How to Utilize the Gig Economy In Business Pursuits | Fora Financial Blog
How to Utilize the Gig Economy In Small Business Pursuits
January 30, 2020

How to Utilize the Gig Economy In Small Business Pursuits

From the work we do to the way we collaborate, the job market is changing. Perhaps the most prominent example of that change is evident in the rise of the contract workforce. When we say “contract workers,” many people will likely think of Lyft, Uber, or food delivery drivers. Yet drivers only make up a fraction of a much larger movement of contract workers.

From drivers and delivery people to highly paid legal, financial, or marketing consultants, contract workers touch many industries.

Rather than fighting this change, entrepreneurs must make it work for themselves. This post will detail how you can do just that.

What Is The “Gig Economy”?

The gig economy refers to a part of the labor market that consists of workers on short-term contracts. Since these workers are independent contractors and not full-time employees, they’re not entitled to benefits. Independent contractors also aren’t entitled to certain protections that employees are.

For these reasons, independent contractors allow many companies to be far more agile and cost-effective. Rather than hiring and training new employees, companies can turn to independent workers to supplement their workforce. This allows them to, for example, try new strategies without making a large, fixed investment.

The gig economy isn’t actually that new. However, what’s new is the huge growth it has made in recent years. From 2005 to 2015, the portion of U.S. workers in the gig economy rose from 10.1 percent to 15.8 percent. That’s a 56 percent increase in ten years and it doesn’t appear to be slowing down.

You can see evidence of this new economy in the many gig economy platforms dedicated to connecting freelancers with job listings. Thanks to gig apps, you can easily hire someone for tasks such as  designing your company logo or data entry.

In some industries, such as transportation, the gig economy has been extremely beneficial. The most obvious examples are the rise of ride-sharing services such as Uber and gig economy apps like Upwork.

Uber, Lyft, and Upwork’s entire business models rely on gig economy jobs. Without them, these companies would either not exist or look entirely different.

As with any transformative force, the gig economy isn’t without its controversy. In the following sections, we’ll identify both the pros and cons of gig work.

The Pros of a Gig Economy

  1. Gig Workers Require Low Minimum Investment

Since gig economy workers are more affordable and less risky to hire, businesses can quickly acquire resources they lack. This makes it easier to try out new strategies without taking a big, expensive risk.

Considering how fast business factors can change, this is a critical advantage.

  1. Independent Contractors Cause Fewer Administrative Headaches

Full-time employees are entitled to numerous benefits, which often requires extra human resources staff. Gig economy workers are far less resource-intensive to manage because they’re responsible for their own insurance and tax withholdings.

  1. Gig Workers Provide Outside Perspective

When you hire an independent consultant, their outside perspective can be very valuable. Unlike an employee who only works with your company, consultants see how other businesses handle similar challenges.

In many scenarios, this outside perspective can be invaluable because it allows you to look at old problems with fresh eyes.

The Cons of a Gig Economy

  1. Contractors Are Less Invested in You

When you hire someone on a short-term contract, they’ll be less invested in your company than a permanent employee. In fact, they’re likely working for several other clients. As a result, they may be less loyal than a traditional employee.

  1. It’s More Difficult to Build a Relationship

Generally, contractors work remotely, which can make establishing a relationship more difficult. This can be resolved if you invest in systems to facilitate communication, but it’s still a disadvantage to consider.

  1. The Legislation of Gig Economy Jobs is Changing

It’s unclear exactly how regulations governing gig workers will change over time. In recent years, gig economy workers have demanded more protections and some governments are responding.

This uncertain regulatory environment makes it risky to rely too much on gig workers to run your business.

How Businesses Can Use The Gig Economy

You’d be hard-pressed to find a business that couldn’t benefit from the gig economy.

Gig workers exist in industries as diverse as healthcare, construction, oil extraction, and transportation. You can hire gig workers to complete deliveries, design websites, or clean up your books, just to name a few examples.

In addition to accessing valuable skills, gig workers also allow you to easily scale up and down. In seasonal industries, this enables you to capitalize on the busy times of year while keeping labor costs down.

To help you tap into these benefits, in the following sections, we’ll outline how you can use the gig economy.

Use Freelance And Free Agent Talent For Cost Savings

Although you might pay a contractor a higher hourly rate than you would a full-time employee, it’s usually less expensive.

Per the Bureau of Labor Statistics, in September 2019:

“Wages and salaries, at $24.38 per hour, accounted for 70.1 percent of [total employee compensation] costs [for employers]. Benefits, at $10.38, made up the remaining 29.9 percent.”

Since contractors don’t get company benefits, paying a contractor the same hourly wage as an employee is actually 29.9 percent cheaper on average. Of course, the lack of required benefits for contractors is only part of what makes hiring them more cost-effective.

Since you can onboard contractors quickly and cost-efficiently, you can hire them for tasks that are less strategically significant. The alternative, without the contractor option, would be to give those tasks to full-time employees.

However, this will give your full-time employees less time to focus on higher-value activities. Of course, the significance of this opportunity cost will depend on the nature of your business and your existing internal resources.

In any case, it’s worth researching areas of your business that could be more cost-effective through a gig economy.

Incentivization To Work On Your Own Schedule

Nearly 40 percent of workers name schedule flexibility as a top-three factor in their job choice. In this way, offering short-term contract work acts as a strong recruiting tool. It opens your company up to high-value workers you may not otherwise have access to.

Not only that, schedule flexibility also tends to improve workers’ work-life balance, morale, and health. All this adds up to a more productive workforce. After all, when workers are healthy and happy, they’re going to be more focused and engaged. In this way, incentivizing your staff to work on their own schedule works in your favor as the employer.

Of course, you may be hesitant about paying remote workers you can’t directly manage.

However, studies have shown that 77 percent of part and full-time workers report being more productive when they work remotely. Plus, the rise of technology tools meant to facilitate remote work has made it far easier than it was before.

So, while there are projects you may need on-site workers, the idea of flexible, remote workers shouldn’t scare you. As long as you generate the results you want, why would it matter when, where, or how your staff works?

Contingent Workers Assist With Seasonality

For any kind of seasonal business, dealing with a rapid influx of customers can be difficult. Yet, if you want to capitalize on the good times to survive hard times, you must allocate your resources effectively.

Otherwise, your customers will have poor experiences and be less likely to return to your business.

This is especially true for companies that rely on short, high-volume seasons like Black Friday, Cyber Monday, and other holidays. Customers don’t get more patient just because you’re busy so keeping a high bar for service is critical.

Contingent workers are most commonly used in the following industries:

  • Retail
  • Restaurants
  • Travel
  • Event planning
  • E-commerce

While you don’t need to make all your workers contingent, having numerous contractors available will make managing seasonality more profitable.

This isn’t just because you’ll have sufficient staffing levels, although that helps. You’ll also get the best of both worlds. Your customers receive great customer service even when it’s busy and you can reduce overhead when things slow down.

In this way, the gig economy can make your seasonal business far more agile and cost-efficient.

Extensive Timing Benefits To Business Owners

In everything from managing cash flow to run marketing campaigns, timing is critical in small business.

Gig economy jobs offer all kinds of timing benefits for business owners.

For example, let’s say you run a marketing agency but can’t afford full-time employees. How are you supposed to complete a project that requires several team members with various skills?

The answer is gig workers. In this scenario, you could chase work yourself and only hire gig workers once you’ve landed a client. That way, you can deliver whatever service you need to and only take on labor costs when you’re generating money.

In this way, gig economy workers — because of the nature of their employment — provide significant cash flow timing benefits.

You could do something similar whether you run a construction, event planning, or delivery business. Similarly, if an unforeseen need arises, you can quickly hire for whatever gap you need filled without slowing the project down.

In addition, the gig economy can provide expertise and resources that would take far longer to acquire through a traditional employee. When speed is critical, this can be a game-changer.

The gig economy enables you to quickly capitalize on new opportunities.

Don’t Fear The Gig Economy

It’s easy to ignore the gig economy out of fear. It’s unfamiliar, scarcely regulated, and new. However, while there is a learning curve with the gig economy, it’s very manageable with the right approach.

Prepare for the unique challenge of managing gig economy workers. Establish communication systems and processes. Then start hiring. As time goes on, you’ll learn for yourself how best to use the gig economy in your small business pursuits.

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Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].