The so-called gig economy extends far beyond Uber, Lyft and the other consumer-focused startups that are most closely associated with the phenomenon. Independent contractors’ growing role in the job market is also increasingly affecting how regular businesses operate. This shift is set introduce new opportunities, as well as long-term challenges into the HR equation.
There are two separate, but fast-converging, undercurrents to the trend. The first is businesses’ growing reliance on freelancers in day-to-day operations. Freelancing is not new by any means, but the last two decades have seen casual work experience an unprecedented rise in popularity. A landmark Brookings Institution study published last October revealed that the number of independent contractors in the US rose about 27 percent more than payroll employees over the last 20 years. This figure jumps to 44 percent in the most heavily-impacted industries.
The trend reached a peak during the Great Recession. Young professionals and recent graduates who struggled to find traditional positions started exploring alternatives, which set off a boom in freelancing. The emergence of startups such as Uber in the same period only added fuel to the fire. These companies soon became an entire industry of on-demand service providers, thus the creating other major undercurrent that drives the gig economy.
The number of players in this market never stopped growing. So much so, in fact, that it has almost become a cliche to describe a startup as the “Uber of” a certain industry because of how many of them there are.
The consumer-focused players that laid the groundwork now compete alongside a rising number of providers focused on catering to fellow businesses. Publicly-traded GrubHub and its numerous startup rivals, for example, have carved out a niche helping the restaurant industry deliver orders with on-demand couriers. A similar ecosystem exists around on-demand office management. And there are many other players too (the recently funded Eden, for instance) who offer everything from on-demand tech support to on-demand handyman services.
The abundance of cost-effective manpower is proving valuable for small businesses. Providers such as GrubHub can handle certain tasks more efficiently than they could be done in-house, which reduces costs. The operational impact is especially pronounced when factoring in the freelancers that companies employ directly.
Overall, it’s estimated that 36 percent of small businesses currently rely on independent contractors. The growth of the gig economy should create even more opportunities for companies to streamline operations, but it’s set to bring new challenges too. Those in turn can be boiled down to one word: regulation.
The first high-profile attempt to regulate the US gig economy came last year from a rather unexpected source: Handy, an on-demand home services provider. The startup pitched a draft bill to legislators in its native New York that called for legal guidelines to be established on employing independent contractors. Most notably, the proposal sought to have companies pay 2.5 percent of a freelancer’s income into a health savings account.
Handy’s push ended up fizzling out, likely in no small part due to the criticism that the bill had received. But the initiative was followed by a much more substantive legislative effort in Congress not long after. This May, Virginia Democrat Sen. Mark Warner introduced a federal bill that would allocate funding to figuring out how companies can give independent contractors traditional employee benefits.
The measure is likely a sign of bigger things to come. With half of the US working population expected to become freelancers within a decade, some sort of broad legislative response is bound to arrive sooner or later. Several initiatives to regulate gig economy giants such as Uber have already been launched in Europe, which may provide a general idea of what to expect stateside.
The growing regulatory scrutiny around the gig economy could on the long run also affect the numerous small businesses that rely on on-demand services or employ freelancers directly. As a result, the best course of action is to take a careful approach. Companies should explore how the gig economy can help them become more competitive, but make sure they wouldn’t be adversely impacted by any legislative changes which may happen in the coming years.