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Payroll

The Gig Economy: How Can Employers Keep Up With A Changing Workforce?

Christopher Wood, CPP  

Christopher Wood, CPP  

A June 2019 American Payroll Association seminar in New York outlined the gig economy, its presence in a changing workforce and how employers stay ahead of the trend.

During the 2008 and 2009 financial crisis, the term “gig economy” was popularized. The word “gig” is typically associated with the slang term for a live musical performance that was originally coined by 1920s jazz musicians. But the concept of “gig” work is similar in that it refers to a temporary situation where the working arrangement is limited to a certain period of time based on the needs of the employment organization.

Gig work, or the idea of tasked-based labor, is not a new concept. Employers have used this type of labor before under terms like freelance, contingent, or alternative work arrangement. However, since the 2008 and 2009 financial crisis, this type of task-based labor has become a more significant factor in the overall economy – something employers should be aware of and may consider incorporating into their business model.

During the June 13 American Payroll Association’s (APA’s) New York Metro Chapter spring 2019 breakfast seminar, speakers from ADP, a human resources software management company, discussed at length the gig economy, how employers can adjust to it and the future of payroll.

Volume of Gig Work in Economy

Studies may vary on what percentage of the workforce is comprised of gig work. This may be due to a varied definition of gig work as a whole. For example, an August 2018 Gallup poll on the gig economy and alternative work arrangements concluded that 36% of U.S. workers has a gig work arrangement in some capacity. However, a June 2018 Bureau of Labor and Statistics report about contingent and alternative work arrangements in May 2017 determined that the share of workers in the gig economy was 10.1%.

During the APA’s June 13 breakfast seminar, speaker Brant Biggers, ADP Global Enterprise Vice President, stated that the Bureau of Labor and Statistics reported some 55 million people in the U.S were gig workers in 2017 and that the percentage of the U.S. workforce expected to report some type of gig work will be 43% in 2020.

And although the trend in Europe is not quite at the same pace as the U.S., they and the rest of the world are not far behind. “This is a global phenomenon happening and all employers need to think through this,” Biggers said.

Younger Generations Tend to Prefer Gig Work

Part of the trend also has to do with the Millennial generation (born around 1981 to 1995), where the average time a person in this generation will stay in one job is two-years. Many in this generation and Generation Z (born mid-1990s to mid-2000s) prefer to do this type of task-based labor and are satisfied and happy doing gig work.

So, instead of gig work being an alternative during the 2008 and 2009 financial crisis because of higher unemployment, gig work is now more of a preference, a choice, or an alternative for many to the more traditional full time, employer-employee work at a company.

A Shortfall in the Labor Market

And this is something for an employer to think about, but there is also another challenge for employers to consider where gig work may come into play. It has to do with the number of workers from the Baby Boomer generation (born around 1946 to 1964) retiring and the need to fill jobs when/as this happens. The generation after it (Generation X, born around 1965 to 1980) is notably smaller in population, which may hint to a labor shortfall, where employers don’t have the same amount of people to fill those jobs.

Biggers said this and another worker shortfall expected after the Millennial generation translates to around a seven-million worker shortfall. “This is a problem for everybody,” Biggers noted.

Gig work may be an opportunity for employers to blend their workforce as the labor shortfall continues. “Is there a way [for employers] to take advantage of this abundance category to fill the gap we have on the shortage?” Biggers asked.

He went on to explain some of the reasons employers are increasing the use of gig work to include: 100% utilization of labor resources, meeting talent where they are, a more flexible labor model, and to stay competitive with businesses who have already converted to this model.

Risk Factor with Worker Misclassification

A risk factor with gig workers that was discussed during the APA’s seminar is one many employers are all too familiar with – who is actually an employee? For a period of time, it seemed clear that Uber and other ride sharing companies employed independent contractors. A notable example of gig work. However, court cases in New York and California, among other areas of the U.S., are concluding that some of these workers are actually employees.

A key question in these cases is what is the degree of control over the work and who exercises that control. To help, an employer can always submit a Form SS-8 (Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding) to the IRS for a worker classification determination. There is also the IRS’s 20 factor common-law test, among others, for an employer to be sure it is in compliance with both federal and state laws regarding worker classification.

“It does not matter what the worker prefers,” Biggers said, regarding worker classification for a gig worker. Just because a gig worker wants a Form 1099-MISC (Miscellaneous Income), typically used for independent contractors, does not mean they really shouldn’t be issued a Form W-2 (Wage and Tax Statement), typically issued for employees. “It’s a legal determination that has to be reviewed,” Biggers added.

Workforce Transition

The APA’s June 13 breakfast seminar went over three different types of workforce and what role gig work plays, or does not, in each. The models include: (1) the old model (higher fixed cost and small spend for freelancers), (2) the hybrid model (more flexible and variable but non-scale/managed) and (3) the agile model (automated, scalable and on-demand). “What we’re seeing more and more organizations navigate to, is this [hybrid] model, where it’s a balance or myriad of the three – and there’s this balance,” Biggers said.

He added that part of the balance is determining “which work makes the most sense to go to the different categories.” Perhaps an employer uses a small business vendor for repetitive tasks over a period of three months, but uses freelance for more short-term tasks with a high volume that need to be assigned quickly at multiple locations.

The Agile Workforce Model

But Biggers said that what ADP is seeing in some of the most advanced organizations, and where they believe the market is going, is the use of the agile workforce model. “This is a pretty cool thought and lots of companies are talking about it,” Biggers noted. The idea is to have employees, vendors, freelancers, alumni (i.e., bringing back retired Baby Boomers for task-based work), contractors, etc., and be able to pool all these labor options and to assign different work for who the employer thinks is best suited for it. It is a more advanced concept and will require a shift in how employers think strategically about their labor.

And the agile workforce model has created a category to aid payroll and human resources departments called freelance management systems (FMS). The idea is similar to human resource information management systems (HRIS), but tailored to handle the agile workforce model that involves three steps to: (1) organize (intelligent and compliant labor clouds), (2) engage (qualified freelances through text, email or app-to-market and award work) and (3) pay (workflow automation tools and analytics).

“If you [employers] want to compete for gig labor, or freelances, the pay process needs to emulate what’s being done in payroll,” Biggers said on the need for fast pay solutions for freelancers, instead of through accounts payable, where payment turnaround time can be weeks. “These [FMS] technologies are allowing for that,” he added.

And the FMS system will address some of the concerns from a company’s C-suite (top company staffers, i.e., CEO, CFO, etc.), which include lacking visibility into vendor processes, workers selected, status updates, communication with workers, vendor performance data, payment process, etc. “This category [FMS] was created to fix that problem,” Biggers said on some C-suite issues with gig workers.

Gig Economy Takeaway

By various metrics, the gig economy is growing and employers will need to address these changes in their workforce. There is a generational slide that will result in companies struggling to fill those jobs. “So, all organizations are going to have to get more proactive and sit down and think strategically around [labor],” Biggers said. And a starting point for an employer may be to determine what types of labor their company does that could qualify for this task-based labor market to see if it makes sense to move in that direction.

Source: American Payroll Association New York Metro Chapter June 13 Breakfast Seminar w/ ADP: Adjusting to the Gig Economy and the Future of Pay.

 

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