The rise of platforms such as Uber, Airbnb, and GrubHub has changed the way millions of people think about work, blurring the lines between employment and self-employment. According to recent estimates, more than one-third of the US workforce— or approximately 57 million people—participate in some form of gig work.
The term "gig economy" generally refers to working outside the traditional employer/employee relationship. In many ways, gig economy workers are actually small business owners. Their business could be renting out a room in their home, delivering orders from restaurants, driving people to the airport, coding websites, writing articles for a business, or even giving music lessons. If you have a skill you could share with others, chances are there's a gig economy platform that will help you monetize it.
While the gig economy creates new opportunities for those seeking flexibility and independence, it also includes many of the opportunities and challenges that come with being your own boss.
For entrepreneurs, the gig economy may offer benefits that aren't available with a regular job. Some people may want to test the waters of small business ownership without taking a big financial risk. Others want to simply earn extra money while having a regular job.
In the best case, gig economy jobs allow workers the flexibility to work on multiple jobs or projects at once. Many full-time employers require their employees to sign exclusivity or non-compete agreements, restricting their ability to seek outside employment. In contrast, those working in the gig economy can put in as many hours as they need to achieve their financial goals.
Here's a closer look at the opportunities of the gig economy:
As independent contractors rather than employees, gig workers typically don't have the perks that come with regular jobs—such as health insurance and matched retirement savings accounts. While this flexibility can offer opportunity, there are financial considerations to keep in mind.
Some of the main differences between gig work and traditional jobs involve the legalities of the independent contractor arrangement. Independent contractors also aren't entitled to fringe benefits like employer-paid health insurance, paid sick or vacation days, 401(k) matches, or employee discounts.
In addition, gig workers don't typically receive a W2 form at the end of the year (often with a refund after filing taxes),they receive a 1099 form, and they must calculate earnings, tax-deductible expenses, pay estimated taxes quarterly, contribute to their own retirement fund, complete a Form 1040 Schedule C, and perhaps more. There's little doubt that gig economy work involves extra "work" outside the job itself.
If you do decide to start a gig economy business, it's crucial to stay on top of your tax obligations. For example, if you don't make quarterly estimated tax payments, you can find yourself on the hook for both taxes and penalties.
A lackadaisical approach to tax planning can have dire consequences. Failure to pay estimated taxes throughout the year can result in an underpayment penalty, and for those who aren't setting aside tax money, being hit with a giant tax bill on April 15. It's important to delve deeper into required tax payments and record-keeping requirements to ensure you don't end up in hot water with the IRS.
Most states have wage & hour laws that dictate the frequency employees are paid, mandating weekly, biweekly, or bimonthly paychecks. However, these rules only sometimes apply to the self-employed, and you could find yourself getting paid on an irregular or infrequent schedule.
Keeping a handle on your budget is crucial if you decide to dive into the gig economy full-time. Depending on your pay schedule, you may pay all your monthly bills on the same day as the prior month's income or stagger your due dates to give yourself some breathing room. An emergency fund can also be helpful for smoothing the variable income many individuals encounter in the gig economy. And remember, as an independent contractor, taxes must be a part of your monthly budget to avoid problems with the IRS.
The gig economy is a rapidly evolving trend that is transforming the way people think about work. While it has created new opportunities for individuals seeking flexible work arrangements, it has also raised important questions about job security and benefits. After all, who's to say which workers are living the entrepreneurial dream and which workers are just people with a job that doesn't offer benefits? Whether a gig job lifestyle is a choice or a trap depends on each person's financial goals and risk tolerance.
Starting a gig economy business with unrealistic expectations of your time investment or earning potential can lead to disappointing results. It's important to consider exactly why a gig economy business may be right for you and what you hope to get out of it before getting started. But whether your goal is to test the waters of owning a business or to earn some extra cash, millions have found that the gig economy offers the lifestyle they seek.