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How the Gig Economy is Changing Hiring Trends

Published July 23, 2020 (last updated July 28, 2020) Author: Employsure
gig economy worker delivers food

Are you hiring more contractors in your business than ever before? Chances are, you’re among the many small businesses in Australia getting new workers on a consistent basis through the booming ‘Gig Economy’ – but it’s not without a price.

With this innovation in hiring, from the previous standard employee system to the now more abundant contingency workers, comes a host of concerns for whether your business is operating in line with the law.

What is the ‘Gig Economy?’

The gig economy refers to the growing number of workers abandoning traditional 9 to 5 employment in favour of working independently on a task-by-task basis for various employers.

Workers are expressing an increasing demand for flexible and autonomous work, prompting many to engage in freelancing. In a similar manner to freelancers, independent contractors work on a per-project basis, but usually work exclusively for one company on a fixed term contract for an extended period and are paid an hourly rate.

Freelancers are more likely to undertake work for different clients concurrently on an adhoc basis and are paid a fixed price for projects. Others, unable to secure employment in the challenging labour market, have turned to freelancing out of necessity.

For SMEs who have traditionally lacked the resources to recruit and retain the best talent, this increased access to on-demand workers is an attractive one. However, the benefits of the addition of freelancers into the workforce, companies will require new tools and approaches. However, issues may arise when there is less protection for these workers and when the definition of who is a contractor and who is an employee becomes murky.

Leading companies must attract and retain the best talent as well as implement systems to manage them and address the challenges of a new workstream.

The business case for workplace flexibility has been well-established and companies should consider providing such arrangements to existing employees.

In Australia, the largest freelance category is web, mobile and software development (44 per cent), followed by design and creative (14 per cent), customer and admin support (13 per cent), sales and marketing (10 per cent) and writing (8 per cent). Data revealed that 4.1 million Australians, or 32 per cent of the workforce had freelanced between 2014-15. (Source: A labour market that works: Connecting talent with opportunity in the digital age, McKinsey & Company, June 2015, page 37)

Professionals are now having to rely more on background checks, continuous monitoring and other screening practices to ensure that the gig workforce that is booming in their business meets legality and safety standards.

A recent Gig Economy Survey, conducted by Sterling, a background and identity service, examined hiring trends, identity fraud, and social media, revealing how HR professionals can leverage background checks and various screening methods to improve recruitment confidence in contingency worker hiring. The study also revealed some interesting trends of sham contracting arrangements and the serious effect that this can have on businesses.

Various questions arise regarding how to manage and engage temporary labour effectively:

  • How to sift through the ever-growing talent pool of freelancers to locate the best talent?
  • How can companies ensure that freelancers actually have the expertise required?
  • How to ensure the right talent is working on the right tasks at the right time?
  • How much compensation should freelancers receive?
  • How to ensure freelancers are well-versed with company culture, mission, values, history, challenges and procedures?
  • How to strike a balance of protecting company security systems and granting enough access to freelancers to perform their duties?
  • How much training and induction should be provided to a freelancer?
  • How can companies ensure coherence amongst staff with geographically scattered workers?
  • Who will have the ultimate decision making authority, and how will command chains be structured?
  • How to mitigate legal risks and protect company IP

Key Trends in the Gig Economy

  • 25% of respondents (small business owners) have a varied range of work arrangements
  • 36% are confused about how regulations and laws will apply to their business
  • Participants have reported to experience instances of identity fraud. Almost half of the respondents of the study report at least one instance of fraud, bringing the potential risk of litigation and damaging the employer brand.

The Fair Work Ombudsman is getting rigorous  on ‘sham contracting’, as the Gig Economy is threatening small and medium business owners who use independent contractors. Almost 2/3 of participants in the study indicate that the Gig Economy is impacting their hiring and staffing practices.

What is ‘Sham Contracting’?

A sham contracting arrangement occurs where an employer attempts to disguise an employment relationship as an independent contractor arrangement. The most common reason for doing this is to avoid paying employee entitlements.

Sham contracts can actually be unintentional, with the employer misunderstanding the arrangement and generally not understanding the policies and laws behind hiring. It can also be an intentional action, with the employer avoiding paying entitlements and having to stick to procedures such as superannuation, leave, penalty rates and notice of termination.

It’s very possible for a company to accidentally find themselves in a sham contracting arrangement. A contractor that has been engaged consistently to deliver searches could actually be defined as an employee in a legal sense. This means that for companies who hire contractors on a regular basis, it’s essential to have confidence in where you actually stand and how you are faring against legal standards.

The Definitions and Distinguishing Factors

An employee is a person who is performing work for wages/salary. This is generally called a ‘contract of service.’ An independent contractor, in contrast, is usually engaged for a specific project or task  for a set fee. People who work in this way generally have an ABN and their own business and have full control over the work/job that is needed.

The responsibilities and rights of these two forms of workers are very different by law. If you’re hiring a contractor, as a business it is your responsibility to know the difference and to be sure that you are employing your workers in line with how they legally need to be characterised.

Distinguishing factors for employees versus individual contractors:

  • An employee performs work under the direction and control of their employer on an ongoing basis, whereas a contractor has a high level of control in how the work is done.
  • An employee generally works standard or set hours (note: a casual employee’s hours may vary from week to week). An independent contractor decides what hours to work to complete the specific task.
  • An employee has on ongoing work brief, with specific goals and actions to achieve, whereas a contractor is engaged in a specific task or project
  • An employee bears no risk as part of their employment – that is the employer’s responsibility. A contractor bears the risk of making profits/losses on the projects that they deliver (i.e. Contractors generally have their own insurance policy).

What You Can Do to Protect Your Business

You need to have a clear understanding of the following functions and agreements of your working relationship to determine whether a person you are engaging in work with is an employee or an independent contractor.

The following factors need to be considered:

  • The control that the person has around the work that they do
  • If they have the right to delegate work to others
  • Their right to working for other companies
  • If the arrangement is ongoing or intending to be ongoing
  • Which party is providing equipment used.
  • Tax and superannuation policies
  • Leave entitlements and methods of payment.

Ultimately, the difference between a contractor and an employee is not clear cut. If you’re incorrectly representing to your worker the relationship between your company and that worker, you could be vulnerable to being in trouble for a sham contracting arrangement.

Employsure has launched its new Contractor Review – a product that reviews a business’ arrangements with its contractors. This is especially important in the gig economy, as many ‘gig workers’ are employed as independent contractors and as mentioned in the article, the definitions can be unclear.

This Contractor Review will provide you with a comprehensive review of your current contractor arrangements and how they line up with the requirements of the Fair Work Act. You’ll receive advice on correct contract arrangements for your company, and a template Independent Contractor Agreement to use. This Review was crafted in response to this changing gig economy to give small businesses more confidence that you aren’t engaging in sham contracting.

Find out more about our Contractor Review: https://employsure.com.au/contractor-review/

About Employsure

With over 20,000 clients, Employsure is one of Australia’s largest workplace relations specialists.

We help small business owners better understand workplace relations and WHS legislation, giving them peace-of-mind that their business is getting backed by expert advice.

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