Small Business Labs

NPR on the Gig Economy

NPR's The Rise of the Contract worker, is a week long series of stories covering the gig economy. 

 

It was based on a gig economy survey they conducted with Marist Poll. The highlights from their survey are:

NPR/Marist Poll Highlights

• 20 percent of all American workers are contract workers hired to work on a specific project or for a fixed period of time.
• 51 percent of contract workers don't receive benefits from their jobs.
• 49 percent of contract workers have income that varies from month to month or seasonally.
• 65 percent of contract workers are male and 62 percent are under 45.
• 66 percent of part-time workers prefer that kind of schedule.
• 56 percent of workers received a raise in the past year.
• 84 percent of workers are not worried that they will lose their job in the next year.
• 54 percent of workers think it would be difficult to relocate for a better job.

Overall the survey results are consistent with the growing number of other gig economy surveys. 

The major exception is this survey found that 65% of contract workers are male. This is substantially higher than pretty much every other gig economy survey, which find close to a even split between male and female gig workers. 

This is likely due to how they asked their contract worker question. They asked:

Thinking about your work arrangement, are you a contract worker, that is, someone who has been hired to work on a specific project or for a fixed period of time?

This question eliminates several gig/independent worker segments that tend to skew female. For example, Etsy sellers would not be included, nor would care givers, nor would a variety of others who are self-employed/freelancers.

There's also a large margin of error associated with their contract worker data. They surveyed roughly 1200 Americas of which roughly 800 said they were "workers". Of this 800, 20% said they were contract workers. This means their contract worker data is based on only 160 respondents. This results in a margin of error of almost +- 8% on their contract worker responses.

So when they say 65% of contract workers are male, they're really saying somewhere between 57% and 73% of contract workers are likely male.  

So as with all surveys, you have dig into the methodology to fully understand the results. 

But overall we very much liked the series:

Voices Of America's Contract Workers: 'I Love The Freedom' nicely covers the good and bad of gig work from the point of view of gig workers. 

For One Family, Contract Work Means 'Feast Or Famine' As Income Varies covers the challenge of unpredictable and variable income, something most gig workers face. 

'Don't Think A Robot Could Do This': Warehouse Workers Aren't Worried For Their Jobs points out that 94% of contract workers don't think automation will eliminate their jobs

We think this series is important for several reasons. 

First, NPR covering contract work in-depth is a clear signal that the gig economy is large and growing is now widely accepted. This was not true even as recently as 2-3 years ago. 

NPR's series also presents both the good and bad sides of the gig economy in a balanced manner. This too is relatively new. 

In the past, most gig economy press coverage was either very positive or very negative - and most stories were negative. NPR's coverage shows that there is a better mainstream understanding of the pluses and minuses of gig work.

Definitely a series well worth listening to. 

Consumer Goods Workers Increasingly Choosing Gig Work

According to the British recruiting firm Sterling, the consumer goods industry is:

" ...having to contend with the battle of the interim employee; a growing trend of permanent employees deciding to ‘go interim’."

According to the article, the primary driver is skilled gig workers earn a lot more than traditional employees doing the same work. 

The article also points out - and their graphic below illustrates - that this is leading to even relatively young, inexperienced and modestly compenstated consumer goods workers choosing to become contract workers.

    

Sterling doesn't see this shift as a good thing.

They blame a combination of skilled labor shortages and the industry not being an attractive employer. Key quote:

"Paying sky-high wages for inexperienced employees that yield little to no return, is senseless. The FMCG and food sector must instead, focus their efforts on changing the perception of the industry to attract innovative, motivated and dynamic talent that will drive the industry forward."

FMCG, BTW, stands for "fast moving consumer goods", such as food and things you buy in a grocery or drug store. 

This article caught our eye because it's an interesting example of how the war for talent is leading to more skilled professionals becoming independent workers.

It's also interesting in that it's not just older, experienced workers moving to gig work, it's also younger workers doing so.

We're seeing the shift towards independent work in almost every industry -  and trends driving this shift show no sign of slowing down.

The New Tax Law: Freelancers Win on Taxes, Lose on Healthcare

The new tax law contains a major benefit for many freelancers. It allows them to deduct 20% of their revenue from their taxable income.

This is the "pass-through" provision. It provides this deduction to sole proprietors, LLCs and and other entities that pass-through their business income to their personal taxes.

There are some caveats. There are limits to who can take this deduction and who can and can't will be unclear until the final IRS regulations are issued. This deduction also phases out starting at $157,500 of individual income and $315,000 of income for couples filing jointly.

But most freelancers who make less than these phase out levels will likely be able to take this deduction. 

This is a major change from the original House bill. That proposed bill tightly limited who could take advantage of the pass-through provision. It's also more generous than early versions of the Senate bill.

But in the end the Republicans decided to greatly broaden who would get this deduction.

This deduction, coupled with new, lower tax rates means most freelancers should pay less in Federal taxes in 2018 than they would have under the former tax code.

While the tax code changes are good news for freelancers, the bill also repeals Obamacare's individual mandate. This is not good news. 

The current administration seems determined to undermine Obamacare, even though they don't have an alternative. The repeal of the individual mandate will make health insurance more expensive and harder to get for those outside of traditional corporate insurance plans - meaning freelancers and the self-employed.

Older freelancers and those earning relatively low incomes will likely be hurt the most.

We'll also see an increase in health insurance "job lock" as people choose to stay with traditional jobs so they're covered under corporate health plans. This will be especially true for older Americans. 

Because of the complexity of the new legislation, we urge freelancers to get help with their taxes in 2018. The leading tax software providers will be a good source of information as well as accountants and tax lawyers. 

As for health insurance, all we can offer is the hope that congress will fix the mess they are creating by undermining Obamacare and the health insurance markets.

The Cities With the Most Self-Employed

A new report from the Stephen S. Fuller Institute at Virginia’s George Mason University shows that Miami has by far the most non-employer businesses per capita in the U.S. (click on chart to enlarge).

New York, not surprisingly, has the largest total number of non-employer businesses. 

Non-employer statistics are often used as a proxy for self-employment.

This is because a "non-employer businesses" is defined by the  U.S. Census Bureau as "one that has no paid employees, has annual business receipts of $1,000 or more ($1 or more in the construction industries), and is subject to federal income taxes."

In other words, non-employers only have an owner. The data comes from IRS tax files and includes full and part-time businesses. About about three-quarters of all U.S. businesses are non-employers. 

For a variety of reasons too wonky to go into here, the non-employer stats are an imperfect self-employment proxy (see the U.S. Census non-employer methodology description for more detail). But we consider this data to be a directionally correct measure of self-employment, both in terms of growth and overall size. 

You may ask how non-employer data differs from BLS self-employment data.

The quick answer is the non-employer data comes from IRS data, while self-employment data comes from the BLS's monthly current population survey. This means the two data sets aren't really comparable. See this article for more details. 

We started tracking the non-employer data back in 2006. It was the dataset that first alerted us to the growth of the gig economy. 

Are There More Gig Walkers Than Uber Drivers?

When most people hear the term "gig economy, they think of Uber. But Uber is hardly the only gig economy company.

In fact, it may not even be the largest, at least in terms of the number of independent workers using its platform.

According to a recent GigWalk press release:

"Gigwalk’s Cloud Market solution instantly connects businesses to a network of over one million Gigwalkers in North America …"

GigWalk's gig walkers are mobile independent workers who execute a variety of tasks for GigWalk clients.

Most of these are retail related, like checking to see promotional materials are properly displayed and acting as "secret shoppers". 

And as the map above (click to enlarge) shows, gig walkers are everywhere people are in the U.S. 

Uber’s been cagey lately about their number of U.S. drivers, but it seems likely they too have around 1 million in North America.

Lyft, of course, also has a lot of drivers too.

But so does GigWalk competitor Survey.com.

They recently claimed they have 400,000 independent contractors on their platform. 

So it’s quite possible there are more independent contractors in the U.S. working for GigWalk and Survey.com than there are people driving for Lyft and Uber.

There are other less known sectors with large numbers of independent contractors.

According to the NY Times article Plugging Into the Gig Economy, From Home With a Headset, there are more than 100,000 call center agents who work as independent contractors through on-demand call center platforms.

Field service is another industry with lots of on-demand gig workers. Platforms like Field Nation, Work Market, OnForce (recently acquired by Work Market) and others claim to collectively have over 600,000 independent field service technicians working via their sites.

There's even a report on the Uberization of Field Service and a different study showing that 76% of organizations that use field service technicians use independent contractors.

So while there may not be as many independent field service technicians as there are ride share drivers, there are a lot of them.

The gig economy is happening in pretty much every economic sector and industry.

And in some sectors, it’s already quite large.

Few Small Businesses and Freelancers Will Benefit from the Pass-Through Provision of the Tax Plan

It's been said that the DC based small business trade association the National Federation of Independent Businesses (NFIB) is "less an advocate for small businesses than an arm of the Republican Party."

And even if that's a bit of an exaggeration, it's true that the NFIB almost always supports Republican legislative positions.  

So it's both interesting and informative that the NFIB has come out against the proposed Republican tax cuts and jobs act.

According to their press release, the reason is:

“This bill leaves too many small businesses behind. We are concerned that the pass-through provision does not help most small businesses."

The "pass-through" business income rate applies to income from entities like like S-corporations and limited-liability companies (LLCs) that do not pay their own taxes, but pass their income through to their owners, who then pay tax on that income on their individual income tax returns.

The proposed 25% pass-through rate is substantially lower than the 39.6% top marginal rate for individuals. 

The NFIB estimates only about 15% of small businesses will be able to make use of the 25% pass-through tax rate reduction provision in the plan.

We think, if anything, this estimate is high.

According to the non-partisan Tax Policy Center, only about 13% of all small businesses are in marginal tax brackets above the 25% rate. 

Under this bill, to get above the 25% marginal rate you need to make more than $200,000 if you are single or more than $260,000 if you are married. This is the level at which the 35% marginal tax rate kicks in for individuals. 

Because the median U.S. small business generates about $400,000 in revenue. and about $68,000 in owner income, few small business owners get to these levels. 

The bill also contains "guard rails" that try to limit people who sell their time/labor from benefiting. 

Some tax analysts think the guard rails are quite strong and will keep most services firms (doctors, lawyers, etc.) from using the pass-through rate. Others think many of these firms will be able to get around the guard rails.

We tend to think many will get around them, but it will depend on the bill's final language. But they will stop some high earning small businesses from using the pass-through rate. 

Adding in the impact of the guard rails, it seems to us only around 7%-8% of small business owners will benefit from the new pass-through rate.

So who would be the winners?

The quick answer is small business owners who make a lot of money and can get around the guard rails.  Some examples are:

• Owners of very profitable hedge funds, PE firms and real estate development firms: The owners of these firms are often wealthy and make lots of money. This plan cuts their taxes by a substantial amount. interestingly, the guard rails don't apply to these types of firms.
• High earning professional services firm owners like doctors, lawyers and high end consultants who can get around the guard rails: While many of these firms will be blocked by the guard rails, it seems likely some will figure out how to get around them. 
• High earning owners of traditional small businesses that are organized as pass through entities: Again, if the owner is in the 35% or 39.6% marginal tax bracket they should see a tax reduction on their business income.

The vast majority of freelancers and other independent workers also aren't going to benefit. Based on what we've seen so far, few if any traditional freelancers and independent contractors will be able to take advantage of the pass-through provision, even if they make a lot money.

This is because the guard rails are specifically designed to stop people who sell their labor from benefiting. Also, most freelancers aren't in the higher marginal tax brackets.

So we agree with the NFIB that the pass-through provisions of this bill does not benefit most small businesses.

We have several other problems with this bill that are not small business related.

But since this is a small business blog, we'll keep the focus of this post on the direct impact on small businesses and independent workers.

The NFIB is hoping to get Congress to change the plan in ways that will benefit main street small businesses. Their press release says:

We will work with Chairman Brady to make the necessary corrections so that the benefits of tax reform extend to all small businesses.

We're confident many will point out that most small businesses and few, if any, freelancers/gig workers will benefit from this bill.

We're also confident there will a lot noise about the big winners being rich owners of Wall Street financial firms and rich real estate developers.

One reason for this is in addition to Wall Street types benefiting from the pass-through provisions, the bill doesn't eliminate one of Wall Street's favorite tax loopholes, carried interest. This despite a campaign promise by Donald Trump to get rid of it. 

And since everyone pitching this bill is claiming a major goal of this legislation is to help to main street small businesses, there will likely be changes that will benefit this group.

So stay tuned.

BTW, the best article describing the pass-trough provisions of this bill we've seen is Money Watch's What's all the fuss about "pass-through income"?

Also, the Journal of Accountancy has a good article covering most of the bill in detail. 

Finally, see the Tax Policy Center's analysis of the bill. 

Need for Agility and Skilled Talent Driving Growing Corporate Use of Contingent Workers

Ardent Partners recently released their 2017-2018 State of the Contingent Workforce Management report. Ardent Partners is an analyst firm focused on corporate procurement and supply chains.

The report is targeted at procurement and HR professionals who manage contingent workforce programs at larger organizations. This is the 5th year of this study on the use of non-employee talent by corporations.

The report is available on the sites of its many sponsors, but we got ours from Shiftgig's site. 

The lead finding of the study is that roughly 40% of today’s total, corporate workforce is considered contingent, including temporary labor, professional services, independent contractors and on-demand workers.

But what we found most interesting is the list of the top contingent workforce management challenges.

As the report chart below shows, the desire to be more agile and the need to find, engage and source talent are the top challenges.

These are not new or surprising. Upwork talked about the same issues at their corporate event last August. And the need to increase business agility and flexibility is a topic we've covered for years.

Rapid change is driving the business need for increased agility.

The resulting corporate "need for speed" means that companies have to be able to quickly staff up and down, often with hard to find talent. These needs have reached the point where corporations have no choice but to increase their use of contingent talent. 

Also interesting is that reducing cost has fallen to 5th on the challenges list. Four or five years ago, it would have been first. 

The reason is contingent workers at corporations no longer just do low level or low skill work. Key quote from the report on the growing strategic role contingent workers play:

It is important to note that these are not augmentative, supplemental workers, as today’s non-employee workforce plays a critical role in how mission-critical work is handled, addressed, managed, and completed.

Because contingent talent is involved in mission-critical work, cost is less of an issue.

This also explains why the need to find, engage and source talent is number 2 on the challenges list. If you're in need of mission-critical talent, how you find and engage that talent becomes much more important. 

BTW, this is not to say cost isn't an issue. But what is happening is contingent labor is bifurcating into two types. For mission-critical talent, cost is not a key issue. For non mission-critical talent, cost remains an important issue. 

Ardent is forecasting continued growth for the contingent workforce. They are also recommending corporations should embrace contingent talent and see it as part of their broader total talent pool. Again from the report:

Today’s total talent pool consists of a variety of skillsets: independent contractors, freelancers, professional services, “gig” workers, robotics, and, of course, traditional/permanent workers. A perfect alignment between an open job/project and the internal or external skills within the enterprise talent pool is the ideal way to address work.

This approach to talent is clearly emerging, both in large corporations and small businesses.

Upwork's 2017 Freelancing in America Study

Upwork and the Freelancers Union released their 2017 Freelancing in America study last week. This is the 4th year of this study.

The key finding is the estimated number of freelancers continued to grow in 2017, reaching 57.3 million, up from 53 million in 2014. That's about 36 percent of the workforce.

According to the study, part-time freelancers are both the largest group and the ones driving this growth.

The biggest category of freelancers is what they call diversified workers. This group is defined as:

People with multiple sources of income from a mix of traditional employers and freelance work. For example, someone who works part-time at a start-up, manages an Airbnb and does freelance coding.

Can you tell from this definition that Upwork is based in Silicon Valley?

Justin Fox, in his Bloomberg View article The Rise of the Not-Just-Freelancing Freelancer on the study, adds this non-Silicon Valley description of a diversified worker:

... someone who works part-time at Wal-Mart, babysits, and knits sweaters for sale. 

Moonlighters (those with full-time jobs who freelance on the side) are the 3rd largest group.

Combined, these two groups increased in number from 28.7 million in 2016 to 32.8 million in 2017. 

This was enough to overcome a decline the number full-time freelancers (the 2nd largest group), which fell 17.7 million in 2017 from 19.1 million in 2016.

These findings are consistent with the findings of the 2017 MBO Partners State of Independence study, which we work on with MBO Partners.

The major differences between the two studies are due to differing definitions of who is an independent worker/freelancer.

The MBO Partners study only includes those who regularly earn money as an independent worker. The Upwork/Freelancer's Union study includes anyone who earned any money from freelance work over the prior year. 

Interestingly, when we re-ran the State of Independence results with the definitions used in the Upwork/Freelancers Union study, we came up with very similar numbers as Upwork/Freelancers Union did.

The Aspen Institute's Future of Work team also found the studies are consistent once you adjust for differences in the definitions. 

This level of consistency is good. Having multiple, consistent studies helps confirm the trends presented are real.

It also reinforces the idea that there are both cyclical and structural forces driving the growth of the independent workforce. 

Justin Fox's article provides an excellent description of the cyclical forces:

What's going on here is what happens at some point in every economic expansion, as a tightening labor market pulls contract workers, freelancers and temps into steady payroll jobs. During recessions and the early years of subsequent recoveries, employers lay off workers and the ranks of full-time freelancers grow. As recoveries gain strength, the independent-worker tide recedes.

One structural shift we're seeing more people turning to part-time independent work, mostly to supplement their income.

We also believe there is a structural shift to full-time independent work. But during times of tight labor markets (like now), the number of full time freelancers falls for the reasons described above. However, we think the total number will increase again as labor markets weaken and will peak above the prior peak.

Below is the infographic (click to enlarge) from the Upwork study and the full set of results is available on Slideshare.

 

The Staffing Industry Analyst's Human Cloud Framework and Taxonomy

Last week the Staffing Industry Analysts (SIA) released The Human Cloud, the Gig Economy & the Transformation of Work.

It nicely covers the topics mentioned in the report title. Key quote from the report on the size of the "human cloud":

"SIA estimates that total human cloud spending reached between $47 and $51 billion globally in 2016. The business-to-business (B2B) segment of the human cloud grew approximately 20% year-over-year, with remote work arrangements accounting for 80% of human cloud revenue and highlighting flexible work location as one of the benefits of the human cloud. 

The report is excellent and well worth reading. We particularly liked their definitions and their human cloud framework and taxonomy.

The SIA defines the human cloud as:

... an emerging set of work intermediation models that enable work arrangements of various kinds to be established and completed (including payment of workers) entirely through a digital/online platform. In many cases (although not always), the platform also supports "the enactment and management" of the work (to a greater or lesser degree).

SIA does not include job boards or social networks in their definition because they don't enable or support work arrangements through to their completion.

They've also defined three human cloud subsets:

Online staffing platforms: enables hirers and independent workers to enter into, transact and complete work arrangements. Upwork and Fiverr are examples.

Online work services: these platforms enable the delivery of specialized services that are performed by independent workers. Uber, Lyft and Handy are examples 

CrowdSourcing: These are platforms or marketplaces like Amazon Turk that allow for work to be broken into tasks and performed by a distributed "crowd" of many workers.

As the SIA chart above shows, there is overlap among the various types of human cloud services and service providers.

We like the SIA's taxonomy and definitions and plan to use them going forward. 

The report goes on to say that the global size of the gig economy is $3.5 trillion.

To put that into perspective, if the gig economy were an independent country it would have the 4th largest economy in world (smaller than Japan, but a bit bigger than Germany). 

So the gig economy is big. 

Click here to go to the report's press release and landing page.

What's a Good Job and How Many Are There?

The Georgetown Center on Education the Workforce has started a project on "good jobs", with a focus on good jobs that don't require a university degree. 

According to their first report, there are 30 million American workers without a college degree who have a good job. This is a little less than the 36 million good jobs that those with college degrees have.

To put this into perspective, there are about 75 million U.S. workers without a college degree. So about 40% have good jobs as defined by Georgetown.

The obvious question is what's a good job? 

As you can see from the study chart below (click to enlarge), Georgetown defines a good job as one that pays at least $17 for a full-time job for those under the age of 45, and $22 per hour for those over the age of 45. 

Not surprisingly, the share of good jobs going to those without a college degree has fallen over time. In 1991 60% of good jobs went to those without a college degree. But by 2015 this share had fallen to 45%. 

The report goes on to break down which industries produce good jobs and who has them by demographic group. 

We find this work quite interesting primarily because it puts a stake in the ground in terms of defining a "good job". 

This has been a huge issue in the debate around the gig economy, with many arguing gig economy jobs are "bad". But despite describing them as bad, we've seen little on the topic of what would make them good, or what makes any job good. 

Over the next couple of months we're going to dig into this topic in more detail, using the Georgetown definitions and findings to compare gig jobs with traditional jobs.

It should be interesting.