Hiring Independent Contractors vs. Employees: The Legal and Ethical Dilemma in the “Gig Economy”

Self-employed, independent contractors (IC) have always had a place as a part-time resource for companies, and that appears to be expanding as innovative startups look to contractors to be a core part of their business. Previously, IC work was for short term projects or interim roles as needed, but now that is changing as contractors are now filling roles in place of full-time employees.

Go to the profile of Tim Burgess
Sep 17, 2018
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Self-employed, independent contractors (IC) have always had a place as a part-time resource for companies, and that appears to be expanding as innovative startups look to contractors to be a core part of their business.  Previously, IC work was for short term projects or interim roles as needed, but now that is changing as contractors are now filling roles in place of full-time employees.

There has been a lot of press about the on demand “gig economy” and how more businesses are now relying on independent contractors or freelancers for long term work.  Despite the popularity of the services offered by companies such as Uber, there is growing controversy surrounding employment rights and control of independent contractors, who have little recourse to improve their status or assert any rights within a hiring company.

What is the “Gig” Economy and Why is it Growing?

Although the term “gig” indicates an individual performing short term or temporary services for a variety of clients, many of these new ICs are actually engaged for months or years with a single company, one hallmark of traditional employment.  What is most interesting about these new companies is that they are engaging ICs to provide services that are designed to fill an on-demand ‘time-saving’ niche, that used to rely on one’s personal network.

Now, instead of calling a friend for a ride to the airport, you call Uber; and food or grocery shopping is offered via delivery services and taken care of by third party apps that incur a charge.  People who could never afford a house maid can now hire someone to clean for a few hours, instead of asking a family member to help out.  At first glance, it just seems like a good business idea that has gained popularity in our busy modern life.

Obviously, these companies are a filling a need for convenient, cheaper services in some sectors, but the question is who absorbs the human resources burden in the on-demand labor model?  One common complaint is that the ICs doing the actual work are taking on a great deal of traditional business risk, as companies shift away from the expense of full-time employment of staff.  This emerging business strategy sidesteps the need to hire formal employees, while retaining a ready and available team of self-employed workers.

Why Do Companies Like Uber and Deliveroo Rely on Independent Contractors?

The short answer to this question is cost savings.  It can be up to 40% cheaper to use an IC to perform the same work as a full-time employee, since no benefits are offered and no employer tax payments are required.  Employment-related expenses such as health insurance, pension contributions and employment taxes are all shouldered by the IC, since they are technically self-employed business people.

Contractors Take on the Risk of On Demand Services

ICs also take on the risk of market and seasonal fluctuations for services, and if no work is available they don’t get paid.  The company has no obligation or commitment to these contractors, and can allow simple supply and demand to create the optimal available labor pool.  Likewise, compensation and commissions can be altered at any time by the company, and the IC must take it or leave it, with no labor union or government entity to advocate for their position.

Companies that use ICs to fulfil services to customers claim that this arrangement also benefits the contractor by giving them the flexibility, schedule and compensation that they choose.  In some cases that may be true, but this supposed advantage gets blurred when ICs are actively managed in their work performance, and the company attempts to exercise some control over them.  Control is a primarily element in the legal definition of an employee-employer relationship in most countries, and is now at the center of resolving the employee vs. IC dilemma.

Impact on the Workers: What are Their Expectations?

All of this does bring up the fact of an individual’s responsibility for their own original choice to be self-employed.  Perhaps they were attracted by allure of setting their own hours and not going through an arduous job search and interview process.  They just signed up and started working, maybe without thinking about the implications of their new role...read more

Shield GEO makes international employment simple. Our customers use Shield GEO to employ and payroll hundreds of workers in over fifty countries. Find out more.


Go to the profile of Tim Burgess

Tim Burgess

Director, Shield GEO Services Ltd

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