The rise of the so-called ‘gig’ or ‘on-demand’ economy,’ has been a significant feature of the 21st century workplace, transforming as it has not only the way some 25% of us now work according to research by management consultants McKinsey, but also dramatically making the lives of consumers quicker, easier and simpler. A few clicks on our smart phones, and the taxi, pizza or supermarket delivery arrives at our door, sometimes in minutes, as an army of independent workers leap to our attention. Some estimates say that globally, the gig economy will be worth $455.2 billion by 2023.
According to a 2018 report by NatCen Social Research for the Department for Business, Energy and Industrial Strategy and Skills, 4.4% of the UK population – around 2.8 million people – had worked in the gig economy within the past 12 months, most of them (56%) being aged 18-34, and 74% of them were happy with their working experience. This tallies with McKinsey report, which found 70% of workers in the gig economy choose to be free agents, embracing the work-life balance and variety it offers; they drive that uber when they want to, by choice. 30% on the other hand, do so because they have no alternative. Financially strapped for cash, it’s the only work they can get. What they all have in common is that, until very recently, they were unquestionably workers who were not employees. But that may not last for much longer.
The traditional operating model of the gig economy has a target on its back. As a clear disrupter to legacy businesses, it has attracted considerable criticism, and the regulators are swooping in. While the digital platforms supporting the gig economy claim they are not traditional companies with employees, only providing flexible work for the self-employed, regulators argue that workers face exploitation by being poorly paid and missing out on basic employment rights.
The EU is planning to reclassify some 4.1 million people working for food delivery firms such as Deliveroo and Delivery Hero across the bloc as employees, in a move which could cost the sector up to €4.5m per year more, according to Bloomberg. The fact the European Commission’s own report into the issue suggested potential job losses were ‘incalculable’ and that the rule changes may ‘negatively affect’ workers’ flexibility, word is they will push ahead to ensure any worker whose job is controlled by a digital platform can presume they are an employee regardless of what they are called in their contract. The onus will be on the digital platforms to prove the worker isn’t an employee. If their operations require two out of five key criteria – determining pay for workers, setting appearance and conduct standards, supervising the quality of work, restricting the ability to accept or refuse tasks, or limiting the ability to build a client base – then there will be no exemptions given.
Uber has been one of the main targets for reform. The ride hailing app has been dragged through the courts in numerous countries worldwide, criticised for imposing unfair terms and conditions in contracts which would normally only apply to employees – such as dictating pay levels, restricting work for other companies, forbidding union membership, not allowing workers to refuse work, and evading legal liabilities to customers – while denying drivers employment rights. Uber has fought hard but has consistently lost in court. Here in the UK, Transport for London withdrew Uber’s license to operate over a number of concerns, and Uber only won it back after a protracted court battle. However, the firm was forced during the process to make a number of changes to working practices, including guaranteeing its drivers a minimum wage, holiday pay and pensions. The Supreme Court has subsequently ruled that Uber’s 90,000 or so drivers must be classed as workers rather than self-employed contractors, a ruling which led to Uber agreeing to basic employment protections and striking a deal with the GMB to unionise the workforce.
Just this week, in the latest blow, Uber lost a High Court bid to have its business model ruled compatible with London’s transport operating laws. The company sought a judgement confirming that individual drivers hold contracts directly with passengers who ride with them, but judges disagreed, stating that customers enter into a contract with Uber. This means Uber – and other ride-hailing companies – can be held liable for anything that goes wrong with the service.
Of course, these changes have, in many cases been driven by workers themselves, because they want greater job security and better pay and conditions. For others though, it will limit flexibility and freedoms to work for whom, and when and where they like, held dear. Ultimately though, the consumer will pay, one way or another. In the case of Uber, for example, not only will prices rise because Uber will be paying Employers’ National Insurance, and drivers will be unable to claim self-employment tax exemptions, the most recent High Court ruling means customers will almost certainly end up paying VAT for the first time. Unlike most private drivers who earn under the current £70,000 threshold, Uber is a VAT-registered business and will be obliged to start adding the tax to bills.
The Treasury, meanwhile, is also breathing down the necks of all gig economy workers. Keen to find ways to replenish empty coffers bled dry by covid-related spending, the department is investigating concerns that it may be losing up to £20 billion in tax revenue as work activity moves online. Among proposals being considered are reducing the VAT threshold to force more self-employed gig workers to add the tax to their invoices.
So, enjoy that ride in your Uber. Soon it may not be quite so cheap a travel option as you are used to.
Our message to business: Given tight constraints on the labour market at present, due to a combination of factors including an ageing population, disrupted immigration, and workers re-evaluating their priorities due to lifestyle changes during the pandemic, hiring ‘gig’ workers, especially not for positions that have traditionally proved hard to fill or where a long-term member of staff is not required, can look increasingly attractive. We certainly wouldn’t advise shying away from it: despite restrictions being brought in, hiring in this way is still a viable and sustainable way to work, provided workers are genuinely self-employed, and it is a way of working that is preferred by many. The gig economy is not going away completely any time soon.