By RSM International chief executive officer Jean M Stephens
Last month, UK Prime Minister, Theresa May, launched a government review into working practices in the modern economy in the UK, otherwise known as the ‘gig economy’. There has been a rise of short-term contracts and flexible working and as a result, the Taylor Review called for work in the UK economy to be equal for all employees, whether in the gig economy or not. With companies like Deliveroo and Uber bedding into our lives, it is obvious that the gig economy has revolutionised the way people are working and therefore the way workplaces are structured. The Taylor Review forces businesses to think about how gig economy workers should be recognised in law.
Whilst the Taylor Review has hit the headlines in the UK, this is not an issue that the UK is facing alone. The independent gig economy in both the US and EU is thriving. A McKinsey study on the gig economy found that 20-30% of the labour force in both the US and the EU is made up of independent workers who are self-employed or do temporary work. It is clear that globally there is a need to move beyond the employed/self-employed dichotomy, and find a way to respond to the changing workforce.
Elsewhere, research from the University of Oxford and the University of Pretoria looked at the gig economy in Kenya, Nigeria, South Africa, Vietnam, Malaysia, and the Philippines. They found that gig economy workers in these countries were forced to constantly reduce their wages as a result of a massive labour oversupply, as the uptake was massive.
Governments around the world are starting to respond to these changes. In April 2017, the European Commission established the European Pillar of Social Rights, which expressed the need to look at ways to better align social security systems with the new forms of work. Similarly, in the US, Democratic Senators Mark Warner and Suzan DelBene, introduced the first federal bill addressing the gig economy earlier this year, which aims to create a portable benefits model that would provide benefits to the independent workforce.
The gig economy presents opportunities and challenges for middle market businesses specifically. Their nimble nature means they can prosper in this changing economy. Middle market companies tend to be smaller and can benefit from a flexible workforce – they can lean on this pool of self-employed workers when they need extra resources to fuel growth.
However, the lack of an appropriate legal status for such independent workers poses a challenge to businesses and leaves workers open to exploitation. The middle market needs to be wary and ensure they aren’t penalised for false employment categorisation, for example. While large, multinational corporations have the resources to protect themselves from such eventualities middle market companies may not.
This new way of working also raises big questions around tax. While the gig economy is moving forward, it is clear that the tax system is not keeping up. There is a need to equalise the tax paid by those who are employed and self-employed. Under the gig economy, self-employed workers and corporations could end up paying less tax. Whether the Norwegian model of a shareholder income tax or the Irish model of a low corporate tax rate is adopted, tax systems around the world need to respond to the changing economy.
Middle market businesses need to be proactive and prepare for changes to tax and employment law before they come into effect. The gig economy is impacting our economy and there is no sign it is slowing. Middle market businesses need stay ahead of the curve, using their strengths to their advantage where large corporations can’t, by reacting and revisiting their business practices to adhere to this new way of working.