The gig economy – disrupting the status quo or the dawn of a new order?

The gig economy – disrupting the status quo or the dawn of a new order?

In 50 years’ time, we may look back on the 2010s as the decade when the Fourth Industrial Revolution took hold. Each of the previous three revolutions saw working practices shift dramatically, and those in HR should brace themselves for another tectonic shudder in how the workforce functions. Six years in, we can already feel its effects; not least with the debates around the gig economy.

From 1780, the First Industrial Revolution saw water and steam power mechanise the production and movement of goods for the first time. The Second, in the 1870s, saw electric power used to create mass production, while the Third, in the 1970s, saw electronics and information technology automate production.

The Fourth Industrial Revolution – the digital revolution – is characterised by a fusion of technologies blurring the lines between the physical, digital, and biological spheres.

This digital overhaul of the way we do business offers huge potential, not only for business growth and innovation, but for the way we approach the workspace and our attitudes in general to employment. However, it brings with it disruption and confusion, as seen in the rapid expansion of the gig economy that has left businesses with more questions than answers on how they should make use of freelancers, or ‘giggers’.

Opportunity knocks

More than a passing fad, the gig economy looks like it’s here to stay. A survey as part of EY’s recent Contingent Workforce Study in the US found that 50% of organisations have seen an increase in their use of contingent workers over the past five years, whilst 40% expect to increase their use in the next five years.

In the UK too, the trend is the same. More people are choosing to become their own boss than ever before, with official figures revealing a record 4.8 million people registered as self-employed. This represents a growth of 28% over the 10 years to 2016, far outstripping the 6% increase in UK employees in the same time period.

Why is this happening? Evidence from EY’s survey shows that organisations are using contingent workers to flex and bolster their capabilities. Some 56% of employers said they use gig workers to complete projects where the specific expertise is beyond the capability of the existing workforce, while 42% use them to respond to seasonal workforce requirements.

As for the individuals, flexible and adaptable working arrangements can be invaluable to those people who need the ability to vary their working hours from time to time. In EY’s survey, 56% of freelancers, or giggers, agreed that contingent working is how they want to progress their career. Some 66% believe the benefits of contingent working outweigh the downsides either always or most of the time. When asked about the benefits, 80% appreciate the flexibility. Without wishing to generalise, gigging has an obvious appeal for adults with childcare responsibilities, older people and even some students – all of whom are often looking for balance between home and work or university life.

Caution from the courts

Whilst both businesses and individuals see the positives in the gig economy, there are many questions that remain unanswered, many of which centre around staff exploitation.

For the individuals, the gig economy could well push down wages. It also compares less favourably to traditional employment in that it is yet be determined with certainty whether it brings with it entitlement to pensions, sick pay, holiday entitlement or parental leave. Further, as mortgage companies are wary about lending to people with insecure work, younger giggers may find themselves struggling to get on the property ladder.

Current uncertainty around the status of those working in the gig economy has seen the issue taken up in the courts. Just as Uber has become the star of digital disruption, so it has become the flagship for the gig economy. With this role, however, has come enhanced scrutiny and a very public dressing down in 2016!

In a judgment handed down on October 28 2016, an employment tribunal ruled that Uber drivers are workers and not self-employed contractors. This means that Uber drivers are entitled to rights such as national minimum wage and pension contributions, as well as holiday and sick pay. It also means they are protected when it comes to whistle blowing.

The case, which was brought by current and former Uber drivers, was largely to address Uber’s failure to pay the national minimum wage and holiday pay, although two drivers also made claims relating to whistleblowing. Overall, the drivers asserted that Uber instructs, manages and controls their work.

Uber’s defence centred around its positioning as a technology business providing an operating platform, rather than as a transport provider. Uber argued that drivers are able to work for other organisations (including competitors), must meet all expenses associated with running their vehicles, treat themselves as self-employed for tax purposes, and are discouraged from wearing a uniform or displaying Uber branding.

However, the tribunal ruled that it was “unrealistic” to deny that Uber is in the business of supplying transportation services as “simple common sense argues to the contrary”. It also noted that Uber chose to use proprietary language in publicity, referring to “our drivers” and using “Ubers” to refer to vehicles.

This decision exposes Uber to, amongst other things, backdated holiday and minimum wage claims, likely to amount to considerable sums. The reputational damage may also be significant, and is likely to be exacerbated further by the recent news of a prospective settlement with drivers in the US over misleading claims of potential earnings. Uber has said it plans to appeal the tribunal decision, so the landscape may well shift again.

This case has brought to life the issues organisations operating within the gig economy may face. On the back of its publicity, riders for Deliveroo are also taking steps to protect their position in law.

Blurred lines

As Uber’s experience testifies, the expansion of the gig economy has brought with it new challenges, not least for those working in business support functions such as HR. The lines between employees, workers and the genuinely self-employed are becoming more and more blurred.

Each of these categories brings with it a different level of employment protection and requirements for the employer. As it stands, unless an individual is servicing an organisation as their client, there is always a risk of worker or employee status being established. Businesses and employees alike are currently left unsure of the best course of action when it comes to venturing into the gig economy.

For this reason, Theresa May has hired Matthew Taylor – the former head of Tony Blair’s policy unit – to head up a review of modern employment. His scope includes looking at employment practices and addressing job security, pay and employee rights. Written submissions were invited by the end of 2016 and evidence sessions are under way in the early part of 2017.

The outcome will hopefully provide greater clarity around the law and employment status. The legal rights and risks associated with each alternative need to be set out clearly. From there, businesses of all sizes can enter into a working relationship with full understanding of the legal and tax implications.

For the genuinely self-employed, greater transparency will mean they are protected from exploitation and engaged under a contract which benefits both them and their clients equally – this would be a most welcome outcome.

What now?

As the point of contact between the workforce and business strategy, the HR function will be on the front line when it comes to enabling organisations to use the gig economy to their advantage. As the professionals tasked with overseeing contractors, consultants and casual workers, now is an opportune moment for HR practitioners to review their firm’s workforce.

It is important to consider the employment status of each individual providing services and to remember that the reality of the actual working practices will be scrutinised as much as the contractual terms – as seen with Uber.

When it comes to workforce transformation, there are a series of important questions to tackle: Who and what will comprise the workforce? How will it be acquired? How can its productivity be measured? How can the organisation optimise the mix of workers from different sources? How can the business engage with them? Who will lead these efforts?  And perhaps most importantly, what are the risks?!

In a global survey by Deloitte of more than 7,000 HR and business leaders, the top three challenges to translating these new realities into attractive and cost-effective workforce practices centred around: legal and regulatory uncertainty (20%); a corporate culture unreceptive to part-time and contingent staff (18%); and a lack of understanding among leadership (18%). Deloitte suggests organisations will need new technologies, new ways of measuring costs, and even a new language of talent management for the 21st century.

To find answers and solutions, HR should take the lead, but also take a collaborative approach. Whether it’s internal business leaders with the necessary insight and skills, or external consultants that can inject valuable insight, it’s worth tapping into skillsets outside of the traditional HR function – such as technology, procurement and business strategy.

Above all, however, the most crucial action right now for HR professionals is pushing their organisations to take accountability. Business leaders need to be aware of the working practices among their contracted workforce – be they self-employed, temporary workers or permanent staff.

Will the gig economy ever be legal, sustainable, consistent and safe? Potentially, yes.  However, during this time of change, businesses would do well to approach with caution until we have a greater degree of clarity on the matter.

There is undoubtedly an opportunity with the gig economy, and employment status generally, for organisations to disrupt traditional sourcing and management, but to do so successfully requires a rethinking of the total approach to work and different types of workers. HR practitioners will play a vital role in protecting their employers from what current remains as an area of considerable uncertainty.

For more information please contact a member of our Employment Law team.

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