In Part one of this post I explored the history of the gig, and the effects of Covid-19, Now let’s dig into the benefits of the gig economy.
The world looks pretty uncertain right now. COVID-19 is still with us. We’ve lost track of the virus variants circulating and the lineages from which they came. To complicate matters, we’re experiencing inflation that’s the highest it’s been in 40 years.
At the time of this writing, the Federal Reserve has just raised interest rates for the sixth time this year (2022) to tame the runaway inflation. Each time the Fed raises interest rates, they attempt to slow down the economy. The hope is that they can stick to a “soft landing” that will lower inflation without putting the economy into a recession. However, many companies are actively preparing for the worst.
It seems like every other headline I’ve seen recently tells of new layoffs. Here’s a quick rundown of some of the most recent casualties:
- Amazon plans to lay off about 10,000 employees.
- Apple instituted a hiring freeze in all departments except research and development.
- Google could lay off as many as 6 percent or approximately 10,000 employees with the aid of a new “performance improvement plan.”
- Lyft says it will lay off nearly 700 people, 13 percent of its workforce.
- Meta laid off 11,000 employees, 13 percent of its workforce.
- Microsoft announced layoffs that would affect an estimated 1,000 workers.
- Salesforce announced layoffs that would affect somewhere under 1000 workers.
- Stripe will lay off 14 percent of its workforce.
- Twitter, under the direction of its new owner Elon Musk, cut 3,700 employees, about 50 percent of its workforce.
According to TrueUp’s tech layoff tracker, there have been 1,138 rounds of layoffs affecting 182,605 tech workers globally in 2022. But tech is far from the only industry prepping for a potential recession with preemptive staffing reductions. A long list recently published by Mondo shows that many different types of companies are also downsizing, including:
- Bird laid off 406 employees, accounting for 23 percent of its workforce.
- Cameo has laid off 87 percent of its workforce.
- DocuSign plans to cut 9 percent of its staff as part of a major restructuring of the company.
- MasterClass cut 20 percent of its 600-person staff.
- Peloton laid off 500 employees in its fourth round of cuts this year.
- Robinhood laid off 23 percent of its workforce.
- Zillow laid off 300 employees.
While layoffs may be an effective way to reduce costs, this blunt tool often creates an entirely new set of challenges. When a company cuts its workforce, it essentially restructures. Organizations will often find that they have unique and different functions that are necessary for the organization to operate. They may also find that they only need workers for a short time to fill the gaps created by the restructuring. This is where the gig economy can be leveraged.
Hiring a gig worker such as a freelancer or an independent consultant, can be a good way to quickly fill new roles or temporary positions with little to no onboarding, offboarding, or training. These skilled workers can help to keep businesses functioning in the short or long term, while still cutting down on the overall costs and overhead associated with full-time employees. Hiring gig workers can account for the uncertainty of what might lie ahead.
The COVID-19 pandemic showed us how this might look for businesses. For example, some large organizations brought in infectious disease specialists to come in and evaluate facilities to make sure their workforce was protected. Some low-tech companies had to bring in IT professionals to integrate work-from-home options. And if you owned a brick-and-mortar retail store, you may have had to bring in an eCommerce expert in pivoting to online sales.
Leveraging the gig economy allows an organization to be forward-thinking by giving business leaders and hiring managers access to the best and the brightest workers who possess the exact skills that you might need at any given time. Tapping into the gig economy gives you a virtually limitless pool of skilled workers, even if you don’t know you need them yet.
If you’re new to hiring gig workers, platforms like Upwork, Fiverr or Freelancer.com can be good starting points. These platforms can help you find and hire gig workers in any industry and can help you fill gaps in your company’s workforce that have resulted from restructuring due to layoffs. After all, if you lay off workers and it causes the gears of your business to grind to a halt, you risk losing more money than you save.
And speaking of cost savings, you might be wondering exactly how much money you could save if you hired contractors as opposed to full-time staff. According to the most recent numbers from the Bureau of Labor Statistics, in June of 2022, the average cost for civilian employees in the U.S. was $41.03 per hour. The average wage and salary cost was figured to be $28.31, which accounted for 69 percent of the total cost. Benefit costs were $12.72, which accounted for 31 percent.
Total compensation for private industry workers was $38.91 per hour, with wage and salary costs accounting for 70.5 percent at $27.44. Benefit costs were calculated at $11.47 per worker per hour, which accounted for the remaining 29.5 percent.
State and local government employers paid their employees an average of $55.47 an hour. Of that number, wages and salaries averaged $34.23 per hour accounting for 61.7 percent of total compensation, while benefit costs average $21.25 per hour accounting for 38.3 percent of the total employer costs. (See Chart 1. below.)
The Bureau of Labor Statistics then broke down these total benefits into five main benefit categories to show the percent of total compensation that each category of benefit costs. (See Chart 2. Below.)
The five main types of benefits in the study are:
- Paid Leave
- Supplemental Pay
- Retirement and Savings
- Legally Required Benefits
Images sourced from U.S. Department of Labor Bureau of Labor Statistics News Release Tuesday, September 20, 2022.
In addition to the percentages of total compensation that these benefits represent, the Bureau of Labor Statistics drilled down even further to assign an exact dollar amount spent on each of the five main categories of benefits in their three categories of worker – civilian workers, private industry workers, and state and local government workers.
|Private Industry Workers||State and Local Government Workers|
|Legally Required Benefits
Data sourced from U.S. Department of Labor Bureau of Labor Statistics News Release Tuesday, September 20, 2022.
The numbers speak for themselves. There are significant cost savings in terms of benefits when you hire contractors instead of full-time staff. It is important to note that the IRS has strict rules about whether an employer can classify a worker as an employee or an independent contractor. You can find those rules on the IRS’s website here. Certain states may also have their own classification rules, so it’s always prudent to make executive staffing decisions with your human resources and legal counsel to ensure compliance.
During the coronavirus pandemic, we have heard a resounding rallying cry for flexibility from employees who demanded to continue working from home. This may be the most significant change that stays with us long after the pandemic has ended. Flexibility is at the top of every employee’s wish list because they have proved that they don’t need to be in an office full-time. They have worked from home and appreciate the extra time they’ve had to spend with their families and pets and the increased autonomy working from home affords.
Because employees prefer flexible work models and options, more and more are transitioning out of traditional employer/employee roles and into independent contractor roles. Since most contractor roles don’t pay benefits, this is a significant trade-off for the worker, but it is one that many gladly take. According to a Future Forum Pulse Survey, remote workers during the pandemic have reported that they felt two times better about their work-life balance and 2.4 times better about their work-related stress. This is especially true for working mothers, people of color, and other marginalized groups.
This desire for flexibility means that more workers are entering the gig economy than ever before, and there is reason to believe that these independent workers are happier and more productive. Gig workers only get paid for what they work. There is no standing around the water cooler gossiping or suffering through endless meetings when you’re an independent contractor. You work until the job is done rather than putting in a mandatory eight hours daily. Research from Stanford suggests that longer hours reduce productivity to a point where it could even become less than zero percent.
Not only does the gig economy give workers flexibility, but it also gives employers a great deal of flexibility. As we learned with COVID-19, the faster a business can pivot, the faster it can recover from unexpected shocks and disruptions. As we previously discussed, business leaders need to optimize flexibility, efficiency, and profitability to truly future-proof their organizations. Flexible systems can enable an organization to be nimble and restructure quickly.
In the event of another pandemic, a natural disaster, a looming recession, or some other disruption that we haven’t yet imagined, a company employing independent contractors with specialized skills will be able to evaluate the situation, identify their most important and immediate needs, and then move at a more incredible speed. The lighter and more agile an organization is, the faster and easier it can move in any direction. If there’s a light at the end of the tunnel, the pandemic taught us these lessons and took topics like flexibility out of a theoretical context and into a very realistic one.
Are You Ready?
According to current estimates, the gig economy in the U.S. is expected to have a Compound Annual Growth Rate (CAGR) of 17.4 percent with an estimated worth of at least $455 billion in 2023. In addition, Statista projects that 85.6 million people will be doing some gig work by 2027. Are you ready to leverage the talent of those 85.6 million workers for your organization?
Independent consultants and small consulting firms like Mythos Group can help your business embrace the coming economic changes. We can be essential in bracing your business for layoffs, recessions, reorganizations, and leadership losses. We can fill knowledge gaps in leadership roles and serve as trusted partners for increasing profitability and efficiency through strategic transformation and organization redesign.
In the interim, let’s continue the conversation about the gig economy. Are you or anyone you know benefitting?
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- Are You Benefitting From The Gig Economy? – Part 2 - January 6, 2023