It’s being treated as victory — perhaps a mild one, but still a win — for workers in the so-called gig economy: A recent ruling from the California Supreme Court makes it more difficult to classify people as independent contractors instead of employees. The decision comes amid increasing pressure to revise how gig workers are paid, a trend that promises to shape how the companies operating in that world conduct business.
The stakes attached to the gig economy are getting higher. According to the new Gig Economy Index from PYMNTS, for instance, the gig economy has expanded well beyond rideshares and home repairs, well beyond the occasional need for extra cash.
“Nearly 40 percent of the American workforce now makes at least 40 percent of their income via gig work,” the Index found. “What’s more, a growing majority of these workers (75.7 percent) say they would not leave freelance work behind for a full-time job, thanks in large part to the perks of gig employment, including flexibility, health benefits, supplemental incomes and creative fulfillment.”
That growth brings with it tensions centered around payments, and payments have much to do with workplace classifications. Independent contractors — who make up 8.4 percent of the U.S. workforce, or some 12.5 million workers, according to a study from Harvard and Princeton economists — are not subject to minimum wage, overtime and rest break protections. The classification also affects payroll tax collection, worker compensation and unemployment benefits.
The unanimous ruling from the California court makes it more difficult for employers in that state to classify workers as independent contractors by raising some of the standards to be met before doing so.
"A huge number of businesses will be calling their lawyers saying 'What should I do?'" Michael Chasalow, a professor at the USC Gould School of Law, told the Los Angeles Times.
The California case is not the only significant legal action that will likely have major impacts on the gig economy and how its workers are paid. Handy — an online service enables consumers to hire plumbers, house keepers and similar workers — has lobbied at least eight states to “permanently classify most gig workers as independent contractors,” according to a CNN report Monday (May 14). “All eight bills have passed at least the house or senate in each state and appear likely to be signed into law soon.”
Meanwhile, a case working its way through the federal court system involves questions about whether rideshare firms should reimburse drivers for gas, insurance and vehicle maintenance. No matter what happens with those issues, there exists a clear note of gig worker dissatisfaction over payments — problems that can lead to opportunities for businesses in the gig economy.
A recent survey from Tipalti, an accounting software FinTech business, found that “poor freelancer payments processing has significant implications on their loyalty to an online marketplace.” Tipalti said that nearly 74 percent of respondents to its survey would “leave a marketplace because of payment issues.” The churn is no doubt happening in significant form, as 29 percent of respondents reported instances of not being paid for their gig work, and 27 percent reported instances of late payments.
As self-serving as the Tipalti report might seem, the findings do echo complaints common among gig-economy workers. The report also provides data points about what types of payments those workers prefer. For instance, 49 percent of U.S.-based respondents favored local bank transfer or ACH payments over PayPal, which was favored by 22 percent of respondents. Gig workers in other countries preferred PayPal (34 percent) and global ACH and local bank transfers (27 percent).
Though many workers across all industries would likely enjoy being paid earlier — whatever that might mean in specific jobs — that proportion stands at 81 percent for participants in the gig economy, “with those outside of the United States expressing a willingness to provide a greater discount to their online marketplaces in return for that option,” Tipalti said. “These varied payment choices add work for the marketplace but are imperative to retain partners both domestically and globally.”
The issue of payment in the gig economy continues to gain attention, both legal and otherwise, and is impossible for the industry to ignore. After all, the total collective annual earnings of U.S. gig workers stands at $1.4 trillion, according to the PYMNTS Gig Economy Index, evidence of how powerful this sector has become.
Jackson Elsegood, general manager of Escrow.com, with services that help facilitate gig economy jobs, said, “The gig economy back in 2010 might have been, ‘Design a website, and I’ll mail you a check. Hopefully, I’ll pay. That doesn’t fly anymore, the same way that a taxi doesn’t live up to the standards that Uber has now set. The expectation of the consumer is that I can order a taxi from my phone, and the expectation of a freelancer is they have absolute certainty they will be paid on a certain date, as quickly as possible.”