Skip to main content

It might come as a surprise that it is, in fact, the senior executives that drive the gig economy and not the self-employed. For 79% of company executives, leveraging the freelancing economy offers a competitive advantage. The respite from providing insurance, compensation plans, and training costs are among the few benefits that companies can earn from employing temporary gig workers. 

Common Mistakes Employers Make

As enticing as the advantages are, companies cannot rampage onto embracing the gig economy without being cautious. It is imperative that in this rapidly evolving industry, companies are up to date with context as well as the demands. Companies have to stay responsible and one way to do so is to avoid these mistakes. 

1. Undervaluing the Gig Economy

The gig economy has doubled in size in the last couple of years. According to a Gallup study, over 36% of US workers are involved in a gig business arrangement in some capacity. For the foreseeable future, with the demand for remote working only increasing, companies should be taking advantage of the freelancing possibilities. 

Several digital platforms are serving as online marketplaces to connect employers to freelancers, offering a myriad of diverse and expert skill sets. While signing up for new employees, it is easy to lose sight of your legal obligations as a business. It is in your best interest to look into the appropriate work terms and contracts. Industry experts such as Prospero can help companies through the process of hiring independent workers, to ensure that the agreements are set in the right tone. 

2. Incorrectly Classifying Gig Economy Workers 

The distinction between an independent contractor and an employee differs from one jurisdiction to another based on federal statutes and agencies. Misclassifying an employee could result in overtime wages, IRS penalties, income tax liability, or other consequent actions. 

An "Independent Contractor Agreement" is not always decisive in the classification of a worker as an independent contractor or an employee. In order to offer clarity, the Department of Labor has released the "Economic Realities Test" that helps you determine the employment relationship between the company and the worker. 

Scroll to Continue

Recommended Articles

The National Labor Relations Board has also published an advice memo, Uber Technologies, Inc., with a list of factors that would classify independent contractors explicitly after considering all the common law factors. The emphasis of these laws is on the extent of economic dependability of an individual on a company. 

3. Incorrectly Classifying Self-Employed Under California Wage and Hour Law

Companies in California have an additional concern in classifying gig economy workers. As per the Dynamex v. Superior Court of Los Angeles supreme court decision, a three-part "ABC" test is recommended to determine if a worker should be categorized as an independent contractor. Conflict with this Californian law could result in expensive penalties if a company misclassifies a contractor, and the employer would have to provide additional legal entitlements. 

The misclassified employees are often denied benefits and protections which they are entitled to by law. These regulations protect freelancers with overtime compensation, paid leave, and a safe operational environment. 

4. Violating Company Insurance Contracts by Including Freelancers 

Employers have to be careful of both what you are offering, as well as what you are not allowed to offer to an independent contractor. By including gig economy workers in your benefit plans, companies might be inadvertently violating the terms of their contracts. 

A majority of the company-sponsored schemes are limited to the direct employees. Temporary contractors and freelancers are generally not included in such programs unless specified. This would result in a dispute between the insurer and the company, leading to the refusal in coverage. 

While the legal parameters are the most significant, companies should also be prudent in their working relationships with the self-employed. Inconsistent approaches and unclear goals might make it difficult to merit from hiring a freelancer. When done right, there is plenty to gain for both the employers and the workers. 

Sponsored