Contractors and Gig Economy Workers

At a glance, how might a contractor differ to a gig economy worker?

With more than a million workers operating in it, the UK’s gig economy is booming. Its rapid rise in recent years has been fuelled by the growing number of digital platforms such as Uber, Deliveroo, and Amazon.

Together, these new generation businesses have created a huge demand for workers who bear certain similarities to contractors, but who, when you look a little closer, are not quite the same thing.

However, the independence enjoyed by a gig economy worker isn’t too far removed from the flexibility that contractors value so highly. And with an element of control over how, when, and where they work, gig economy workers are often thought of as self-employed by the companies that engage or source projects for them.

That said, gig economy workers don’t always consider themselves self-employed in the way that contractors do. And their employment status can reflect this.

Increasingly, these individuals are classed as ‘workers’, meaning they are entitled to a number of basic employment rights. A contractor working outside IR35, on the other hand, will typically be classed as ‘self-employed’ and will not receive such benefits.

Setting the employment status of these individuals isn't made easy by the lack of clarity in employment legislation, which in many cases does not clearly define gig economy workers from contractors.

For example, a Government report last year identified the gig economy as the ‘exchange of labour for money between individuals or companies via digital platforms that actively facilitate matching between providers and customers, on a short-term and payment by task basis.’  

Another Parliamentary definition makes the boundaries between gig economy workers and contractors even hazier, describing the gig economy as a ‘labour market characterised by the prevalence of short-term contracts or freelance work as opposed to permanent jobs.’

With self-employment growing in the UK, it’s hugely important that companies engaging both gig economy workers and contractors are able to tell one from the other.

Not least because IR35 changes from April 2020, medium and large private sector companies will be responsible and liable for setting these workers’ employment status and thereby the tax status they fall under, much like in the public sector.

To make it easier to recognise a contractor from a gig economy worker, we’ve highlighted a number of typical characteristics that - while not definitive on their own - could factor into decisions.

Transactional work

The Government’s unofficial definition of a gig economy worker references ‘digital platforms’, nodding to the likes of Uber, Deliveroo, Handy, and even PeoplePerHour and freelancer.com - two networks designed to connect freelancers and contractors with work. 

While the majority of this work is sourced through digital platforms, in recent years, the gig economy has evolved. Today, individuals working for Pimlico Plumbers, for example, are deemed to be a part of it. What perhaps defines gig economy work is that it usually takes the form of single assignments that are brief in nature and with little continuity in the customer relationship.

A contractor, on the other hand, tends to work on engagements that often have the dimension of continuity. They also typically source projects differently - through recruitment agencies or directly through their own network.

Project length

A Deliveroo rider might agree to a job that takes 20 minutes to complete. They could take on 20 or more of these on any given day, but the point is these assignments are small and frequent.

An IT contractor, however, will usually work with one client for a longer period of time. While a contractor’s projects are temporary and have start and end dates, assignments could last anything from a day to several months and even a year or more.

Rates

Government research last year suggested around 700,000 gig economy workers were paid below the national minimum wage, which reinforced the need for these individuals to receive greater protection in the form of employment rights.

The cost of engaging the services of a contractor is significantly higher. For example, Qdos research in 2018 revealed 40% of contractors, the vast majority of whom worked in IT roles, earned £500 or more per day.

Skill required

Generally speaking, gig economy work differs in skill levels to contracting. Last year, as many as 40% of gig workers were couriers, and the sector is made up of a significant number of taxi drivers too. As previously mentioned, the number of gig economy ‘freelancers’ such as designers and writers looks to be on the rise too.

While the type of work undertaken is, to a certain extent, indicative of the difference between a gig economy worker and contractor, the skill required to do the job is of greater importance.

It would be clumsy to say a courier isn’t as skilled as an IT contractor, but the level of expertise needed to perform each role differs greatly and the perceived value of the service is reflected in the price.

Employment rights

By and large, gig economy workers want and need employment rights - whether that’s holiday pay, sick pay or minimum wage. Uber, for example, recently lost an appeal meaning their drivers will be entitled to basic rights like these. This has been welcomed by many employment experts who view gig economy workers as vulnerable.

Contractors working outside IR35 do not often consider themselves vulnerable. Most contractors prefer to operate with total independence, free from any attachment to their clients. In many cases, they would rather pay themselves marginally more tax efficiently than receive employment rights.

It’s a different situation when contractors work inside IR35 and pay taxes as though they are employees. Last year, 89% said they would like to be offered employment rights in exchange for paying higher taxes.

Different species

On the face of it, the differences between a gig economy worker and a contractor shouldn’t be too hard to spot. That said, ambiguous employment legislation and the rise of the gig economy, which now provides opportunities to traditional freelancers and contractors, means that people can seep into each other's categories and setting employment status has become more challenging.

The pointers we have given here, however, while not conclusive on their own, should help workers and engagers recognise these different species and assist when setting their employment status.