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What is a gig worker? Pros & cons, laws, benefits & more

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Think you might want to become a gig worker? If so, you'll join a mighty pool of individuals. In 2019, a total of 57 million Americans completed some type of freelance work.

In this article, we'll cover some key considerations for anyone who is interested in joining the gig economy, including:

Read on to learn more.

Gig worker definition

The IRS classifies gig workers, also commonly called independent contractors or freelancers, as 1099 employees. The 1099 reports your earnings and indicates that your client does not pay FICA taxes or withhold income tax on that worker’s behalf.

Gig workers usually complete short-term work for multiple clients. The work may run the gamut from project-based work to hourly or part-time work. Gig workers may take on a long-term contract or do very short-term, temporary work.

In contrast, an employer controls every part of a W-2 employee's work, including when, how, and where the work gets done. Clients for 1099 employees, on the other hand, can only control the deliverables for the work you do in exchange for payment.

Gig workers must pay their own federal income taxes and self-employment taxes, such as contributions to Social Security and Medicare typically withheld by employers through employee paychecks.

Pros & cons of becoming a gig worker

You may point to multiple great reasons to join the gig economy, but you want to pursue work as an independent contractor or freelancer for the right reasons. Take a look at the pros and cons of becoming a gig worker before you quit your job.

Pros of becoming a gig worker

First, let's go over a few benefits of becoming a gig worker. You may think of a few great reasons right off the bat:

  • Flexibility: Gig workers can work where they want, when they want. They can work hours that fit their needs and possibly work around family needs as well. Flexibility offers one of the most prevalent reasons for choosing to become a gig worker.
  • Independence: You don't have to worry about micromanagement when you're a gig worker. No boss tracks your hours or approves vacation time. In general, you receive a task and complete the job the way you want (though most of the time, an employer must approve of your quality of work in the end).
  • Can choose work: As a gig worker, you can choose whether you want to take on a project or not. This keeps the work fresh and exciting, instead of having to do projects because a boss requires it.
  • Pay can be lucrative: Clients may opt to pay you more as a gig worker because they don't have to pay you benefits. You may also bill for tasks that involve meetings and phone calls.

Cons of becoming a gig worker

Take a look at the downsides of becoming a gig worker before you tell your boss you're leaving for a "better life." You:

  • Don't get benefits: One of the biggest downsides to gig work involves a lack of benefits. You cannot tap into the same type of workers' compensation benefits as full-time employees, nor can you tap into unemployment benefits, paid sick leave, paid family leave, or other benefits that full-time employees enjoy. You must purchase private health insurance, organize your own retirement. You may want to chat with a trusted financial advisor to find the best retirement option for you.
  • Must pay quarterly taxes: You must withhold 25% to 30% of your money so you don't owe big-time during tax season. Talk with your accountant or tax advisor so you know what you can write off.
  • May miss water cooler talk: You may not love the more solitary life of a remote worker. Even if you regularly meet with other full-time employees, your gig worker status might mean that you never "quite fit in." It can be a lonesome road.
  • May find yourself constantly in search of your next gig: You may constantly have to search for work. This can bring about some major stress as you deal with the uncertainty of where your next job will come from.
  • May still have to sign a contract: In many cases, you still technically have a "boss" you must report to. You may still have to sign a contract. Clients can make specific stipulations in the contract. For example, they may ask that you not work with a major competitor.
  • Must keep excellent records. If a client pays you more than $600, you may receive a 1099-MISC or through the 1099-K, which tracks credit and debit card payments. This form involves amounts over $20,000 and for over 200 transactions. You may want to get tax software to help you keep track of your income and expenses.

Laws for gig economy workers

The IRS’ classification of independent contractors says that independent contractors by law should have:

  • Control over what work they do and when and how they do it.
  • Control over how they get paid (though the client has input on this).
  • A contract that outlines the exact parameters of the work, including when it ends.

At the federal level, employers cannot discipline, terminate or retaliate against an employee due to race, gender, religion, national origin, disability, marital status, age, pregnancy, sexual orientation, military status, and veteran status. Unfortunately, these federal laws don’t apply to you as an independent contractor. However, your state laws may protect you, as some states' laws anti-discrimination laws apply to self-employed contractors.

Laws that dictate minimum wage, overtime pay, mandatory break requirements, sick time, and family leave do not apply to independent contractors. Gig workers can only rely on lawsuits for enforcement, which can quickly become time-consuming and costly.

Some companies may try to skirt the IRS rules and misclassify their workers as independent contractors when the details of the job and their work actually fit the IRS’ classification for an employee. In this case, gig workers have the right to report an employer to the IRS, in which case the IRS can investigate and may penalize the company for its misclassification.

Benefits for gig economy workers

As a gigger, you don't get benefits. However, you can still find insurance packages like the following:

  • Self-employed health insurance: This type of health insurance, also called individual health insurance, means you're the only person on the plan. You must buy it during an open enrollment period if you buy it on the Marketplace.
  • Association Health Plans: You may join a union to get on a group health plan, such as the Freelancers Union. The Freelancers Union provides health insurance plans just for freelancers if you freelance full time. You can also get dental coverage, life insurance, and disability insurance. Not a freelancer? Look into your own trade for more union options.
  • Medical insurance packages: Medical insurance packages, while not exactly a traditional health insurance offering, offer a great way to save on costs and still have quality coverage through a variety of products.
  • General liability insurance: General liability insurance provides financial protection if you become held responsible for some of the most common accidents that can occur at a business — especially a customer injury or property damage.
  • Professional liability (also known as errors and omissions) insurance: This type of insurance offers protection if you get charged with negligence by a client.
  • Workers' compensation: If a workplace injury occurs, workers' compensation can cover your medical treatments, lost income, and other costs. Workers' compensation does not have to stay limited to those with employees.
  • Disability insurance: If you become disabled and cannot continue your work, disability insurance may offer you a great way to recoup some or all of your income.

Breeze helps gig workers find affordable disability insurance. Get a free quote in seconds.

Unemployment for gig economy workers

During the COVID-19 pandemic, more and more employees-turned-gig workers had to choose the gig economy to make ends meet.

Since the pandemic began in early 2020, lawmakers and private companies took steps to offer employment protection to gig workers. In fact, when the federal government passed the CARES Act to offer emergency relief to those suffering from the aftereffects of the pandemic, part of the law extended unemployment benefits to freelancers, gig workers, and independent contractors.

These individuals had never before been eligible to file for unemployment.

Is gig work right for you?

Despite the fact that the gig economy looks advantageous from a flexibility perspective, you may want to consider the drawbacks of being a gig worker before you choose that lifestyle.

However, note that you can always try the gig economy, and if it doesn't work for you, you could always go back to full-time or part-time employment.

Melissa Brock is the founder of College Money Tips and a full-time freelance writer and editor. She loves helping families navigate their finances and the college search process.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

— Published June 2, 2021
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