The Hidden Costs of the Gig Economy

New York, NY (WorkersCompensation.com) – While hiring gig workers may save employers money on benefits, consumers and others may pay the price of those savings.

According to a new survey from Korn Ferry, 60 percent of HR professionals say they are hiring more gig workers than they did three years ago, and 42 percent said they would continue to hire more gig workers in the future. Gig workers, the survey respondents say, save companies money and are easier to manage than staff.

But experts say that hiring gig workers may have hidden costs that could damage companies in the long run. Some of those costs aren’t even from a company’s own gig workers.

The Korn Ferry survey found that the top two reasons companies bring in gig workers is to handle short-term projects, and to take advantage of the high-quality specialized expertise the gig workers may have that their in-house staff may not.

In June, a report by the US Bureau of Labor Statistics indicated that growth in the gig economy is down, despite reports from other studies that show employers are more willing to hire gig workers. Randstand Sourceright said they plan to convert up to one third of their permanent full-time position to contingent workers in the near future. Similarly, a report from MBO partners showed that the contingent workforce would continue to grow, contributing as much as $1.3 trillion in revenue to the US economy in the next few years.

But experts say that changes in the Fair Labor Standards Act leave little room for employers to decide whether or not workers are employees or independent contractors. Legal challenges to whether or not employers are responsible for workers’ compensation and unemployment benefits are currently working their way through state courts in New York and California.

But even though many workers are switching to the gig economy, research from PRRI indicates as many as 48 percent of contingent workers are living in poverty. Those workers, according to PRRI, are more likely to turn to social services and lawsuits for benefits.

Even companies that don’t hire gig workers may be liable for the behavior of contingent workers who work for service for hire companies.

Attorney Davida Perry, founding partner of Schwartz Perry and Hellar, LLP, said that companies that do not bring to the attention of work share platforms like Grub Hub actions by their contract workers, may be liable for any negative actions those contract workers take on their own employees.

“If a company knows that there is an issue with a particular food delivery workers and doesn’t bring that to the attention of the company they work for, there is some liability there,” Perry said in an interview with WorkersCompensation.com. “If that food delivery driver comes into a business an attacks the receptionist or makes inappropriate remarks to an employee, and the company knows that there was an issue with that food delivery person before, they absolutely could be held liable.” 

Experts say to hire gig workers with caution, and to ensure they don’t pose as threat to employees.

For larger companies, gig work shouldn’t replace employer/employee scenarios completely, experts said. Jeanne MacDonald, president of Global Talent Solutions for Korn Ferry, said companies should be cautious when hiring gig workers.

"As freelancers, consultants and contractors become more prevalent, it's important to keep in mind that the gig economy will not replace traditional models of work,” she said. “The key is to adopt a blended approach to talent acquisition and talent management, one that incorporates campus, contingent workers and full-time employees, and one that, in essence, makes the most business sense."

To read more WorkersCompensation.com coverage on the gig economy and New York, click here.

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