In the last ten years, the gig economy has exploded. And, given the increase of remote work since the pandemic, a change in how companies think about their jobs and recruiting practices, and the rising number of people undertaking online business projects, it’s only going to get bigger.
This pattern arose out of necessity during the Great Recession in several ways. Owing to mass unemployment and furloughs, 2.6 million workers lost their jobs in 2008. To make ends meet, they started looking for alternatives to the traditional 9-to-5 workday.
As a result of the economic crisis, some of the world’s most well-known businesses emerged, including Uber, Airbnb, and TaskRabbit, to name a few. Prior to 2008, some sale sites, such as eBay and Etsy, were appealing to people seeking to supplement their income. They’ve since risen to prominence in the online shopping industry.
GIG ECONOMY TAXES AND ITS IMPLICATIONS FOR BUSINESSES
Assume the company wants to take advantage of the advantages of working with freelancers. In that scenario, knowing the ins and outs of the gig economy is critical, especially when it comes to freelance work and taxes.
If you’re dealing with an employee or an independent contractor is one of the most important factors to remember. The duties of your organization will be drastically altered as a result of this classification. The US Department of Labor has issued new requirements that provide multiple criteria for determining certain duties, including an economic reality test that determines whether a freelance worker is economically dependent on an employer or is self-employed.
Two main components of the test are the freelance worker’s level of influence over their own job and their potential for benefit or loss. The Department of Labor claims that the actual practice of the working arrangement is the most important factor in determining whether or not someone is an employee.
Companies aren’t obligated to offer the same benefits to gig staff because they aren’t always counted as employees. These classification issues can result in problems with taxes, which are already complicated. The tax system is complicated enough as it is, and the shifting tax laws affecting the gig economy don’t help matters.
UNDERSTAND THE TAX SYSTEM
Although this can be perplexing, working with freelancers necessitates it. Your business must be aware of its tax responsibilities, such as withholding taxes, maintaining documents, and supplying information to freelancers. When it comes to remote jobs, it’s also necessary to know where the freelancers work because tax laws differ depending on where they work.
CLASSIFY WORKERS PROPERLY
One of the most serious issues in the gig economy is job misclassification. While freelancers and gig workers do not have the same benefits as regular employees, the laws that regulate the gig economy are changing.
PROPER RECORD-KEEPING
You’re in control of more than just the hourly rate of a freelancer. When tax laws change and businesses are required to disclose freelancer earnings to individual employees, the business must have the resources in place to provide the correct information for freelance tax reporting.
