Modern Day Freelance: Exploring the Dynamics of the Gig Economy

People have been offering services on an as-needed basis for a long time.

You might not consider an actor, a handyman, a freelance journalist, a music teacher, or a babysitter a gig worker. But pay-as-you-go services and one-off jobs have existed long before companies like DoorDash or platforms like Upwork existed.

With the growth of online hiring platforms and companies building their businesses with a workforce consisting primarily of independent contractors, many self-employed people find work through online platforms and gig economy companies. Joining the gig economy can get you a steady supply of work. You also remain an independent worker, and you can set your schedule.

Gig Economy Basics

The gig economy (also called the sharing economy, on-demand economy, peer-to-peer economy, digital platform economy, access economy, freelance economy, and other names) consists of self-employed people selling their services to the public using various online platforms. A business owner or other person might use these platforms to find project-based workers or post a gig for short-term help.

Gig workers contract with the hiring platform to offer their services to its users. The customer pays the worker through the platform. The platform charges a fee as the middleman.

Gig Economy Jobs and Services

Gig workers provide many different services, usually on a temporary or one-time basis. For example, a gig worker might design a logo or pick up and deliver a client’s groceries. The services gig workers might provide include:

  • Business services such as bookkeeping, social media management, and copywriting through Upwork or Freelancer
  • Design work for the web or print through Behance or 99designs
  • Coding or app creation through TopTal or PeoplePerHour
  • Temporary lodging and vacation rentals through Airbnb or VRBO
  • Restaurant meal or grocery delivery service through food delivery apps like DoorDash or Instacart
  • Transportation through ride-hailing apps like Uber and Lyft
  • Household help like cleaning, moving, and furniture assembly through TaskRabbit or Handy

As you can see, there are several ways a person can add a second source of income or replace their current income via the gig economy. If you have in-demand skills or need an alternative work arrangement for personal reasons, you could make supplemental income or make the gig economy your primary source of income.

How the Gig Economy Works for Gig Workers

Working through an online hiring platform starts with signing up for an account. You’ll have to agree to the terms and conditions, which creates a binding contract between you and the digital marketplace. You should read the agreement before accepting, as you cannot change or negotiate the terms before you start working.

Status of gig economy workers

Gig workers are classified as independent contractors for tax and other purposes. They are not employees of the hiring platform or clients they engage with through the platform. That means gig workers are not entitled to traditional employee benefits, like health insurance coverage, paid vacation time, or unemployment benefits.

Fees

Gig economy companies make money by charging gig workers a fee for obtaining work through their platform. Some platforms also charge clients transaction fees or a fee for posting a job.

The fee is usually a percentage of earnings for gig workers, but a digital platform might charge a flat fee or a combination of the two. There can also be a monthly or annual membership fee.

The fees that gig marketplaces charge can be steep. For example, Fiverr takes a 20% commission, whether your gig costs $5 or $100. Upwork charges 20% for the first $500 billed to clients, 10% for billings between $500 and $10,000, then 5% for total billings over $10,000.

Setting your price

Some gig economy platforms, like Upwork, allow you to set your hourly rate or a flat fee. On other platforms, like Instacart or Uber, the company sets the fee and gives you your cut. The market sets the price on platforms where you bid on gigs, sometimes creating a race to the bottom.

Receiving payment

When you accept a job through a hiring platform, freelance website, or app, the client pays via the platform instead of paying you directly. The platform pays you after it takes its fee.

With longer project-based work, clients might need to put money into an escrow account. The money is then released in increments as you hit certain milestones and the client approves the work.

One of the most frustrating aspects of working for yourself in the freelancer economy is chasing down clients for money. Demanding clients might also try changing or arguing the terms after completing the work.

Working through gig marketplaces helps you avoid payment issues and disputes. As part of the terms and conditions, the independent worker and the client will likely be required to settle any disputes through the platform’s support center. That gives you a level of support you might not have if you’re working alone.

Circumvention

Circumvention means cutting out the middleman by accepting work from a client you acquired through a hiring platform without going through the platform.

For example, someone you did a great job for on Upwork might track you down through LinkedIn or one of your social profiles. They might offer you direct payment for more work. By circumventing Upwork, neither you nor the client would be subject to fees.

While that might sound like a win-win situation for you and your client, it’s against the terms you agreed to when you signed up for the platform. Most platforms have a non-circumvention clause preventing you from working outside the platform for a client you obtained through the platform for 1 to 2 years.

If you do it anyway, you remove the protections platforms provide around getting paid and settling disputes. You might also get permanently banned from the site. Or they might require you to buy your way out of the agreement with a significant fee.

Pros of Gig Work

Full-time employment has its perks, but gig workers enjoy benefits unavailable to most full-time employees. Besides the economic benefits, the pros of working in the gig economy include:

  • Flexible Hours – Traditional work arrangements don’t work for every person. When you work for yourself, you set your hours. You can arrange your work around your life, not the other way around.
  • Location Independence – If you’re a delivery driver for a gig economy app, your options for living anywhere are limited. But if you’re a copywriter, freelance translator, or web designer, you can live anywhere an internet connection is available. Working from anywhere is a big draw for people who want to work remotely or live the digital nomad lifestyle.
  • Workplace Autonomy – Corporate employees have even the most basic decisions made for them. As a gig worker or contractor, no one will tell you where to sit, which tools or equipment to use, or when to take your lunch break.
  • No Toxic Workplace – Full-time workers in corporate settings are too often subject to toxic co-workers and tedious bureaucracy. Putting up with an uncomfortable work environment for a paycheck isn’t necessary. You won’t waste time sitting in dull meetings, filling out forms, or trying to win office politics.
  • You Set the Price – Earning additional income is within your control. You don’t have to wait for an annual raise or for someone blocking your career path to leave so you can get a promotion. You can earn extra income with extra effort or by raising your rates.

Cons of Gig Work

While technology and the gig economy make work more accessible, doing gig work has certain disadvantages. As a gig worker, you’ll have to deal with:

  • Income Fluctuations – There is no steady paycheck when you’re part of the independent workforce. Your income will vary month to month, so saving money, being financially responsible, and making financially sound decisions can’t be overstated. Budgeting and having an emergency fund set aside are essential for gig workers.
  • Quarterly Taxes – When you work for an employer, taxes are automatically removed from your paycheck. Digital platforms, app-based platforms, and clients you work for directly will not deduct taxes from your payments. As part of the gig workforce, you have to pay all your taxes yourself every quarter. Failure to do so can land you in hot water with the IRS.
  • No Work = No Pay – There are no paid holidays, sick days, or vacation time when participating in the freelance economy. If you want to take time off, ensure you can do that without triggering any economic anxieties or putting yourself in a bad financial spot.
  • A Lack of Benefits – A full-time job comes with benefits. Some part-time workers get benefits through their employers as well. Freelance jobs come with no benefits. You’re on your own for handling health insurance, retirement savings, and any assistance you need.
  • Fewer Professional Growth Opportunities – There are sometimes opportunities for advancement, filling in a skills gap, networking, and taking on additional roles in a conventional workplace. You’ll have to find or create opportunities to learn new skills, make new connections, and tackle new responsibilities.
  • Loneliness – You might have heard of the loneliness epidemic. It’s not just confined to older people or caused by the pandemic. Making a living exclusively through the freelancer economy sometimes means relationships between workers and others are few to non-existent. Make a concerted effort to combat social isolation, as loneliness can have dire health consequences.

Participating in the Gig Economy

Digital technologies are constantly transforming the way we find work. Companies find hiring temporary employees or using a primarily freelance workforce cheaper and faster. That means opportunities for non-traditional work and alternative employment arrangements abound.

What was once thought of as the realm of creative people is now open to almost anyone. Millions of people make extra cash or replace their day jobs with gig work. If you’re considering diving in, there are plenty of ways to get started.

If you have in-demand skills, there are plenty of freelance jobs for beginners and experienced pros. If you’re looking to earn extra money with a side hustle or potentially replace your day job income, the gig economy offers opportunities for both.

 

Author: Jerry Graham

Title: Freelance Writer

Expertise: Personal finance, side hustler, and freelance web developer

Bio:

Jerry is a personal finance enthusiast, side hustler, and freelance web developer who began his career in financial services. He co-founded a personal finance and frugal living blog that he recently sold. His insights have appeared on MSN, Newsweek.com, HerCampus.com, Mashed.com, and many others.