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The gig economy: cost-​cutter or business risk?

Whether you applaud the so-​called “Uberfication” of the workplace or see it is a cynical platform for exploitation, now is a risky time for employers to use a “gig economy” workforce.

Employers who insist their casual contractors are not employees – and therefore shouldn’t be guaranteed the minimum wage or holiday pay – have repeatedly lost in the courts, with firms including Addison Lee, Hermes, Pimlico Plumbers and Uber itself trying to get judgments overturned. The risk is that when the appeals process is exhausted, firms that have shifted to gig economy workforces will face large historical payouts after being found to have underpaid staff.

The clear analogy is the big payouts made to female workers five to ten years ago after their employers were found to have operated discriminatory pay policies. Perhaps largest hit was Birmingham City Council, whose payouts covering decades of ill treatment topped £1 billion, according to local media. (Gig employment is a relatively new phenomenon, however, so any payouts should be less extreme.)

Adopting a “wait and see” attitude before hiring gig employees will lessen your exposure to risk, says Andrew Brookes, head of employer solutions at the accountancy firm Menzies.

“Many clients are worried about the ramifications of recent rulings against firms such as Pimlico Plumbers and Deliveroo, which have been prevented from reclassifying genuine workers as self-​employed in a bid to shift the burden of risk entirely to their shoulders,” he said. “I would argue that with skills shortages in key areas only likely to be exacerbated by Brexit, firms should already be identifying the capabilities they need and hiring in the relevant talent, arguably on a strictly permanent basis.”

With the government set to change the law relating to casual staff to potentially enhance their rights and benefits, it makes sound commercial sense to keep abreast of forthcoming alterations to tax and employment rights status. However, there is no need to entirely avoid freelance and contract staff. Although much negative publicity has focused on the impact of forced self-​employment on predominantly low-​skilled, low-​paid workers, the gig economy also encompasses some smart people your business can’t afford to be without, even if there are potential risks on the horizon.

Start-​up businesses, for example, may rely heavily on casual labour, much of it in hard-​to-​skill areas such as technology, as Jamie Kerr, lead on entrepreneurship and tech policy at the Institute of Directors, points out.

“Skilled self-​employed workers are a very valuable resource for everyone from the NHS and the public sector generally to charities and to new entrepreneurs and clients rely heavily on them to help deliver both vision and revenue,” Mr Kerr says. “If the result of the current government review of employment status is a stifling of access to high-​value, high-​wage freelancers for the UK business community as a whole, we will all be that much worse off.”

With gig workers now accounting for around 15 per cent of the working population, there is no doubt that the clamour for more flexible employment comes from both sides of the industrial divide. And while cynical attempts to use gig working to evade employment rights triggered the current storm, the legitimate use of genuine contractors, who have freely opted for less protection along with greater autonomy, remains less of a business risk.

“As things currently stand, by hiring somebody purely for a specific project and making sure you have a properly constructed contract, you can mitigate any risk of a future challenge regarding employment rights or individual tax status,” says Mr Brookes. “If, however, you attempt to recast a genuine worker, who comes in every day and takes orders directly from you, as self-​employed, then the risk to your business is very great, particularly given the government’s current stance on employers who dodge minimum wages, holiday and sick pay, for example.”

Regardless of the undoubted skills and talents of the country’s army of well-​paid freelancers and independent consultants, many employers prefer to keep their skills in-​house. Building loyalty, a robust corporate culture and establishing lifelong learning is inevitably easier among permanent staff than it is among casual workers. Without legal clarification, any attempt by employers to bridge the gap would be unwise.

Many employment lawyers believe we are already witnessing a gradual move towards better legal protection for anyone who sells their labour. If the labour market tightens as a result of post-​Brexit immigration restrictions, the negotiating balance is likely to tip further away from employers.

If, as Mr Brookes suggests, the complex issues around who qualifies for employment rights – and precisely which ones should be on the table – “is keeping SME business leaders awake at night,” the current insomnia may be set to continue.