The Gig Economy: 6 Vital Challenges HR Faces

The nature of the workforce is changing globally, with the rise of the gig economy. 16.4% of the American workforce comprises gig workers, with 30% of young adults aged 18-29 making up the demographic. 

Gig workers differ from full-time employees since they typically work via short-term contracts with non-traditional employer-employee arrangements. This presents a new challenge for HR teams regarding talent acquisition, company culture, redefinition of job roles, and performance management.

More importantly, HR teams need to rethink compliance since the laws regulating gig workers differ in many ways from those for conventional employees.

Here’s what you need to know about the gig economy and how your HR team can ensure smooth organizational transition and compliance. 

What is the Gig Economy?

The gig economy is a labor market that relies on part-time or temporary positions filled by independent contractors, project-based workers, freelancers, part-time workers, and temporary hires instead of full-time employees. These workers are referred to as gig workers.

The gig economy applies to almost every industry. Organizations hire gig workers based on a formal agreement stipulating the services they’ll render to the organization and the compensation without formally being on the payroll. 

Gig workers are flexible and fluid, often moving from one job to another at their discretion. For HR teams, the gig economy gives them the flexibility to source talent when needed. 

This fluidity and flexibility bear several advantages along with a number of challenges.

The Benefits of the Gig Economy

The following are the upsides of the gig economy.

  • Better work-life balance: This is perhaps the biggest draw towards the gig economy. Unlike traditional full-time employees, gig workers can choose when and where they work and how much they want to work.
  • Cost savings: For HR teams and organizations, having gig workers removes the mandate to pay payroll taxes and benefits associated with hiring full-time employees. Moreover, the organization is not obliged to pay for work beyond the agreed scope. Payments to the contractor end when the work ends.
  • Freedom of choice: Gig workers have more freedom to choose what work they want to engage in. This contributes to stress reduction, resulting in more productivity.
  • Specialization: The gig economy allows HR teams to source experts for a one-off project compared to having an employee on full payroll all-year round. 

The Most Prevalent HR Challenges in the Gig Economy

The gig economy has equally brought-forth tough challenges for HR teams to handle within the scope of talent management and compliance. Here are the most prevalent ones.

Talent Acquisition

HR teams need new talent acquisition processes and techniques to recruit and retain gig workers. This involves building a powerful employer brand appealing to gig workers to foster demand for roles and loyalty.

HR teams should focus on improving job descriptions for gig workers and using the internet and social media to attract the best talent in the gig economy. 

Redefinition of Job Roles

Project-based, short-term projects are more attractive to gig workers than role-focused opportunities. Therefore, organizations must restructure their job designs to ensure gig workers are more attracted to existing or new roles.

For instance, the job description for an independent contractor should typically include details such as the gig worker can hire and control their assistants to help with the project, is free to work for other parties during the contract, and reserves the right to set their working hours.

This is significantly different from how an employer-employee relationship would be defined. 

Some gig workers may not fill an entire role due to their specializations. Therefore, HR teams can consider role sharing to ensure gig workers complete the project quickly and efficiently.

Background Verification and Onboarding

HR teams need a streamlined and restructured onboarding process for gig workers, with clear expectations and support to ensure they succeed in their roles. More importantly, they need to implement effective background verification processes to ensure they’re hiring low-risk talent.

Gig workers pose an equal or higher risk than full-time on-premise employees. That’s because they can expose parts of their employment history that they think are relevant and needed for the interview, disregarding other glaring bits. 

This brings a need for verified digital credentials for gig workers and organizations to help accurately assess a gig worker’s history and make appropriate hiring decisions. These credentials should take in more than the education or experience of the gig worker, using technologies such as blockchain to ensure the background and history cannot be changed or manipulated to give false impressions. 

Performance Management

Creating performance management systems is a top priority for most HR teams. With the rise of the gig economy, there’s a need for an updated system fit for the requirements of gig workers. 

Unlike an employer-employee relationship where you can use project-based performance metrics, incentives, and coaching, performance management for independent contractors typically only stretches as far as periodically reviewing the contract and scope of work to ensure the gig worker is working as per the agreement. 

Company Culture

For a company transitioning into gig employment, full-time employees and gig workers will work side by side, with full-time employees interacting with the gig workforce to perform various tasks. 

For such cases, gig workers should ideally be vetted for culture fit to ensure a smooth working relationship with other colleagues and a smooth transition to the gig economy for the company. 

Revision of Labor Policies

Traditionally, labor laws and HR policies have only covered full-time workers. With more companies sourcing talent from the gig economy, the legislation surrounding gig workers and the gig economy is rapidly evolving to cover potential gaps that may disenfranchise the gig worker or organization.

For instance, gig workers are typically not protected by law regarding compensation and benefits, such as different forms of leave and pay equity, along with anti-discrimination laws, making them more vulnerable than full-time employees. 

There’s a continuing joint effort between HR teams and legislation to bridge this gap. For legislation, the IRS has enforced tighter rules on contractor status and their definition for tax purposes.

These laws are typically affected by where your company operates and where the independent contractor performs their job since they vary significantly from state to state and internationally.

Therefore, compliance is a rising challenge that must be closely monitored and addressed. 

Let A Professional Guide Your Adaptation to the Gig Economy

The gig economy is expected to contribute significantly to the global workforce in recent years. Compliance becomes the most significant challenge as HR teams tap into this new resource. Contact VirgilHR and learn what your HR team needs to consider.