Risks and Challenges
The benefit of on-demand platforms that support low barriers to entry comes
with an inherent drawback for employees: low barriers to exit. Any given
source of contract work can dry up quickly, in some cases because of negative
reviews of a freelancer’s performance (especially reviews that are publically
available, in apps like Uber and Airbnb), and most sources of freelance work
depend on the sometimes arbitrary satisfaction of a client.
As Joseph G. Davis, Professor of Information Services and Systems at
University of Sydney, says of Amazon’s Mechanical Turk, “Data-driven
algorithms for continuous monitoring of worker performance and reputation
enable requesters to pick and choose the workers. They also have the
unilateral right to reject all or part of the work completed by a worker
without payment, which adds to the pressure on workers.”
Lilly Irani, a developer who helped create
Turkopticon, a forum that helps Amazon’s Mechanical Turk users identify and avoid shady
employers said, “If you have a 99.8 percent approval rating and then you work
for some jack-wagon who rejects 500 of your HITs, you’re toast. Because for
every rejection, you have to get 100 HITs that are approved to get your rating
back up. Do you know how long that takes? It can take months; it can take
There’s also the ever-present possibility of an app going out of business in
response to litigation or funding issues, or a sudden lack of demand caused by
new competitors in the market or other economic factors.
Contractors may find that costs like health insurance and other work-related
expenses have a significant impact on their net take-home pay. The
cost-benefit analysis might look good at first — and less rosy when all costs
have been accounted for. While W-2 employees are reimbursed for work-related
costs, like gas. While some of these out-of-pocket costs can be written off
come tax time, the day-to-day expenses can add up.
Another significant – and sometimes unanticipated – cost for freelancers is
employment taxes. Employers aren’t required to pay this tax for contractors.
And at close to 15 percent, this cost alone can take a sizeable amount out of
Contract work typically means that most of the safeguards available to W-2
employees are absent in the on-demand dynamic. Severance pay, disability
leave, PTO, sick days, and workers comp are just a few of the protections and
benefits afforded to full- and part-time employees but not contractors. It’s
also far easier for employers to terminate a relationship with a freelancer as
opposed to a full- or part-time employee.
While contractors are technically allowed to unionize, they aren’t afforded
the same legal protections as W-2 employees. Employers aren’t required to
negotiate with contractors on contract terms, and they are freely allowed to
take action against contractors who go on strike. Wages can be changed without
notice, and minimum wage laws do not apply.
While contract work carries greater risk than traditional employment in ways
(most notably in the lack of employer-subsidized benefits and unpredictability
of work), the benefits of independence and options are compelling enough that
the number of employees who either embrace the gig economy full-time or
moonlight to supplement traditional employment are growing–and rapidly. As the
numbers increase, bolstered by new options in cloud-based “employers,”
understanding the implications and changing landscape for employees, managers
and business owners alike will be key.