What to consider before entering the gig economy
The "gig economy" is an emerging class of temporary and flexible jobs as businesses increasingly hire independent contractors and freelancers instead of full-time employees. If you jump online any day of the week you'll see job ads for Uber drivers, freelance writing, and contract design work. For some, the gig economy is an ‘in-between’ where they work a gig outside their regular employment hours, while for others, it’s a full-time job. But how lucrative is the gig economy and how do you know it’s right for you?
Below are four things to consider before jumping into the gig economy:
While money can be easily made, the jobs that compose the gig economy often require little skill - meaning that while it’s easy to get into, it’s not very highly paid to begin with. Gigs are often contracted work – so you need to pay all your taxes, any running costs, and any expenses associated with having the gig in the first place, before you pay yourself.
This can result in very little making it into your pocket. An article posted by the NZ Herald stated that the reality for most Uber drivers in Australia was that to net AU$800 per week, drivers would need to pull in around AU$1500 before their taxes and costs. This could mean working up to 70 hours a week – regular employment can net the same amounts in around half the time.
Being a contractor to any business means you don’t have the same employment rights and entitlements as an employee with an employment agreement. With a gig, there are no leave provisions – if you’re sick, you don’t get paid. If you want to take a holiday, you don’t paid. On top of this, there is very little employment protection (if any) and you miss out on other benefits such as KiwiSaver employer contributions. This means that while the gig economy may only be something you’re looking at short-term, it could still have an effect long-term.
One of the main benefits of a regular job is that the pay cheque is regular, and so is the amount. With the gig economy, your pay cheque could be random, the amount can vary, and your income is never really certain. This may not be an issue if outgoing living expenses are low and there are no debt commitments – but no matter how much you earn with a gig, the uncertainty and the variability of your income can mean that if you want to apply for a credit card, finance a vehicle, or even buy a home, a lender will put you through the wringer before they lend to you. A variable income makes a customer at high risk of defaulting. If you do manage to gain a line of credit, you may find your interest rate is slightly higher than that of a salaried employee, purely because you are higher risk.
When you’re in regular employment, it’s easy to forget that the on-the-job training is ongoing – and often leads to career progression. In the gig economy, there is very little up-skilling, and as such, very little career progression. While being a contractor may make you feel like you’re self-employed, you own the job – not the business. There is often nowhere for you to move up from that role, and you almost immediately limit your opportunities and your income by being in the gig economy. If an individual is looking at a gig economy to supplement their current income, they may actually be best to focus on their primary source of income in order to get ahead. This may require further training and some longer hours, but the progression that follows will propel them further than taking on a gig would.
The bottom line
The gig economy is not for everyone. It can give the freedom to work your own hours, but it often comes with uncertainty and being overworked for your level of income. It’s important to plan ahead before taking on gig work, and you need to ascertain whether you and your future plans can weather the variability that it comes with.