Gen Xers and Millennials are changing the way America works. Once, the typical American worker worked at one or two jobs throughout his entire working life, retiring after twenty-five, thirty, or more years of service with a gold watch and a pension. The Bureau of Labor Statistics reports that Millennials, by contrast, may hold 12-15 jobs in their lifetimes. Many are giving up the idea of working a steady job altogether, opting instead for the freedom of freelancing. The traditional job isn’t about to disappear any time soon, though. In 2017, 10 percent of American workers made their livings in non-traditional ways, such as driving for Uber, delivering for Amazon.com, and working with temporary employment agencies, a slight increase over the last ten years. Many others have started their own businesses – a graduate with a degree in marketing, for example, may decide to start his own online marketing agency instead of working full time for someone else. Even lawyers and other professionals are working as freelancers.
What are the benefits and drawbacks of the gig economy? For employers, hiring independent contractors saves money on worker’s compensation insurance, payroll taxes, and benefits. Opening projects for bidding by multiple contractors can result in savings also. The downside? An independent contractor can quit any time if a better gig presents itself, leaving you scrambling for someone to cover. Of course, a contractor who fails to complete his projects will eventually get a reputation for being unreliable, and may end up out of business. Employers also have less supervisory control over independent contractors, and need to do their homework before hiring someone for an important project, only to discover later that the contractor’s work is not up to par.
For a worker, the primary benefit of the gig economy is freedom. If you don’t want to work today, you don’t have to. If you want to work for a few months, save up some money, and travel for a while, you have that option. There are some drawbacks – as an independent contractor, you are on your own if you are injured in a car accident on the way to pick up your Uber passenger. If you get carpal tunnel syndrome from spending too much time typing, or experience any other job-related injury, there is no worker’s compensation insurance to pay you while you are out of work, unless you purchase your own policy. You do not have an employer to withhold taxes from your weekly paycheck, but you are still responsible for paying into the Social Security system in the form of self-employment tax.
Other long-term consequences of the gig economy have yet to play out. Fewer traditional workers mean less money going into Social Security. Independent contractor income is often underreported. Many Millennials have little faith in Social Security anyway, and express concern about the system’s solvency when they reach retirement age. When you are self employed, though, it takes a lot of willpower to set aside money for taxes and retirement. Things may look bleak at age 65 if you do not plan ahead.
Looking to jump into gig-based work? Do some research. Acquaint yourself with the tax laws that might affect you, look into retirement plan options, consult an attorney. You may find that traditional employment is a better fit for you after all. If not, welcome to the gig economy, and good luck!