, instead of spending $100k annually toward the salary of an in-house marketing team, they can post a job on a gig economy platform and find a number of gig workers within minutes to perform the needed tasks at a fraction of the salaried cost.
Are Gig Workers Independent Contractors?
An independent contractor is hired by a company or individual to perform a specific task through a contract that is mutually agreed upon as terminable at the discretion of either party. If the independent contractor performs more than $500 of work, the hiring party must issue them a 1099, which is the IRS form that discloses earnings paid for independent contracting work.
That said, some gig workers are independent contractors. But a gig worker who works with dozens of clients (none of whom pay more than $500 for a given task) could be called independent contractors in relation to any of their working relationships. By the same definition, a gig worker who gets all their work through an app may be considered a gig worker if the company managing the app issues their payment. It all depends on how the worker is paid.
It’s important to note that some states have changed the rules around gig working, this includes California. Proposition 22, for example, is a very polarizing recent measure. Advocates insist that companies should treat gig workers as employees in order to guarantee a certain level of income and health insurance, instead of treating them as independent contractors who can technically be paid anything, even wages far below the state’s minimum wage. But opponents point out that if businesses are required to hire their gig workers as full time employees, they will cease working with them altogether and look for alternative solutions.
Check your state’s laws to see how gig workers are classified. Also keep in mind that recent legislation, like the CARES Act and American Recovery Act, have provided some gig workers with the opportunity to take advantage of benefits like the Paycheck Protection Program (PPP Loan). These gig workers can use the PPP money, essentially, to pay their own salary.
Is Airbnb Part of the Gig Economy?
Absolutely. Someone who rents out their home, on demand, to traveling individuals is certainly not employed by their guests. They are offering a service, as needed, on a contractually agreed upon basis that may be terminated by either party, at will.
AirBnB is a perfect example of a gig economy business model, which often involves crowd sourcing inventory or services rendered to willing participants seeking customers, much like Uber or any other app that allows participants to put idle assets to work.
Some apps take a nontraditional approach to earning a living. For instance, neighborhood apps where users can offer skills in cooking lessons, fishing tours, or karate lessons—all for pay. That’s what appeals about the gig economy to so many: they can make a living doing what they love, on their terms, on their time.
Gig Workers Are a Huge Part of the Working Economy
The gig economy worker is here to stay, and with the COVID pandemic, many once-employed individuals have turned to gig work as a way to keep paying the bills—whether that means delivering pizza with DoorDash or designing websites for clients found on Fiverr.
Gig working is also getting attention from big government, and it’s likely in the coming years that new legislation will deal with the proliferation of people who work for themselves. Whether these policies facilitate the freedom of a gig economy or attempt to stifle it by forcing gig workers into unions, only time (and the politicians in office) will tell.
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