Self-employment, the gig economy and a changing world

9 June 2017

In August last year we reported on trends in self-employment following the publication the previous month of a survey by the Office of National Statistics. As these trends seem to be rapidly accelerating there is no better time for an update.

I appreciate that most of my readers will be either self-employed or employed by a company of which they are the majority shareholder. Why should a person who is already in this position be interested in the growth of self-employment? Because this trend is interwoven with many other threads that affect the way in which the world’s major trading economies operate and will therefore have an impact on the way you carry out your business in future.

The relatively new term ‘gig economy’ in itself reflects the casual way in which the changes are taking place. The participants are self-employed, entrepreneurial and flexible. They are prepared to take risks with the security of their income stream in order to accommodate their preferred lifestyle, with choice over what they do, when they do it and where they live. They are also encouraged by the lower tax rates often applied to their income in various countries; in the UK the rate of National Insurance contributions is significantly less for the self-employed than the employed.

The most important enabling factor is the growth of digital platforms. These are transforming independent work, based on the almost universal availability of mobile devices, the ability to tap into the skills of enormous numbers of workers across the globe, the access to customers in virtually any centre of population, and the huge amount of real-time information. A report published recently by McKinsey Global Institute (MGI) finds that today these online marketplaces are used by 15 percent of independent workers but that this percentage is set to rise rapidly.

‘Gigging’ is often associated with such organisations as Deliveroo and Uber, but in fact it is increasingly being used by organisations to outsource tasks that can be performed anywhere in the world. One of the largest digital platforms is Upwork, which is based in the United States but which specialises in outsourcing tasks to China, Malaysia and India. Typically these are routine clerical tasks that are fundamental to our service industries but increasingly highly trained and skilled operatives are offering specialist consultancy, design and analysis services on a ‘gig’ basis. Not all such workers are based in the emerging economies. The MGI report estimates that in the USA and EU there are 160 million of these independent workers, and that 20-30% of the working population is engaged to some extent in independent working.

The implications for UK business are far-reaching:

First, taxation. With an increasingly large proportion of the working population benefiting from the lower taxation benefits of self-employment, and wealth-creating activities being outsourced to the Far East and even to sub-Saharan Africa, governments are becoming anxious about falling taxation receipts. We have already seen a (failed) attempt to increase National Insurance contributions on the self-employed, a tightening up of the tax rules on ‘one-man’ companies contracted with public sector organisations, and some well-publicised challenges by HMRC on companies that claim their operatives are self-employed.

Secondly: productivity. This is a subject that I have covered in recent blogs. The ‘gig’ economy affords a great opportunity to correct the UK’s poor productivity rate, provided that at the same time steps are taken to address the issues of inadequate training and investment. Where there are skills gaps these can sometimes be filled by outsourcing tasks to skilled workers overseas, or preferably to workers in the UK who for whatever reason want to work independently and flexibly from home. More menial tasks can also be outsourced, giving opportunities to train and promote those employees that are currently carrying out such duties in-house.

So my advice to those entrepreneurs that wish to turn current economic trends to their advantage is:

1. Watch the tax compliance. If you outsource tasks to independent workers ensure that your working practices and service contracts cannot be challenged either by HMRC or the workers themselves.
2. Watch your competitors. Ensure that they are not leaving you behind by exploiting the immense pool of talented workers that exists in the emerging economies.
3. Review your processes. Decide what activities can be carried out by independent workers either in the UK or abroad and explore the possibility of using the internet to outsource these activities.
4. Review your core skills. Those skills that are essential to your main product or service and that must remain in-house need to be identified. Then ensure that you have a robust training and development programme for your key staff.

If you are concerned about any of the issues I have raised why not just give me a call and we can meet to discuss the future of your business with the objective of helping you and your business to prosper. Alternatively get in touch with your usual UHY adviser.