Not too many years ago, it was more commonly called "freelancing" or "moonlighting" - the idea of picking up a few extra dollars outside of what used to be everyone's standard eight-hour workday. Today, our standard workday isn't so standard anymore and we're talking more about "gigs"- alternative work arrangements that often depend on the latest technology and a desire to set one's own schedule and pay.
Gig workers - a broad spectrum that includes temporary help agency workers, on-call employees, contract company workers, independent contractors and freelancers - were measured as a startling and growing economic force in a March study by Harvard and Princeton researchers. According to their measurements, this diverse group of earners that made up 10.1 percent of the workforce in February 2005 has grown to nearly 16 percent as of late 2015.
Gig workers create and deliver products and services, some independently and on an as-needed basis, others by contract spelling out detailed responsibilities, schedules and pay.
For example, freelance writers and software developers are two categories of trained workers who increasingly provide services under contract, sometimes at fairly high income levels depending on expertise. Other service providers, including those with popular ride- or room-sharing services, use their own property and technology platforms to find potential customers when and where they choose at rates set by themselves or by technology providers. Still more create and sell tangible products on online platforms that act as open-air markets for everything from crafts to cookware.
Whether the gig economy is a choice or a sudden option given a layoff or workplace restructuring, you need to embrace one word: Planning. When you become a gig worker, you become your own HR and payroll department. It's your job to prospect for work, manage your income, the benefits you buy and the long-term saving and investing you really need to do for retirement and other goals.
It's wise to think about such a move as if you were planning a business - because essentially, you are.
As a starting point, working for yourself may presents tax and payment challenges you may not face as someone's salaried employee. Freelancers or contractors are in business for themselves, managing their various sources of income - and collections - as well as typically managing payment of taxes, usually on an estimated quarterly basis.
According to the IRS, clients and customers who pay a freelancer in excess of $600 a year have to issue an annual IRS form 1099 - compared to employees who get their annual earnings statement on an IRS form W-2. (You'll likely hear the term "1099 worker" a lot.) Also unlike full-time workers, freelancers often pay for their own benefits as well as necessary office space and equipment and supplies they need to do the job.
Here are some basics to consider:
Consider qualified tax and financial advice. Switching to gig work - even if you find lucrative contract work in your field - can be an enormous shock to your finances. Cash flow can be irregular, disrupting budgets and long-term savings. It's a good idea to get some qualified financial and tax advice so you understand the changes you might face and to keep major financial goals like retirement and college savings on track.
Choose a business structure. While most gig economy participants settle on a sole proprietorship or some form of limited liability company business structure, the choice needs to be carefully considered based on your particular work activity, overall tax situation and other financial factors unique to you. This is probably one of the most important reasons to seek out qualified financial help - the level of financial risk inherent in your choice might require protection against lawsuits or insurance claims. If you are a contract worker and not well-versed in work contract agreements in your field, you might want to consider having that material reviewed by a qualified attorney who understands the needs of contract workers.
Focus on benefits... Unless you fit a particular group exempt from the Patient Protection and Affordable Care Act or are insured by a spouse or partner, you'll have to invest in healthcare insurance for yourself or consider the cost of being uninsured. This is a particularly important expense to plan in advance based on your health needs and the type of affordable coverage that's available. Get referrals on qualified health insurance agents to get a full range of choices. And most of all, make a plan to keep saving and investing your money for long-term goals. Walking away from a weekly check can make that process tougher - talk about it and plan for it.
...and long-term planning. If you don't budget or track your expenses now, it's time to learn. Being in business entitles you to certain deductions for home office expenses, equipment and other costs related to your work. So whether you use a specific software program or a computer spreadsheet or paper and pen to track your expenses, do so regularly to avoid missing items that could eventually save you money. If you're working with a tax professional or financial planner, coordinate this recordkeeping with the work they're doing for you.
Know yourself. With proper planning, the gig economy can be both enjoyable and challenging. You'll not only learn whether you can support yourself, but also whether you'll enjoy doing it long-term. Many of us dream of being our own boss, but reality can be very different, particularly when managing uneven earnings and cash flow common to many new companies. It's not just about business; it's about whether your lifestyle and personality traits make you right for operating a business in this economy - or any economy.
Many people lose a job and have to make this transition suddenly. Having the time to plan and think through such a major transition is a much better way to go. If you think you might join the gig economy someday, start learning now.
Bottom line: There are many ways to join the gig economy, but you have to find the best way for you. It's important to consider the financial and lifestyle issues of such a major decision before you leap.
Nathaniel Sillin directs Visa's financial education programs. To follow Practical Money Skills on Twitter: www.twitter.com/PracticalMoney
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.