More and more people are giving the Gig Economy a closer look. Although it may seem like a new phenomenon, aspects of this employment model have been around for decades. Universities hire adjunct professors, hospitals and warehouses hire contingent workers.

What’s the catch?         …wages are often sub-standard.

In my last blog, I gave several terms and definitions to this disruptive business model that has many jobseekers weighing the possibilities of becoming a member. I’m restating the list here:
  • Independent contractor
  • Contract employee
  • Temporary employee
  • Seasonal employee
  • Casual employee
  • Outsourced staff
  • Freelance worker

Look before you leap!

Before jumping into the Gig Economy, serious questions should be carefully considered. This series of blogs is attempting to answer many of the questions jobseekers should be asking. This blog looks into the hidden costs of joining the Gig Economy.

The last blog showed why so many people are not doing well, economically –in defiance of the jobs report by the Bureau of Labor Statistics (BLS).

The Gig Economy plays major role in the current situation many people find themselves in. Even though the unemployment rate is low, many people have two or even three jobs and still can’t make ends meet. And even though jobs are being created, there aren’t nearly enough. Further, many of the positions being generated, are low paying and part-time positions that cannot sustain one individual, let alone a family.

Gig Economy: Can you make a living?

When many people think of the Gig Economy, Airbnb, Lyft, and Uber may immediately come to mind. Perhaps the most important concept that every person must consider is this:
       If minimum skill is needed, minimum wage is likely.

Supply and demand still rules!

Regardless of your industry, supply and demand is still the leading indicator of whether you will have the opportunity to earn a wage. There are several factors to consider. Location plays an important role. For example:
  • The black hills of Montana are less likely to have Uber customers than Boston, or even Omaha.
  • The same goes for Airbnb. Location could either enhance opportunities or completely dismiss them.

Hidden costs of the Gig Economy

There was a lengthy video on YouTube, where a woman said, “I can be an Uber driver for 50 hours a week and make $80K a year.” A panel of commentators, consisting of four lawyers, were all quick to point out, “But she doesn’t get to keep all of that money!”

This article in the Washington Post by Joann Weiner, adds the all-important point about the Gig Economy: … you are now self-employed and self-employment taxes apply.

The article, focused on Uber driving, and points out that as an independent contractor, nothing is deducted from your paycheck. You will receive a 1099-MISC tax form that indicates your gross income. You will be responsible for paying your federal and state income taxes, and self-employment tax. And don’t forget that you will also pay Uber its 20-percent commission.

You may be able to deduct your expenses from your gross income, and only pay taxes on what remains. However, state taxes may be a different story. The Connecticut state tax rate is 9% of gross income. A “home business” grossing $55K will pay $4,950 in state taxes.

In addition, you will need to pay social security and Medicare as well as your health insurance.

The article shows that if you earned $62,000 driving for Uber, by the time all the hidden expenses are subtracted, you will be left with $27,600, not including state and local income taxes. Since Connecticut State tax is 9%, deduct $5,980 and you are left with $21,600. Remember that you haven’t paid for health insurance yet. OUCH!

Other hidden costs

What hasn’t been factored into the mix here are the costs that do not have a dollar sign in front of them.

For example, the Gig Economy cheerleaders tout the great flexibility that comes with this employment model. Sure, there is flexibility, but if you don’t work, you aren’t earning any income.

There are no vacation days. Further, when a holiday comes up and you are driving for Uber, or renting a room for Airbnb, it is more likely that you will be working, because people are more likely to need your services during holidays. And when the weather turns hazardous, like a snow storm, it’s easier to call for an Uber, than drive yourself to the airport and pay for parking.

There is no safety net if something happens and you can’t work. If you get sick, there’s no sick-leave. Worse, if you end up in the hospital or require an extended leave from your “gig” …you do not have an income during that time. If you have regular customers who depend on you (and you depend on them for their loyalty), they will likely find an alternative to meet their needs. It is unlikely that you will see them again.

Amy Fontinelle, a contributor for Investopedia writes about Airbnb:
Many of these opportunities require you to be comfortable navigating unclear local laws, sharing your most valuable possessions with strangers and taking on additional legal liability. 

Three challenges that will impact your income:

  1. Minimal skill: I’ve already pointed out my opinion about earning a living in the Gig Economy:
           If minimum skill is needed, minimum wage is likely.

  2. The intermediary: a situation where your skill sets may come into play:
    There is another issue that comes into play, even if your skills are needed. Do you remember the 20% commission that you paid to Uber? Uber is an intermediary. (So is Lyft and Airbnb.) Through their phone app, they make it easy for customers to hire your services. The customer expects that Uber has vetted out their drivers, that insurances are in place, and the vehicles are safe and in working condition.

    In this case, Uber, plays a similar role to an agency that finds temporary work for jobseekers. Generally, that agency keeps between 20% and 30% of the fee that companies pay to “rent” that individual’s skills for a short-term, and sometimes, a long-term assignment.

    Are there advantages to going with an agency? Yes. The jobseeker didn’t have to look for the opportunity, and even if s/he did, the job wasn’t available except through the agency. Many agencies and companies hire independent contractors to provide services for their customers. This can include graphic designers, content marketers, website designers, and so forth.

    They all face the same challenge: if s/he works for an agency, the agency keeps a substantial fee. Once again, businesses and individuals rely on agencies because they believe the person doing the work has been screened and has the skills to perform the job they need done.

    The difference with the agency is this: they are hiring people with a specific skill set. Working for an agency is perhaps a better option because a higher level of skill is required. However, the down side is that the agency is paid first and there is no guarantee of full-time or long-term employment. The pathway to the door is quicker and the pay is less when you work for an intermediary in the Gig Economy.

  3. The zero-hour contract situation:
    Although this was covered briefly in the last blog; this particular situation has more than just hidden costs. A zero-hour contract employee is actually an employee. S/he has been hired by a company or organization. For our example, I mentioned a friend of mine who is a picture framer.

    The problem: the most hours a week she can expect is 14. She is paid about $11 an hour. However, there are weeks when she has no hours at all! YET…she is expected to be available every day during store hours. Like an agency, her expertise is utilized only when it is needed. There are no benefits.

Gig Economy: Summary of Hidden Considerations

There is always a trade-off. Thoughtfully count the costs, before you move into the Gig Economy. This is essential if you are going to maintain an income stream.

You will likely enter the Gig Economy.

According to IMI Data Search, Inc., 25% of Americans were already engaged in the Gig Economy in 2015. That included 54 million Americans. By 2020, they expect “as many as half” of all Americans will make this move, which is only two years away!

Every person who wants to maintain a personal income stream will need to know how to manage this economic model. This is why Neil Patrick and I wrote the book, Careermageddon. It is available on Amazon, if you wish to take a closer look.

Please get the book. …and navigate your future with stealth.

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