The fall of the gig economy – and its impact on small businesses
Monday, February 18, 2019/
Remember when the gig economy was considered a platform for entrepreneurism? It wasn’t that long ago we collectively believed breaking away from the shackles of permanent employment gave people the opportunity to be their own boss and manage their own time; while simultaneously providing business owners more flexibility and employment options.
Now, with stories of worker exploitation and employer prosecution looming large, it’s fascinating we didn’t see the gig economy’s shortcomings earlier.
Allegations of exploitation
Ride-share and delivery drivers are often seen as the face of the gig economy, with workers attracted by a short term solution to earn a few quick dollars. Data shows that this is not a lucrative venture in the long run however. A recent J P Morgan Chase Institute study found delivery drivers’ average income dropped 53% in the last 4 years, on top of a loss of job security and other entitlements.
As the true costs of contract work unfold, workers are increasingly turning to business owners with criticism, and increasingly, official complaints to government bodies.
Game changer for business owners
Business owners who switched to more flexible arrangements with their workers are finding themselves in a difficult position. Not only are they facing less dedicated and committed workers, but a government crackdown last year sent ripples throughout Australia’s gig economy, with many employers concerned about prosecution.
Sham contracting – don’t get caught out
An increasing focus of government regulators is catching out business owners who are ‘sham contracting’, or engaging a permanent employee as a contractor to avoid paying full entitlements.
In June 2018, the Fair Work Ombudsman (FWO) commenced legal action against a food delivery platform for alleged sham contracting. It was claimed they categorised workers as ‘independent contractors’ although their hours and working arrangements were more aligned with that of permanent employees.
As a result, an order for back payment of underpaid wages and superannuation contributions for a number of employees were made. While a successful unfair dismissal case deemed the termination of an employee to be harsh, unjust and unreasonable.
Whilst the FWO proceedings are currently on hold, the risk of penalties for several legal contraventions is probable.
More entitlements for casuals
In addition to contractors, a key ruling from last year means some casual workers may now also be entitled to back-paid wages and entitlements if they can demonstrate that their hours were regular and systematic.
In September 2018, the Federal Court ruled in favour of a casual employee to receive paid leave entitlements (WorkPac v Skene). This was despite the employee receiving casual loading on top of their base rate, which is paid to offset entitlements such as paid leave.
Their decision was justified on the basis that the employee (though employed as a ‘casual’) worked in a systematic manner – with regular and predictable hours. The pattern of work was viewed as being consistent with permanent employment rather than casual employment.
A variation to the Fair Work Regulations announced in December 2018 will help offset future claims of this nature, which will no doubt be a relief to many small business owners. But the introduction of Casual Conversion provisions – a new clause inserted into 84 Modern Awards that allows casual employees the right to request full time or part time employment if they have worked certain, regular hours over a 12 month period – means that the nature of hiring and managing casual workers is changing. It’s clear that business owners have a lot to consider.
How does this impact small business owners?
The increased scrutiny around independent contractors and casuals will cause a big shift in short term hiring practices for small business owners – especially with the rulings above setting precedent for other workers in similar employment circumstances.
Employers will need to be alert about their temporary workforces’ hours and work patterns. Particularly for small business owners who often, and without noticing, begin to organically regularise their independent contractors (and casual workers) hours.
Thinking of hiring casuals?
While hiring casuals may be crucial for small business operations, typically during busy periods, employers need to be fully aware of the criteria of the engagement. For instance, what constitutes a casual, and when do they cross the line to permanent employee?