Global Tax Insights
Employers, Here’s what You Need to Know about the Gig EconomyAugust 02, 2019
Do you employ individuals for “gigs” or temporary jobs? There are unique considerations for businesses involved in the gig economy, especially when it comes to taxes. Learn more.
Attention employers, do you pay for services from independent contractors? The growing number of “gig” workers in today’s labor force is changing the legal landscape for certain businesses. Learn more.
What exactly is the gig economy?
“Gig” is a slang term for a job, especially one that is temporary or has an uncertain future. The gig economy refers to a workforce environment in which temporary positions are common and organizations contract with independent workers for short-term engagements. Organizations can find gig workers through agencies, professional employer organizations or directly.
The gig economy provides employers with a variety of benefits including…
- Flexibility- Seasonal businesses in particular benefit from the flexibility allowed through the gig economy. Gig workers can typically work at short notice and are available to deal with the ebb and flow of the business’ busy/slow seasons.
- Expertise- Generally independent contractors are experts in their field so they can assist with projects in a focused and productive manner. Gig jobs like graphic design and app development give companies the chance to benefit from expertise on one-off projects.
- Cost savings- Since you are not responsible for paying the gig worker’s taxes or worker compensation, employing a temporary employee can save you money. You can protect your bottom line and maintain a competitive edge by utilizing the expertise of gig workers.
- Potential full time recruitment- By hiring gig workers you can identify people who might serve your business better as permanent employees.
- Legal issues- The Occupational Health and Safety Administration (OSHA) has been paying more attention to contract workers in recent years, due to concerns that some employers may use temporary workers to avoid meeting all their compliance obligations. OSHA has outlined employer duties to protect temporary workers, highlighting that employers must treat ALL employees equally in terms of training, safety and health protections.
- Reliability- Since workers take on gigs for a variety of reasons, there is no guarantee that they will not up and leave once a better opportunity comes along. For this reason, it helps to include screening questions in the recruitment process so that you can get some insight into whether your independent contractor will stick around for the job for which they’ve been hired.
- Safety issues- Many workers who take on gigs are younger, which heightens the safety risks involved in hiring temporary help.
Steps employers should take:
- Make sure young workers receive training to recognize hazards and are competent in safe work practices.
- Implement a mentoring or buddy system
- Encourage workers to ask questions about tasks and procedures that are not clear
- Explain to workers what they should do if they are injured on the job
- Avoid tipping the scales toward establishing an employer-employee relationship with individuals classified as gig workers
How do taxes fit in?
Many gig workers are unfamiliar with their tax responsibilities. Gig workers must report their income and pay taxes on it, including both income and self-employment taxes. Gig workers may receive information returns (Form 1099-MISC or Form 1099-K) which will list certain earnings, but even if they don’t receive information they still must report the income.
Gig workers will also want to note that income from gigs is potentially subject to the 0.9% Medicare tax, which is not part of the self-employment tax and is not deductible. This should be factored into estimated taxes.
Gig workers typically must meet their tax obligations through estimated tax payments, which are paid 4 times per year. For this reason, it’s a good idea for gig workers to set aside a percentage of earnings to create a fund for estimated tax payments.
Any tax breaks available for gig workers?
Gig workers may be entitled to special tax breaks including…
Home office deduction- Workers are eligible for the home office deduction if their home is the principal place of business, or there is no other fixed location for the person and space in the home is used to do administrative work.
Qualified Business Income deduction- Thanks to the Tax Cuts and Jobs Act (TCJA) there is a potential 20% deduction from taxable income based on business income. The deduction starts to phase out when taxable income (calculated before any QBI deduction) exceeds $157,500, or $315,000 for married people who file jointly.
Questions? Contact us.
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