The gig economy: Can flexible pay bring the appeal of gig work to traditional employment?

There is a widespread belief that gig workers are just looking for “extra pay” or a way to save for “something special.” However, in a study by Edison Research, for 44% of gig workers, their work in the gig economy is their primary source of income.

The pandemic and the resulting economic shutdown have had an adverse impact on household income. By recognizing this reality, it's easier to understand why gig work looks attractive to so many people in today's world. However, as people pursue other forms of income generation through gig work, they face two key obstacles to earning.

The first is consistency. It can be difficult to string together enough gigs to make a living. While gig platforms advertise an hourly rate, many gig workers are paid by the gig.

There are some gig platforms, such as Amazon Flex, that provide a "shift amount." However, note that this shift amount is fixed, meaning if the worker hits traffic or delays, the clock doesn't stop, their hourly rate just decreases. While this isn't necessarily unique, (truckers, for example, have had to deal with this sort of wage for years), it does make the hourly rate a little misleading.

Consider another example: Grocery delivery workers may need to wait in the parking lots of large retailers in the hope that an order will come through for pick-up. Since this wait time is non-compensable, it dilutes the gig worker's pay. For gig workers, maintaining a steady stream of income means maintaining a steady stream of gigs. Without any type of cross-platform gig aggregator, gig workers must juggle many apps and contracts separately.

The current economic squeeze isn't making gig availability better. Gig workers are already seeing their paycheques shrink and opportunities dry up because gig platforms have been flooded with recently laid off workers. The disconnect between the time spent and the wages being received can also be difficult for workers to track or understand. Some companies use algorithmic pay models that change over time, based on factors not visible to the worker. As a result, their pay for a task can be discounted with little to no explanation, accountability, or recourse.

Because machine learning helps gig platform algorithms recognize "best offers" and acceptance ratios, the platforms are able to pit equally qualified and available workers against each other in a fight for the lowest cost. For example, you, internally, decide you won't accept a gig under $15. When a gig comes through for $10, you don’t accept it. If no one else does, it might pop up for you later as a $12 or $15 gig. However, if someone else takes the $10 gig, you lose the opportunity entirely.

The second is the hidden costs. The advertised rate on a gig platform website often does not account for taxes or any of the other associated costs (i.e., car maintenance, tolls, laptop, creative software). As "independent contractors", gig workers must also set aside funds for their own income tax payments (at least 15%), health insurance premiums, and retirements savings. Employers pay wages after the correct amount of at-source deductions have been withheld. Taxes, premiums, and garnishments can decimate a gig worker’s earnings, sometimes unexpectedly. Being considered an employee provides more benefits than the hourly rate.

Although the instant gratification of more frequent payment for gig work may be appealing, it’s important for employers to know that option is not unique to the gig work industry.

Flexible pay technology or on-demand pay is available for traditional employers to offer their employees. With the right payroll partner, employers can maintain their regular pay cycle, and also give their employees the flexibility to take out their earned pay when and where they want to between pay days. There are options available that don’t involve more work for payroll or hidden costs for employees.

Related: Questions about implementing on-demand pay? Here’s what you should know

Side hustles will always have a place, but traditional employers can stay ahead by addressing the problems of pay inadequacy. Employers can demonstrate that, though gigs might provide something extra, the trade-offs may not be worth it.

Read the rest of the gig economy series:

What can traditional employers learn from the gig model to improve their employee experience?

What HR leaders can learn from gig work to create engaging experiences for their people