21 March 2017

What you need to know about the gig economy and your business

Charlie Tee
Partner | UK

The gig economy is a hot topic at the moment. It refers to the working environment in which companies recruit individuals to work for them on a self-employed basis. Instead of being paid a salary, individuals are paid for the ‘gigs’ they do. Think Deliveroo and Uber.

The Guardian reported that the UK’s gig economy has grown by 70% since 2010. It’s a popular model believed to account for at least 15% of the UK workforce and it’s expected to continue to grow as technology develops and demands change.

Why gig?

Flexibility. Individuals set the hours they work and can move around, taking their work with them. Gigs are often a flexible supplement to other income.

Businesses like the gig model because it means not having to pay salaries, offer holiday and sick pay, or maternity and paternity leave, and there’s no requirement to provide pensions or other benefits. It also means companies can avoid being on the receiving end of employment-related claims, such as unfair and wrongful dismissal.

But parliamentary intervention may be on the horizon. The Work and Pensions Committee is conducting an inquiry into the wider implications of the gig economy in terms of the national living wage and the lack of national insurance contributions being collected by the Treasury.

Whats the downside with gigging?

Recently, cases have been brought by gigging individuals claiming they have workers’ rights aligned with those of employees.

A worker is defined as an individual who enters into or works under a contract of employment (an employee) or any other contract to perform work or services in their personal capacity. Workers’ rights can be implied by the reality of the working relationship based on a verbal agreement only – it doesn’t matter if there is nothing in writing.

Where there’s a contract, it’s what actually goes on in practice that’s relevant. If the contract contradicts the reality of the relationship, it can be completely ignored and ends up not being worth the paper it’s written on.

Case in point Uber drivers and CitySprint couriers. Both companies positioned themselves as service providers that act as agent for self-employed individuals to run their own business. Uber claims to be nothing more than a technology platform, providing self-employed drivers with business opportunities and most definitely not a taxi company.

The employment tribunal disagreed. They found that Uber drivers are workers with certain employment rights. As it currently stands (Uber is appealing), this decision means that Uber drivers have the right to receive the national living wage and paid holiday. Not something Uber intended. The ramifications for Uber and other businesses operating in the gig economy are clear.

How can you reduce risk?

This area is likely to evolve as quickly as it emerged. Businesses wanting to reduce the risk should make sure that:

  • Individuals can send someone else to do the work or provide the services in their place;
  • Individuals can set their own hours and are not obliged to commit a certain number of hours each week;
  • Individuals are not expected to work on an exclusive basis, and are permitted to work for other companies;
  • The business does not exercise control over the individual;
  • Contracts reflect the true nature of the relationship.

Category: Blog