What is the gig economy?
The gig economy is a labour market made up of an ad hoc workforce, including freelancers, contractors, sole traders and casual employees, who are engaged in short-term or project-based work. It includes workers whose services are engaged via digital platforms such as Uber, Airtasker and a growing number of platforms that serve the corporate market, connecting workers with businesses that need temporary support.
Data on the true scale of the Australian freelance market is still based on estimates, but if we are following the United States, then our gig economy is on an upwards trend.
Australian freelance market ranking snapshot
- Web, mobile and software development: 44%
- Design and creative: 14%
- Customer and administrative support: 13%
- Sales and marketing: 10%
- Writing: 8%
Benefits for businesses
All organisations have much to gain from a fluid workforce, easy access to on-demand specialists, and the opportunity to bring in new perspectives and skills – but small to medium sized businesses are potentially the biggest winners. Traditional recruitment models can be time-consuming and expensive, and smaller players and start-ups may struggle to afford recruiting, training and retaining the best talent while experiencing economic uncertainty or a variable level of activity. The platform gig economy has pushed labour costs from fixed to variable, so hiring becomes more economical for many businesses. This is advantageous for you, for example, as a fledgling sole trader or small company looking to balance your workload when your business is taking off.
While we aren’t looking at employment issues specifically here, if you’re hiring via a platform it’s worth knowing that there is pressure for providers to recommend, if not enforce, minimum standard fees. And there are many moving parts involved in managing a temporary or remote workforce, despite our highly connected 24-hour world – you may need to take into account uncertainty over legal and regulatory developments, the risk of a low “care factor” from contingent workers, and the logistics of geography and time zones.
If you have a portfolio of jobs, and also hire workers, you’re probably facing extra administrative burdens. So how can you best realise the benefits of incorporating freelancers into your business? By being on top of the latest employment and tax issues, and by being open to new approaches.
Who’s in the line-up?
It’s important to understand the employment status of any additional hires you make. Are you hiring a casual employee, or a contractor? The difference significant. You can face taxation penalties for misclassifying an employee as a contractor, and there is a lot of misleading and even false information about. If you are unsure, get in touch with us to discuss your situation.
Australian employment law provides clear definitions of “employee” and “contractor” – although this could change, as it has in other countries, to keep up with the growing numbers of workers in the gig and platform economies. Broadly, you need to ask: do you control what the worker does and how they perform their job? If the answer is yes, they are likely to be an employee under Australian law.
If you hire an employee, the following obligations apply:
- withholding taxes from the worker’s wages, and reporting and paying these amounts to the ATO;
- paying superannuation for eligible employees; and
- reporting if you provide your employee with fringe benefits (eg car, travel or meal expenses) as part of, or in addition to, their wages – this means you must register for and pay fringe benefits tax (FBT).
You are not obliged to withhold tax for contractors, unless they don’t provide their Australian Business Number (ABN) to you, or you have a voluntary agreement with them to withhold tax from their payments.
You won’t have FBT obligations, but you may still have to pay superannuation for individual contractors if the contract is principally for their labour.
Gigs and GST
The Federal Government has been re-evaluating how to tax consumption through two major legislative changes, The Tax and Superannuation Laws Amendment (2016 Measures No. 1) Act 2016 – otherwise known as the “Netflix tax”, on digital goods and services – and the Treasury Laws Amendment (GST Low Value Goods) Bill 2017. The latter is still being debated (as at May 2017), but might have tax implications for you if you engage overseas workers to provide legal or architectural services.
As companies with a smaller permanent workforce will be less affected by withholding taxes, the gig economy revolution will inevitably spur further tax reforms, with the government seeking new ways of keeping the tax revenue stream flowing.
Talk to us
The gig economy comes with numerous benefits for employers, but has certainly has equal challenges. This can be daunting in the face of such rapid change. We can help. Contact us today to talk about the specifics of your business, your tax obligations and financial concerns.