Navigating the Gig Economy: Opportunities and Challenges for Business

The digital transformation of the workplace hasn't only changed how we work; it has also changed where we work, how we find talent, and how we build teams. Remote collaboration tools (made possible by advanced technology) and the rise in remote and hybrid workforce models (spurred on by the pandemic) have led to the staggering growth of the gig economy.

Understanding the Gig Economy

Also known as the access economy or sharing economy, the gig economy is an amalgamation of independent contract workers, freelance workers, temporary employees, and individuals completing project-based work and filling part-time positions. As the gig economy grows, business leaders leverage advantages like scalability, cost-effective hiring, and top talent acquisition from a global freelance marketplace. However, leaders must also be mindful of the challenges of working with gig workers to ensure their businesses maintain a successful operating model and solid workplace culture while satisfying labor law compliance.

The Rise of Freelance and Project-Based Work

Whether fueled by a desire for exploration with a digital nomad lifestyle or for the flexibility and opportunities that working from home offers, the gig economy is growing. To illustrate:

In 2021, Pew Research reported that 16% of Americans had participated in the gig economy.
The Upwork Research Institute's 2023 Freelance Forward Survey found that 38% of the workforce in the United States (64 million professionals) performed freelance work in the previous year.
According to data from Business Research Insights, the gig economy held a global market size of $556.7 billion U.S. dollars in 2024, and as the gig economy trends upward, it's estimated to exceed $2 trillion by 2033.

The growing labor market known as the gig economy consists of individuals who earn money by providing goods, labor, or services on demand through contract, freelance, and temporary positions in a wide array of industries. Some of the most popular gig economy sectors include:

Agriculture
Business and professional services
Construction
Creative services
Delivery and courier services
Education
Finance
Handmade goods
Health and wellness
Home services
Hospitality
Personal services
Rental or property sharing
Retail
Ridesharing

Due to the vast availability of gig workers providing skilled and unskilled labor, businesses have the opportunity to tap into a wealth of knowledge, expertise, and potential workforce diversity available with freelance talent acquisition around the world.

Key Differences From Traditional Employment

When hiring independent contractors, it's vital that business leaders understand the difference in employee classification. Gig workers are not traditional employees. Instead of working on a long-term basis with an employment contract, gig workers are temporary. They are often hired to complete specific tasks, to supplement an existing team for ancillary work, or on a project-by-project basis.

Because gig workers are not employees:

They typically do not receive W-2 income with taxes withheld. Instead, their income is most commonly reported for tax purposes on IRS Forms 1099-NEC, 1099-K, or 1099-MISC.
Employers do not pay payroll taxes on the earnings paid to gig workers. In fact, the money paid to independent contractors can often be considered a tax-deductible business expense.
Freelance workers do not typically receive employee benefits like retirement, paid time off, or health insurance.

To determine whether a worker is legally an employee or an independent contractor, businesses should refer to the U.S. Department of Labor's Wages and the Fair Labor Standards Act.

In addition to federal laws concerning independent contractor classification, each state has its own set of rules, and business leaders using gig economy workers should be aware of their state's rules and regulations regarding employee classification.

The most commonly used test for determining whether an individual is an employee or a contractor is the ABC Test, which looks at three conditions:

Condition A - The individual is free from the hiring entity's direction and control.
Condition B - The contractor completes work outside the scope of the hiring entity's core business function.
Condition C - The individual has an independently established business, trade, or occupation — the core function of which is the job they are hired to perform.

Since Condition B can often be difficult to meet, many states offer exemptions for certain industries or only require independent contractors to pass Conditions A and C.

Opportunities for Business

Outsourcing to the gig economy presents countless opportunities that businesses can leverage to their advantage.

Access to a Global Workforce and Talent Pool

Thanks to online collaboration tools and remote team technology, businesses have access to a global workforce through the gig economy. In turn, they can leverage the benefits of a diverse workforce, which provides new perspectives, experiences, and approaches.

For example, a business could hire marketing professionals from a different country to help it expand to a new region with geographically targeted messaging. Or, it could contract with a legal or human resources consultant in a different jurisdiction to ensure compliance across locations.

Along with accessing a diverse workforce, businesses that are not hindered by the location of their workers can access talent from a global talent marketplace. As such, a business headquartered in a small town isn't limited to the workers living down the street; with the gig economy, they can just as easily hire an expert from anywhere in the world. Access to professionals with specialized skills and experience can provide a business with a competitive edge to help fuel success.

Enhanced Flexibility and Business Scalability

The temporary staffing solutions provided by gig workers help businesses stay flexible and readily scalable. When a business doesn't quite require another full-time employee but encounters occasional or seasonal increases in workflow and demand, the business may bring on an independent contractor to help meet the temporarily increased demand. By using freelancers, businesses can pay for the work they need when they need it, rather than increasing their budgetary expenses by another full-time salary.

As a business grows and workflow actually increases, it can look to hire another full-time employee. In this way, gig workers are an invaluable asset to growing and scaling a business.

Cost Savings and Resource Allocation

One of the most noticeable benefits of the gig economy for businesses is the money saved. Independent contractors are usually much less expensive to hire than full-time employees because your business doesn't incur overhead costs associated with hiring in-house workers.

According to the Small Business Administration, the average total cost of an in-house employee ranges from 1.25 to 1.4 times the employee's base salary due to additional expenses such as health insurance, paid time off, and retirement benefits. Plus, business owners must consider the cost of additional office space, equipment, supplies, and software licenses that each in-house employee will need.

Costs saved on personnel increases the business's free cash flow — freeing up money that can be reinvested to grow the business and its profits.

Challenges for Businesses

While the gig economy and independent contracts have numerous potential benefits, making the most of them is not always straightforward.

Managing a Distributed Workforce

Having a team potentially disbursed around the world presents unique challenges. When using remote freelancers (and remote employees), businesses will have members of their workforce located in different time zones. Communication won't be a matter of simply visiting the office across the hallway, and your team members could even potentially speak different native languages. It can also be difficult to keep a globally or even regionally distributed workforce on the same page, so staying in control of your workplace culture can be even more challenging.

Ensuring Quality, Productivity, and Engagement

From time to time, a freelancer might turn into a full-time hire after a successful working relationship. Most often, however, gig workers are temporary by nature — meaning it can be challenging for businesses to maintain their engagement and retain their services in an ongoing manner.

The temporary or unpredictable nature of hiring freelancers can also make it trickier for businesses to ensure consistent quality. Plus, it is not always possible to monitor or maintain a high level of productivity.

Leveraging Technology Tools

The gig economy boomed after remote work began trending upward during the pandemic. As a result, many independent contractors — at least those who do not work in the trades or other hands-on careers — work remotely for businesses. This means that business leaders and key personnel will need to identify and become comfortable using the technology tools needed for facilitating remote working relationships with freelancers.

Strategies for Successful Gig Integration

Creating Effective Onboarding and Collaboration Processes

One of the keys to a successful relationship with a freelancer is having a thorough onboarding process that ultimately supports collaboration. The process should begin with a thorough explanation of the scope of work and expectations regarding the budget, objective, and timeline. The business representative should discuss the company's culture and values, in addition to introducing any relevant employees and providing the freelancer with details about how their relationship and communication with the business will work.

Depending on the nature of the job at hand and whether or not the contractor will work remotely or on-site, the business might also need to prepare a workspace, provide information and access to resources, and organize their training.

During the onboarding process, hiring managers should take time to discuss any legal aspects of the arrangement as well. Provide an agreement or contract and collect a W-9 Form (if needed).

As the work begins, the business should check in with the freelancer and request feedback regarding the process and experience.

Building a Positive Company Culture for Freelancers

Whether working on site or online, freelancers will be most successful when they can integrate into a positive company culture. For businesses tackling virtual team management, it's necessary to take slightly different approaches to cultivating a positive remote workplace culture.

Either way, focusing on aligning employees and contractors with the business's core values while fostering open communication, modeling empathy, and operating transparently will help create a climate of positivity.

Building Confidence in Ethical Decision-Making

Because gig workers are considered independent contractors (not employees), businesses must follow a different set of rules and regulations to ensure compliance with independent contractor laws. It’s ideal to proactively address compliance requirements and adhere to the proper treatment of individuals classified as employees and individuals classified as independent contractors. Businesses should have policies and procedures in place to ensure worker protections and proper documentation. This will demonstrate ethical hiring practices while protecting the business from legal repercussions, fines, penalties, and reputational damage.

Preparing for the Future of Work

Embracing Evolving Workforce Trends

While the gig economy is already growing rapidly, experts predict that the rise of artificial intelligence (AI) and the subsequent increase in the workforce automation of repetitive, manual tasks will further fuel the demand for project-based work and remote staffing solutions. Instead of hiring full-time employees to manage routine, daily tasks, businesses will have a greater need for specialized work from skilled professionals.

As the demand for gig workers grows, so will the need for remote staffing solutions that cater to businesses seeking freelance professionals and independent contractors. While several of these remote staffing platforms already exist, additional agencies will likely arise — specializing in a variety of freelance sectors and business industries and aiming to connect the right professionals with the right opportunities.

Continuous Learning and Skill Development

An ideally organized business could facilitate automated data collection and reporting for detailed performance tracking and business analysis. Using a well-appointed back office, a business leader can identify a variety of key metrics to help evaluate the performance, productivity, cost savings, and success of freelance hires. This data can be used to make adjustments in the business's independent contractor policies and strategies to learn from past performance and, in turn, continuously improve outcomes.

Enter the Business World Ready to Lead a Global Workforce

Today's business leaders are leveraging the skills, knowledge, talents, and expertise of independent contractors in the gig economy. They are also exercising their entrepreneurial spirits by working as independent contractors with their own gig-economy-based businesses.

Whether you aspire to be your own boss or work your way to the C-suite, The DeVoe Division of Business at Indiana Wesleyan University can help prepare you for professional success. Specifically, with a Bachelor of Science in Business Administration, you can acquire the skills, resources, and personal connections needed to rise to the top of the business world.

To learn more about how higher education can help you achieve your professional goals, we welcome you to find the program that will accelerate you toward a brighter future.

Sources

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