The worldwide pandemic and broadening technology have prompted huge changes in the workplace in recent years. Wide-ranging layoffs, dynamic spending habits, and record-high inflation have compelled many people to take on side jobs or part-time piece work to make ends meet. Many of these adjustments, while often unexpected, have not been unwelcome. Many new “Gig workers” have increased their income with their side hustles and are enjoying the newfound freedom in their schedules. If you’re considering taking on a side job or turning a hobby into a business in the coming year, you’ll want to consider the big picture regarding the Gig Economy. Is it a good time to become an Independent Contractor?
Challenges for Independent Contractors
Relying on the gig economy has benefits and challenges for most independent contractors and freelance workers. The benefits of leaving the traditional workplace are often easy to see, but some might say every silver lining has its cloud - and perhaps that’s not quite as apparent as they make the transition from employee to self-employed.
- Employment taxes must be reported and paid regularly throughout the year by independent contractors as an employer will no longer be handling that for them.
- Freelancers are responsible for both the employer and employee portion of employment taxes.
- Without a set schedule and imposed goals, gig workers must find their own motivation to work.
- Certain industries produce the highest income at odd hours when others are not working, for instance, in service industries such as transportation and food delivery.
- There can be many “hidden” working costs, such as fuel, office supplies, permits, etc., which can eat away at your additional income.
A Changing Definition
Our current definition of 'employees' dates back to 1938 and the Fair Labor Standards Act (FLSA) that created the federal minimum wage and the 40-hour regular work week. However, the FLSA does not apply to independent contractors (IC). Recently, the definition of employees versus IC has fluctuated.
According to the US Department of Labor, the passage of the 2021 IC Rule gave more weight to two of the five economic factors identified to determine a worker’s status - the opportunity for loss or profit by the worker and the degree of their control over the work. However, October 2022 brought a proposed change by the Department of Labor back to pre-2021 IC Rule standards for IC status assessment.
According to the proposed rule, the goal is to lessen the chance of an employee being classified in error as an Independent Contractor. In addition, the updated rule would assign more workers in this Gig Economy the status of an employee instead of a freelancer. along with the economic protections that attend that classification.
As the economy and workplace continue to grow, the delineation of employee versus independent contractor will likely adapt. Myrick CPA specializes in financial consulting and accounting to help navigate the complexities of employment status. Individuals considering freelance work as an independent contractor, and companies choosing to hire freelancers and ICs can benefit by contacting Myrick CPA to discuss financial concerns, tax ramifications, and goals.