Founder/CEO Manage your leads
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What the gig economy is doing to CX

26th Jun 2020
Founder/CEO Manage your leads
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Many small business owners have thus far lauded the gig economy as helping them remain competitive. When they use freelance services, they have access to a pool of workers who are experts in their field. 

Besides, the process of terminating the services of a freelancer in favor of another is not as complicated as when you are dealing with an employee. Freelancers have a lower cost to the company as they don’t require office space, health insurance, sick leave, or vacation time.

It might sound ideal but, truth be told, there are many factors about the gig economy that might not be advantageous to small businesses. Here are some reasons why:

The skills exodus

As more employees see how others are making a success of freelancing, they might be tempted to go that route as well. There are a lot of perks to freelancing, including working flexible hours, being free to pick and choose work assignments, and having the freedom to take time off when they want it. 

While many freelancers would agree that these are advantages in their line of work, they’ll be quick to tell others that it takes a lot of hard work, grind, and hustling to make a living freelancing.

Nevertheless, as more people turn to freelancing, they are taking their skills out of the full-time employment market. This phenomenon is particularly prevalent in the marketing and advertising industry. Those specialists that remain interested in conventional employment become scarcer, and that allows them to demand higher salaries. This may price their services outside of the budget of a small business.

Legal constraints

A small business owner should understand that federal labor laws do not classify freelancers as employees but rather as independent contractors. Resourceful Compliance offers detailed information employers need to know if they’re going to participate in gig economy activities. 

Using a freelancer is easiest if you have a signed contract with the individual containing terms and conditions on which both parties agree. It is much easier to prove a breach of contract if everything is reduced to writing. 

Small business owners who have relied on ‘gentlemen’s agreements’ have found themselves forking out money for services they never received. 

The costs

Given that freelancing can now transcend geographical distance thanks to technology, small business owners can hire freelancers from around the world. Given access to such a large pool of workers, one would be forgiven for thinking that it would reduce the costs of freelancer’s services. However, the reverse is proving to be true.

Not all freelancers provide the same quality of work. Those that have a reputation for being among the best experience high demand. They can charge much higher rates for their work as companies will compete for their time. 

Unless a business owner is prepared to accept less than the best, they must be prepared to pay top dollar. That freelancer’s services could start costing as much as it would to hire a regular employee.

Biting into the market

Companies and small businesses operating in industries that are becoming dominated by freelancers could find themselves closing their doors. They may be unable to compete with these freelancers. 

Given the example of how taxicab businesses are having to compete with Uber and other rideshare services, it’s easy to see how this happens. The reality is that it’s going to move into other markets as well, with marketing and advertising seeming to loom as the next sector to be tested by the gig economy. 

Other industries likely to experience the gig economy pinch are IT, accounting, business analysis, and conventional delivery services.

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