The contingent workforce, or gig economy workforce, is great for business. They provide a flexible workforce to help cover peaks, expand the business and respond to unforeseen needs. However, the legal and tax framework for the gig economy is constantly changing. When the IR35 regime for public sector was introduced in April 2018, it increased the cost of freelance workers by an average of 10% and created a skills shortage as workers moved to the private sector. In a recent webinar, I discussed the key things you need to do during 2019 to be ready for changes to how you manage pay zero hours workers and contractors.
I also want to expand on another key challenge we briefly discussed in the webinar: as more workers join the gig economy as employees or freelancers, many organisations are stirring up trouble for the future by treating gig workers in ways that simply push them away.
The challenge: compensation
According to our surveys, the number one reason why freelancers will ‘sack’ a client is persistent late payment. If you have spent time and energy setting up access to your systems, inducing them for GDPR, giving them a brief and establishing the relationship, you will be wasting your investment if you can’t come up with a reliable way to pay. Employees on PAYE can resign and claim constructive dismissal if you can’t organise paying them on time, yet gig economy workers are often treated as suppliers and get lost in the payment and credit control cycle.
There are 5 things you can do to avoid this:
1. Set expectations
Make sure to let people know your normal payment periods. That way, when they are quoting a price, they know how long they will have to wait for the payment.
2. Prepare payroll
Review new arrangements before they are finalised and make it plain before work is done if you intend to deduct IR35 or insist they are paid through payroll. Do not wait for the first invoice and then set it all up.
3. Learn how to invoice
Make sure you have a clear tender/induction pack on how to invoice, when to invoice, and what an invoice should contain. If purchase order numbers are needed, make it clear how to get them. Make your own cut off dates very clear if you are doing monthly runs and make sure your outsourced team knows this is the date their contact has to get the invoice to accounts, not the date they should invoice you. If accounts needed to be copied make sure this is clear.
4. Update your team
Brief your managers on the importance of approving invoices (or querying them) in good time for the payment cycle
5. Stick to a system
Set up a clear ‘gig workers’ payment system with accounts and line managers from opening the purchase account to payments and make sure they are fast-tracked
Your gig economy workers are micropreneurs. They pay their rent and their mortgage monthly and when you don’t do that they suffer massive stress. They can’t tell their landlord to wait for the rent until you pay them. Many are gig workers because they have to cover caring for children or elderly relatives.
The role of HR
HR is responsible for the people side of the business. While the traditional focus has been on employees, gig economy workers are an increasing percentage of the workforce and one HR cannot afford to ignore. Gig economy workers already have many rights and planned legal changes will give them more. But we should not have to wait for legal reform to pay people who have done work for us without making them chase us repeatedly or borrow money from their Mum!
In health and safety terms, you are responsible for workers as well as employees, and the unnecessary stress of not having proper systems to pay gig workers can cause a great deal of harm.
Imagination: the key to understanding the gig economy mindset
From government to big corporations downwards, we suffer a collective failure of imagination when it comes to gig economy workers. We have no idea how the benefits system and late payment combine to drive them into desperation when we forget a step in our internal administration. Even the high flying gig workers such as consultants and interims can suffer massive stress if they don’t have the reserves to ride out your pay periods.
If you could imagine living the next six months knowing how much your net pay is, but with absolutely no idea when someone might transfer it into your bank account, you might have some idea of what some of us are putting people through. And with all the stresses and strains of Brexit, let’s try not to drive our tiniest suppliers to the wall. Let’s imagine it better than this because we can.
From Annabel Kaye
Annabel has spent almost 40 years helping growing businesses sort out the practical and legal side of paying people. She founded Irenicon (a specialist HR and employment law consultancy) in 1980. Since then she has helped thousands of business people work out how to contract and manage the people they pay in a way that is appropriate for their business.