Imagine getting up every day for work whenever you feel like it. When you start the day, you only work on assignments that interest you. You might also be able to ply your trade from anywhere in the world and at any hour of the day or night. Sounds like utopia, right?
Many of us might wish for more flexibility and independence in how we work but participating in the “gig economy” can come at too high a price if we’re not careful. As the demand for flexible work grows and an increasing number of professional workers find themselves on short-term contracts, let’s examine the pros and cons of choosing this as a long-term lifestyle.
The gig economy is dominated by freelance work, short-term contracts or temporary projects, instead of permanent work. The phrase “gig worker” may conjure up images of people working low-pay jobs in the restaurant, retail and delivery industries but fixed-term and freelance work is common in more highly paid professional industries too.
In the EU, temporary employment is concentrated in the professional, service and sales industries, according to Eurostat data from 2023. The report found that “21.2 per cent of total temporary workers were professionals [ie occupations whose main tasks require a high level of professional knowledge and experience in life or social sciences]”, just ahead of the sales and service economy sector at 21.1 per cent.
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In Ireland, technology, banking, marketing and media have all been identified as sectors that rely on the support of freelance workers to provide certain services, according to the Revenue Commissioners.
Avoid the trap
When temporary contract work becomes too widespread – as it did for more than 50 per cent of under-30s in Spain a few years ago – it can become more of a trap than a stepping stone. The lack of guaranteed work can leave people scrambling from one fixed-term contract to the next.
The need to focus on the next sale and maintaining existing client relationships means independent contractors may forgo professional upskilling or training that would boost their long-term marketability and productivity. It’s a quick way to get left behind.
Professional contractors may initially enjoy the freedom that comes with independence but they can also encounter challenges, such as unexpected paperwork, chasing payments, surprise tax demands, an unpredictable workload, conflicting client requests and financial instability.
In addition, the lack of a regular income means you might not be eligible for a mortgage, loans or other forms of credit that might allow you to progress to the next phase in life.
Roseann Heavey, a partner at Noone Casey accountants who specialises in helping small and medium-sized enterprises, says: “There’s no financial benefit to leaving employment unless you’ve negotiated a higher daily rate. There’s no job security or illness benefit. If the contract ends, you’re left high and dry. It’s a choice for someone who values flexibility and variable work above all else.”
Know your employment rights
Employers can greatly benefit from hiring contractors as they are flexible and the company doesn’t have to offer holiday pay, pension contributions or other employment benefits.
However, they have been forced to examine their relationships with contract workers following a 2023 Supreme Court ruling on the employment status of delivery drivers for Domino’s Pizza. The judgment, which found that Domino’s had been incorrect in treating its drivers as self-employed, highlighted the prevalence of “bogus self-employment” in the Irish workplace.
The Revenue Commissioners also encouraged employers last year to proactively review their commercial arrangements with freelancers. This newspaper reported that a rise in workplace audits was expected after Revenue stated that commissioned freelance work generally indicates that a person should be treated as an employee.
In light of these developments, employment law specialist Anne O’Connell says it is very important for freelance workers and independent contractors to know their legal employment status.
“If you’re unsure, ask your company. Approach it as: ‘Things are going well here, so let’s make sure we’re all compliant. Why don’t we simply formalise it?‘
“It’s not in the company’s interest to continue in uncertainty so it’s best to formalise the agreement. They might think they’re saving money but they’re actually building up a huge risk. They’re going to be caught by a Revenue audit, a social protection review or a turn in the relationship. It costs a worker nothing to put in a complaint form [to the WRC].”
Mind the finances
Gig work can be seductive, says Heavey. “It might start off small where they’re doing one or two things and their ambition is to grow the business, but they never do. There’s the danger of getting stuck in a rut as they think the flexibility and variability of the work are better than higher pay or job security.
“Before you make that choice, you need to realistically look at the income side of things. How much do you believe you’ll make in a year? If you make more than €40k a year then you need to charge and collect VAT if you’re working in a VATable activity. That’s a payment burden on you every two months. Are you prepared for that?”
High levels of organisation and a suitable structure are important right from the start. Heavey says you need to decide if you’re going to be a sole trader or limited company then look at how taxes are paid based on that choice.
“You really need to educate yourself. It’s hard to get on top of it and it can become a stressful burden, especially if you don’t have a system and the discipline to put money aside to pay taxes.
“Talk to someone in the finance space as they can help you structure things. For example, will you invoice from Excel or use a different system? How will you manage your expenses?
“When work gets busy, things get out of control. Be disciplined and put a pot of tax aside every month. Sole traders definitely need to do this. If you’re a limited company, you put yourself on your own payroll so it’s a bit easier.”
Heavey says it is getting tougher to negotiate higher daily rates so the advantages of contract work may not be what they used to be. Make sure you review where you are now compared to where you thought you would be. Are you setting yourself up for a financial fall in the future? Are the flexibility and variety still worth the financial risk? If not, you might think about becoming a PAYE worker once again.
If you have a handle on VAT, income and other taxes, that’s super, but have you provided properly for your pension? Do you have insurance if you get sick and have to stop work for a few months? When you’re self-employed, you only get paid if you work. If the risks are too great, it might be time for a change.
“Nobody is really stuck in anything. It doesn’t prevent you from going back in to the workplace as an employee,” Heavey says.
Margaret E Ward is chief executive of Clear Eye, a leadership consultancy. margaret@cleareye.ie
