The term “gig economy” has been widely used over the last several years, but what does it really mean and what are the benefits, if any?  If you think of the word gig in relation to the music industry, that may help explain its origin.  In the music industry, a “gig” is an assignment; a performance for which a person or group is hired.  The person or group receives payment for the gig, and if they acquire many gigs, they can potentially earn a livelihood.

Now consider this in the general workplace.  A temporary service agency may be considered a gig because as the name indicates, the job, or gig, is temporary in nature, so it has a definitive start and end date.  More recently, project-based gig workers are cropping up, as are freelancers or independent consultants.  What has led to the prosperity of the gig market is multi-faceted.

In some instances, employers have found themselves with diminished resources for long-term employees, yet they have the need for a short-term employee to work on a finite assignment.  Higher costs for office space rental have caused some employers to eliminate jobs that would require an eight to five-person work in a brick and mortar building. Instead, they opt for home-based employees, some of whom could work temporary gigs.   Millennial workers are creating change due to their unique perspectives and expectations as they relate to what employment looks like. Gone are the days when employees were hired and remained for decades.  Now it is not uncommon for employees to change employers or careers more than ever before.

Employees are finding themselves out of work more often due to corporate downsizing or efficiencies made through automation.  More people in the workforce means more people vying for the same job, so the time it takes to return to the workforce may be longer than some people can afford.  So, a temporary gig may make good monetary sense for some.  Work/life balance is another subject that has come to the forefront over the last decade.  People looking for a break from the rat race may give up their eight to five job in favor of multiple gigs where they can set whatever schedule works best for their current lifestyle and commitments.

So, who really benefits from the gig economy?  Employers benefit by saving on taxes, benefits, and as mentioned previously; office space.  There is also the benefit of hiring workers who have specific skills for specific, short-term projects.  Employees benefit by having flexible work schedules, better work/life balance and in some cases, more earning potential.  However, one “loser” in this situation could be the unemployment trust fund balances.

Employers hire employees and pay taxes on their wages to fund the unemployment trust fund balances in each state where they operate.  However, gig employees are considered independent contractors, so the employer does not pay unemployment taxes.  Instead, the worker pays income taxes at the end of the year. During the great recession, many state fund balances were depleted and are still being rebuilt as a result. While more than half of the state fund balances are adequately funded now, several state trust funds are not adequately funded.  Should another recession take place, it is likely the underfunded trust funds will be further depleted, and it could be said this is partially due to the gig economy.

This classification of employment does not seem to be reducing, so the states will have to identify other means of replenishing their trust fund balances. Often this means higher taxable wage bases or rate schedules resulting in higher tax payments by employers.  The end result may not be something employers want to hear, but part of maintaining relevance is the ability for an employer to be nimble and adjust to the ever-changing factors that make up their bottom line.


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