0800 0482 737

The gig economy’s impact on payroll

The gig economy’s impact on payroll

In the 1930s, the music industry first coined the term ‘gig’ to refer to:

An engagement to play at a party for one evening.

Eventually, the word ‘gig’ evolved to include any kind of temporary work engagement. The term ‘disruption’ is defined as an interruption in the usual way that a system, process, or event works.

The gig economy has disrupted the status quo with its capability to affect economies around the world and has transformed industries by instant disruption through digital innovation. Some commentators argue it is a terrifying future; others have a more positive outlook suggesting this disruption unlocks opportunities that must be embraced so society can evolve and improve.

But what does that mean for the payroll sector?

At an IBM for Entrepreneurs event it was revealed that eight industries have already surrendered to digital disruption:

  1. The largest taxi company (Uber) owns no taxis.
  2. The largest accommodation provider (Airbnb) owns no real estate.
  3. The largest communications companies (Skype, WhatsApp, Facebook Messenger, and Viber) own no infrastructure.
  4. The most valuable retailer (Alibaba) has no inventory.
  5. The most popular media platform (Facebook) creates no content.
  6. The fastest-growing banks (Kickstarter, SocietyOne) have no money.
  7. The largest movie house (Netflix) owns no cinemas.
  8. The largest software vendors don’t write the apps (Apple, Google, and Facebook).

But is there a difference between innovation and disruption? Many scholars have invoked the term ‘disruptive innovation’ when addressing the platform (sharing) economy, with claims about dramatic changes to the law, regulation, and the economy. The gig economy is viewed by several as disruptive because the major players that operate within the economy are actively attempting to exploit legal loopholes in a quest to achieve profits at the detriment to society.

The impact on public finances

In the UK, HM Revenue and Customs are becoming increasingly concerned about the growing impact of the gig economy on public finances because self-employment is taxed at a lower rate than traditional employment. The Office for Budget Responsibility (OBR) has estimated that, on current trends, by 2020-21 the increase in self-employment will have cost the treasury in the UK £3.5 billion and it is this big deficit that is making it increasingly hard for politicians to ignore. The payroll sector is also suffering at the prevalence of the gig economy, if there are less employees this converts into less payslips, resulting in fewer clients.

The impact on Tax

So, if the gig economy sustains its current path and the traditional employer-employee relationship continues to be taxed higher than pre-2011, what options are available to manage the gig economy in a tax-efficient manner?

The response is that tax collection rules must be aligned and specific measures need to be taken depending on the specific circumstances of that country.

Conclusion

After review of the current literature available, there is evidence to support that the gig economy as a way of work is damaging on a social, political and economic level. Allowing the gig economy to continue to operate free of regulations and legislation for a substantial period, highlights the failure of judicial and political methods and an inability to adapt quickly to changes in the world of work. Judicial and political reviews must be conducted so to avoid failures of this type in the future as a slow response permits the probability of worker exploitation.

It is in a government’s remit to remove the ambiguity that is currently being exploited by the gig companies, and until there is sweeping reform, the exploitation of workers will continue.

The world of work versus the gig economy: neither dare lose and curious spectators like the payroll sector will be watching closely.

Related articles:

About the author

John Ryan
Payroll Executive