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June 12, 2024
Today, 36% of American workers identify as gig workers—up from 27% in 2016. By 2027, more than half the workforce will be gig workers.
A major reason why more people are becoming gig workers: flexibility. In fact, “For the autonomy and flexibility it offers” is about on par with “Out of necessity to support basic family needs” as the main reason why people engage in independent work. For gig workers, the stability of a desk job or 8 hour shift isn’t as compelling to them as the ability to work when and where they want. While more and more people are entering gig work, the US is facing a worker shortage. Companies who want to adequately staff for their business will increasingly need to turn to more flexible work arrangements. As more workers are preferring the flexibility of gig work, and more employers are changing their practices to enable flexible work, more companies are struggling with antiquated payroll providers that don’t have the same flexibility.
If you’re a company that directly hires gig workers, or a company that provides a gig marketplace, keep reading to learn about how flexible payroll can save you money by simplifying your operations.
For this guide, let’s use an example to simulate how flexibility in gig work plays out in the real world. Imagine a scenario where a fictional hospitality gig worker named Jamie who lives in Bullhead City, Arizona and is using a fictional gig marketplace called FlexShift to find work. They find the following shifts for the week that align with their schedule:
Before getting into the topic of flexibility, let’s take a moment to define gig work companies as their needs for flexibility are similar but not the same.
One type of gig company is a business who directly hires gig workers to help deliver their product or service, such as Uber and Instacart. The consumer is purchasing from the company - in the case of Uber they are purchasing a ride, and in the case of Instacart they are purchasing grocery delivery. The company as part of their offering matches the customer in need with a worker who ultimately provides the service. The company then pays the worker on a per task basis.
Another type of gig company is the gig work marketplace. They connect companies who have open gigs or shifts with qualified people who want to work. Our fictional company, FlexShift, is a gig work marketplace. Imagine a scenario where hundreds of companies in Southern California, Arizona, and Nevada need to fill shifts for next week. While gig workers know that there are many companies seeking help, finding those companies and figuring out which of the shifts available match their preference is basically a full-time job in itself. This is where gig work marketplaces have come in to simplify the process. On one platform (typically a mobile app) workers can see available shifts from many companies, while companies can get access to a large pool of workers seeking gigs.
Gig workers can work one or many tasks, shifts, or projects; even what people typically call freelancers as essentially gig workers.
As you may have seen in the news, how workers are classified from a legal perspective is important. Many companies who directly hire gig workers for task based work want to have those workers classified as 1099, while many of those workers would prefer to be classified as W-2. For companies who enable gig work the reality is that many of them have workers under both classifications. This means that they are either stitching together multiple tools to pay all of their workers, or they have a payroll solution that can handle both.
As more legislation is enforced, it’s also becoming increasingly common that a company will have a 1099 workers that they need to transition into W-2 workers or they will need to implement increased functionality and compliance on their 1099 workers. When a company needs to reclassify their workers they are faced with the choice of either asking their workers to onboard to a new system or working with a solution that can simply reclassify a worker and automatically collect the new information required to complete a W-2 onboarding. When a company needs to implement increased functionality and compliance they are either integrating multiple tools together or using a solution that allows them to easily do new-hire reporting, garnishment of wages, and more all in one solution.
Having a payroll system flexible enough to handle both worker classifications, transition between classifications, and leverage functionality between the classifications allows you to save money on your tech stack and avoid frustrating workers with a bad experience.
In the United States there are over 11,000 different tax jurisdictions, each one with its own set of rules and nuance. Going back to our example scenario, Jamie lives and works in Bullhead City, Arizona, while also working in Searchlight, Nevada and Needles, California. With these different locations both Jamie and FlexShift are subject to different payroll, tax, and compliance regulations for each place.
Some examples of compliance challenges that result from Jamie working across jurisdictions:
You’ll notice that each of the shifts has a different rate of pay, and as simple as it sounds, many payroll solutions are not equipped to handle variations in hourly rates.
When it comes time to do payroll without flexible payroll, this means that payroll managers are manually researching which local taxes apply to a workers paycheck. With flexible payroll, each location gets it’s own set of taxes that apply to it, and the system can automatically apply the right taxes based on work location, employees home location, and other factors.
When a gig worker starts working they need to provide information and complete paperwork both for the company and for the government. In general, W-2 employees are going to have more obligations to provide information and verify their employment eligibility than 1099 contractors. Some information and paperwork is required while some is optional. Having a payroll system that makes it simple to onboard the right type of worker and collect required information, while choosing whether to collect optional data can create a better onboarding experience.
For example, companies may have waivers, HR handbooks, labor posters, insurance forms or other custom paperwork that they need to get viewed, completed, and signed by workers. Having the flexibility to easily configure the onboarding experience to include any custom paperwork allows you to avoid purchasing multiple tools and creating a disjointed onboarding experience. Perhaps Diamond Diner and Sammy’s Seafood have health and safety documents that need to be signed prior to starting work.
An even more challenging compliance problem for gig companies is employment verification. This regulation requires that companies complete an in-person verification that workers are eligible for employment. The issue for gig companies is that the worker is often not in-person with the company employing them. In the case of Jamie, they are working for FlexShift but on location at Diamond Diner, Mo’s Boutique, and Sammy’s Seafood. Having a payroll solution that includes the flexibility to do employment verifications remotely, without using any of the companies resources makes it easy to avoid penalties and stay in compliance.
This can go beyond the initial onboarding as well. For example, when Jamie onboards they will do tax paperwork for Arizona and Nevada, because of where they live and the first shift. But if they don’t commit to the California shift until after they onboard - you’ll need to collect their tax documents and any other paperwork required for that shift after onboarding. Having a payroll platform that makes it easy to send and complete paperwork is flexibility that helps you avoid manual processes and delays
In gig work it’s common that companies want to pay workers faster. This is largely because workers want faster pay. In fact, over 70% of gig workers prefer to receive their pay within the same day they work. It’s common for workers to get upset if they have delayed payments, even if it was their fault for entering an incorrect bank account or not approving their time sheet by the cutoff. This requires gig work companies to partner with payroll providers that can process off-cycle payments faster, monitor ACH returns proactively, and to have options to process payments with a 1-day or same day disbursement speed.
While there’s a transition happening towards more frequent pay, not every company chooses the same frequency of pay. Whether you want to pay daily, weekly, biweekly, semimonthly, or monthly - it’s important to have a payroll provider that accommodates your needs. It’s also important to consider whether the payroll provider can provide the flexibility to pay workers on one schedule (such as daily) but run the payroll on a different schedule (such as biweekly). Or provide the ability to easily pay workers off-cycle when the need arises. All of these features allow you to give workers pay schedules of their choice while maintaining the payroll frequency that works for your business operations.
Flexibility in payments also means in how the worker receives their pay. The most common way workers want to get paid is by ACH (also known as direct deposit when it’s payroll automatically sending pay to workers via ACH). However this requires a bank account and some workers may prefer that their pay be received by a physical or downloadable check. Or workers may even prefer that you give them a debit card and digital wallet to access their pay faster and easier. Working with a payroll provider that has options for payments helps you retain workers longer and create a better experience for them.
It’s possible that when you think about flexibility and having choices that you also think about complexity and needing to build to your choices. However with a modern payroll platform like Zeal that’s not the case. While we allow complete flexibility with our API - there’s a more simple path where you just configure your payroll and worker experience with little to no effort using our Dashboard, White-Label Components, and Mobile App.
The ability to accommodate different worker classifications, work locations, companies, rates of pay, pay frequency, payment options, and more is built into the platform. When you partner with Zeal we handle all of this without any additional effort. You can configure the experience and deliver it to your workers without any code. Most of this done in the settings section of the Dashboard we provide you. And delivered to your workers in your product, which can be implemented in a low-code or no-code manner using our White-Label Components and Mobile App.
At Zeal, we have recognized that workers and work have changed, to be fundamentally more flexible, but most payroll providers have not kept up with that transition. Gig work is the manifestation of workers’ desire for flexibility, and the ability for companies to accommodate that. We believe payroll providers should accommodate that as well.
When choosing a payroll provider, there are many considerations. Our experience working with Wonolo, Qwick, Teero, and many other gig work companies has given us the insight that flexibility is often overlooked as a primary consideration. The benefits of flexible payroll include more money, easier operations, a better worker experience, and many more. The pain of implementing an inflexible payroll solution, is not worth the trade-offs like cost-savings or brand recognition.
If you’re curious about how payroll platforms can flex to fit your operations, instead of your operations changing to fit your payroll, please reach out. We’d love to show you truly flexible payroll.
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Puzzl Group Inc. (Zeal) is a financial technology company, not an FDIC insured depository institution. Banking services provided by Bangor Savings Bank, Member FDIC. FDIC insurance coverage protects against the failure of an FDIC insured depository institution. Pass-through FDIC insurance coverage is subject to certain conditions.