In the last decade the United State gig economy workforce has seen a 15% increase [1] respective to the nation’s workforce at large.
It is estimated that in 2016 the freelance community, which comprised of 55 million individuals, earned nearly $1 trillion in taxable income which was a significant increase from just two years prior in 2014 when the estimated earnings of the then 53 million freelancers was $700 billion [2].
Studies in 2019 continue to back the valuation of the contribution of the freelance community in the overall economy totaling around $1 trillion or nearly 5% of the GDP [3].
Trends suggests that:
– The rate of growth in the US is 3 times [4] that of any other country.
– The workforce partaking in the gig economy is anticipated to grow from 34%m in 2016 to 43% by 2020 [5].
– By 2023, it is predicted 52% of Americans will be gig workers or have worked in the gig economy [6].
While the growth of the gig economy continues, ambiguity still exists with regards to the employment status of gig workers. As self-employed or independent contractors, gig workers are often exempt from typical employee benefits such as vacation days or sick leave and do not have access to insurances through the gig platforms.
On the 10th of August 2020, the California court ruled in favor of passing the California Assembly Bill 5 (AB5) which will impact the relationship between gig platforms and gig workers.
The bill orders that those working for a company must be given full employment status unless the companies are able to prove:
1. The worker is free to perform services without the control or direction of the company.
2. The worker is performing work tasks that are outside the usual course of the company’s business activities.
3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Steps towards clarifications of rights on state level
On the 10th of August 2020, the California court ruled in favor of passing the California Assembly Bill 5 (AB5) which will impact the relationship between gig platforms and gig workers.
The bill orders that those working for a company must be given full employment status unless the companies are able to prove:
1. The worker is free to perform services without the control or direction of the company.
2. The worker is performing work tasks that are outside the usual course of the company’s business activities.
3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
In response to the new bill that has been passed, Uber is drafting and proposing a different approach to employment that will provide the independent contractors with “benefit funds” instead of having to hire them as employees.
The idea behind the benefit funds is to act as a way for gig workers to expense benefits or paid leave. These funds would be accrued over time to provide for the workers need while also maintaining flexibility [7].
Another precaution taken by states was back in May of 2017, the governor of Florida signed into effect a bill to regulate rideshare platforms. House Bill 221 details the insurance necessary for drivers to carry to protect the safety of passengers.
The bill also requires stringent background checks excluding those with certain felonies or misdemeanors and implements a zero tolerance policy for any drivers caught with drugs, alcohol, or acting in discriminatory ways. The goal behind the bill was to promote rideshares within Florida while also upholding them to standards to ensure the safety of customers [8].
Along with the fight to define gig worker’s rights to standard employment compensation and benefits, the 2020 COVID-19 pandemic proved instrumental in defining the government’s role in providing aid to those who are classified as independent contractors.
Independent contractors such as gig workers do not pay into state unemployment insurance programs unlike their traditionally employed counterparts, thus they often are exempt from receiving aid from the state government in times of economic hardship.
However, under the CARES Act signed into effect in March of 2020 by the federal government extended the Pandemic Unemployment Assistance program to those classified as independent contractors.
Who is interested in gig work in the United States?
In the United States, those seeking employment opportunities through gig platforms are similar to that of the global distribution. The gender distribution is 47% male and 53% female. Workers between the ages of 25 and 34 are the majority at 33% while those between the ages of 18 and 24 comprise 21% of the workforce population.
Those between the ages of 35 and 44 comprise 20%. Per the trend, older generations are less likely to participate in the gig economy which can be seen in the United States as well. Those between the ages of 45 and 54 make up 14% while those between the ages of 55 and 64 drop to 8% and lastly those older than 65 only comprise 8% of the workforce within the United States as seen by the 856,426 seeking employment opportunities through Appjobs.
Tax Filing
Gig work in the United States is defined according to the Internal Revenue Service as the income earned through an online or app based company performing tasks which included but are not limited to:
– Driving a car for booked rides or deliveries
– Renting out property or part of it
– Running errands or completing tasks
– Selling goods online
– Renting equipment
– Providing creative or professional services
– Providing other temporary, on-demand or freelance work
Gig workers are required to report quarterly on their estimated income and pay tax if they have earned a profit of $400 or more.
If those filing only partake in gig work part-time, they are able to avoid paying quarterly by withholding more through full-time employers by filling out a Form W-4 and an Employee’s Withholding Certificate which can then in turn be given to their employer.
Otherwise, gig workers are expected to make payments on the following for days:
– April 15 for payment period January 1–March 31
– June 15 for payment period April 1–May 31
– September 15 for payment period June 1–August 31
– January 15 for payment period September 1–December 31 [9].
When filing taxes within the United States, the standard is for employers and platforms to provide documentation to the IRS as well as employees or contractors by January 31. These forms include: Form 1099-K, Payment Card and Third Party Network Transactions, Form 1099-MISC, Miscellaneous Income and Form W-2, Wage and Income Statement.
Although, these forms may not include all earnings from the year and gig workers are responsible for providing sales receipts of any other earnings they may have incurred. Earnings in the form of cash, property, good as well as virtual currency are to be reported to the IRS.
For those working within the gig economy, maintaining accurate records of deductible expenses lowers the amount of estimated taxes owed to the IRS. Deductions can be made for any business expense that is necessary for business operations. Common expense deductibles if applicable include: travel such as gasoline, partial phone expenses, or home office expenses.
The self-employment tax rate combines social security taxes (old-age, survivors, and disability insurance) at 12.4% with Medicare taxes (health insurance) at 2.9% for a total of 15.3% [10].
References
[1] Roseland. NJ. Illuminating the Shadow Workforce: Insights into the Gig Workforce in Business https://www.prnewswire.com/news-releases/adp-research-institute-report-reveals-the-gig-workforce-is-filling-a-void-in-the-tight-labor-market-300998593.html (accessed September 5, 2020)
[2] Upwork and Freelancers Union. Freelancing in America: 2016 https://www.upwork.com/press/2016/10/06/freelancing-in-america-2016/ (accessed September 7, 2020)
[3] Upwork and Freelancing in America. Sixth annual “Freelancing in America” study finds that more people than ever see freelancing as a long-term career path. https://www.upwork.com/press/2019/10/03/freelancing-in-america-2019/ (accessed September 4, 2020)
[4] Pofeldt. E. Are we ready for a workforce that is 50 % freelance? https://www.forbes.com/sites/elainepofeldt/2017/10/17/are-we-ready-for-a-workforce-that-is-50-freelance/#c50df183f82b (accessed September 4, 2020)
[5] International Labour Organization. Helping the gig economy work better for gig workers. https://www.ilo.org/washington/WCMS_642303/lang–en/index.htm (accessed September 7, 2020)
[6] MBO Partners. The state of independence in America. 2018.: The new normal. https://www.mbopartners.com/wp-content/uploads/2019/02/State_of_Independence_2018.pdf (accessed September 5, 2020)
[7] Tech.com. Uber calls for new deal for ‘gig economy’ workers. August 11, 2020. https://tech.economictimes.indiatimes.com/news/people/uber-calls-for-new-deal-for-gig-economy-workers/77474978?redirect=1
[8] Michael T. Gibson P.A.Florida governor Signs Uber/ Lyft Bill Into law. https://autojusticeattorney.com/florida-governor-signs-uber-lyft-law/ (accessed September 4, 2020)
[9] Internal Revenue Service. Manage texes for your gig work https://www.irs.gov/businesses/small-businesses-self-employed/manage-taxes-for-your-gig-work#:~:text=More%20In%20File&text=You%20must%20file%20a%20tax,withhold%20tax%20from%20your%20paycheck. (accessed September 4, 2020)https://www.irs.gov/businesses/small-businesses-self-employed/manage-taxes-for-your-gig-work#:~:text=More%20In%20File&text=You%20must%20file%20a%20tax,withhold%20tax%20from%20your%20paycheck. (accessed September 4, 2020)
[10] Internal Revenue Service. Self Employment tax. https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes#:~:text=The%20self%2Demployment%20tax%20rate,for%20Medicare%20(hospital%20insurance). (accessed September 4, 2020)