What is the gig economy?
When considering how to get a new job, you may hear about the gig economy as an alternative to traditional jobs. But what exactly is a gig economy? And how does it work?
- The gig economy is where people earn wages through on-demand jobs or services rather than through salary or hourly employment.
- Gigs may include driving for a ride-booking app, selling goods online or renting out property.
- Anyone who earns money by working gigs might be considered a gig worker, even if it’s not their full-time job.
- Gig work allows people to have flexibility in their work arrangements, but it may not always make for consistent income or come with benefits.
What does gig economy mean?
In a gig economy, people earn wages through short-term projects or on-demand work. Gig workers often find these temporary or part-time roles through apps or websites. The IRS lists some examples of gigs:
- Driving people or making deliveries with their own vehicles
- Selling crafts or other handmade goods at fairs or online
- Offering manual labor or repair services
- Renting out property or equipment
What is a gig worker?
A gig worker is anyone who picks up gigs for money. They might be a temporary worker, freelancer or independent contractor.
When someone is a gig worker, it doesn’t always mean that gigs are their only source of income. For many people, gig work is a side hustle to earn extra money. The Federal Trade Commission cites that more than half of gig workers use their gig income to meet basic needs.
Is a gig worker self-employed?
A gig worker may be self-employed or considered an employee. According to the IRS, a gig worker may be an independent contractor if:
- They have the flexibility to determine what kind of work they do and how they do it.
- They have some control over how they get paid or reimbursed for expenses.
- They don’t receive employee benefits or guarantee of a long-term business relationship.
A gig worker who’s an independent contractor is subject to self-employment tax, even if they don’t receive a 1099 form for their work.
How do gig workers get paid?
How gig workers get paid will depend on their arrangement with the employer. Payment methods could include:
- Cash—either paid directly or through an Automated Clearing House (ACH) transfer
- Paper check
- Virtual currency
- Other goods
The gig economy: pros and cons
While the gig economy might sound like a simple way to pick up extra work, there are advantages and disadvantages of gig work to consider.
Advantages of the gig economy
Considering gig work? Here are a few advantages:
- Flexibility in work schedule: Many jobs in the gig economy allow workers the freedom to choose when and how they work. This may be helpful for gig workers who also juggle another job, child care, travel or simply enjoy choosing their own hours.
- Variety in the type of work performed: Because gig work is often temporary and widely varied, it’s possible to pursue different types of work. Gig workers could explore people-oriented jobs—like ride-sharing—or skills-based jobs—like freelance writing or design. They could also try renting or selling personal property.
- Additional income: Gig workers may be able to pick up gigs in addition to their existing employment. The extra income could be used for things like paying off debt or breaking free from living paycheck to paycheck.
Disadvantages of the gig economy
Gig workers may face challenges that full-time workers don’t, including:
- Unpredictable schedule: While gig workers can have more flexibility than other workers, the flip side is that there might not always be gigs available.
- Inconsistent pay: Gig workers are usually paid by the job. And if there’s not always a job up for grabs, it can be harder for gig workers to budget.
- No benefits through gigs: Gig workers may be ineligible for employer-provided benefits like health insurance, paid time off, matching retirement contributions and fringe benefits.
The gig economy in a nutshell
A gig economy describes a labor market where people work short-term gigs instead of part-time or full-time jobs. Gig workers may use digital platforms or other methods to get freelance or on-demand work. Gig work might offer flexibility that can allow workers to earn additional income on top of other jobs, but it doesn’t always have the same security as other types of work.
If you’re considering other employment options to improve your financial health, check out these 10 pieces of advice for your job search.
We hope you found this helpful. Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.
Capital One does not provide, endorse or guarantee any third-party product, service, information, or recommendation listed above. The third parties listed are solely responsible for their products and services, and all trademarks listed are the property of their respective owners.