Workforce Compliance in the Gig Economy

The use of independent contractors has dramatically evolved in the last ten years. The primary driver has been smart technology and widespread high-speed internet, potentially allowing every connected person to enter the market. As the number of gig workers approaches the 50% threshold, workforce compliance is changing just as rapidly.

Gig workers bring a bunch of benefits with them. Unfortunately, many companies – especially smaller businesses and startups – don’t appreciate the different regulations that govern independent workers. Here are the risks and rewards around gig-workers for businesses, as well as how to painlessly manage the hazards.


What is a gig worker?

Gig workers provide services either directly (such as freelancers and consultants) or as part of an agency. Either way, they’re independent of your company, which means you can control the results of their work but not how it’s accomplished. You also can’t have an employment relationship with them nor control their financial activities.

Relationships with outside contractors are inherently temporary, have no implicit job security, and are often on a piecework basis. Gig workers include doctors, lawyers, ride-share drivers, plumbers, content creators, and graphic designers. But the list is exploding – around 70% of executives surveyed say they plan on hiring more gig workers within the next two years. 


What are the benefits of using gig workers? 

Resiliency, scalability, and agility. Operations can rapidly adapt to new technology. Enterprises can rapidly grow or downsize with freelancers. You gain unparalleled access to high-demand talent, increased flexibility, and potentially save on operating costs. It’s why the gig economy is expanding so rapidly. 

What are the risks of using gig workers? 

Complying with tax laws for a 1099 gig worker may be the most significant risk. There are many forms, each has different deadlines, and some seem to overlap. The penalties for missing filing deadlines can add up, too. Late filing fees alone can reach hundreds of thousands of dollars – or even millions. 

Misclassification is also a problem. Many states and the Federal government are trying to change the definition of a gig worker. The regulatory environment is decades out of date, and it’s easy to misclassify employees as contractors.

If you use an outside agency that controls the workers, they should maintain all the regulations. You’ll treat the agency as the contractor and deal directly with them in most cases. However, if your documentation isn’t apparent, co-employment can occur, where responsibility becomes vague.


How can you maintain 1099 workforce compliance? 

Two main components are needed to stay compliant: Maintain a legally clear independent relationship and file the correct tax forms on time. To avoid misclassification, you should document the precise nature of the relationship, avoid trying to supervise their work, and clearly define projects and deadlines. The changing nature of what defines independence may require an attorney to clarify in the worst cases. 

Staying compliant with W-9 & 1099 regulations is much more attainable: Use sophisticated automated 1099 compliance software for all your outside contractors. It takes minutes for small and medium-sized businesses to set up an account, and paying your freelancers is even easier, so you never miss a payment, helping to retain your best talent. Best of all, it generates the required tax forms and sends them on time, eliminating late fees. 

Tapping into the gig economy is the future of work if you take reasonable steps to minimize the risks. The key to this is to maintain workforce compliance while optimizing profits, and 1099 compliance software is essential to the process.

Written by

Erin Lee