THE BLOG
06/29/2016 12:34 pm ET Updated Dec 06, 2017

The Growing Gig Economy's Impact On Small Business

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There's a trendy term making its way through the business world: the gig economy. As a small business owner, you've likely heard it being thrown around at networking events or read about it in industry publications. But what does it mean, and how does it affect your business? In this article, we'll discuss exactly what the term "gig economy" refers to and how it's shaping today's small businesses.

Defining the Gig Economy

There was a time when the word "gig" conjured images of a garage band booking a concert at your local bar and grill. Now, however, the word refers to any project an independent professional completes in exchange for pay.

It can be concluded, then, that the term "gig economy" references the increasing trend in today's business world toward hiring independent contractors (think interims, consultants, freelancers) as an integral part of companies' task forces.

The Effect of the Gig Economy on Small Business

Perhaps all the buzz around this changing workforce is due to the upheaval of traditional employer/employee relationships. Change is never easy, and this is one major transition that has shaken many employers and HR departments to the core. After all, the rules of the game aren't as cut and dry as they once were; employers must be flexible while remaining legally compliant.

Maybe you aren't concerned, because your organization does just fine with its existing full-time employees. But make no mistake--your business will eventually be faced with this challenge. More and more professionals are branching out to work for themselves and experience all the benefits that go along with that. The full-time salaried employee, while still prevalent, is slowly going the way of the dinosaur. Is your business ready?

To help you prepare, here are some of the effects this gig economy has on small businesses.

1. The Need for New HR Solutions
With any change comes the need to rethink your old way of doing things and to come up with more effective HR solutions. A growing number of independent contractors means your organization's HR department must take into account those workers who don't clock in and out at the same time each day.

If you plan on taking advantage of the gig economy, you'll want to ensure that your company culture comes across to all workers no matter their classification. It may also be beneficial to hire an official freelance coordinator--whether internally or through a human resources consulting firm--who takes control of communicating with and organizing tasks for your freelancers.

2. An Increase in Productivity
Let's face it, some employees clock in and sit at a desk all day just to get that paycheck. Whether they're actually productive or not is questionable. Independent contractors, on the other hand, generally aren't paid based on how much time they spend in the office; they're paid for performance. This means your business receives a better return on its payroll investment.

3. A New Look at Legalities
In addition to HR solutions for communication between an organization and its freelancers, your small business will want to take a closer look at the legalities surrounding employer/contractor relationships.

Many times, companies classify a worker as an independent contractor when, in reality, the person takes on the role of employee. This simple mistake could lead to serious legal repercussions for your organization, so it's crucial to understand the differences between independent contractors and employees.

Next Steps?

The gig economy has numerous benefits for both employers and workers, but maneuvering the changing system can pose a challenge for small business HR. At MJ Management Solutions, we offer HR management solutions to help your company navigate this new territory.

Margaret Jacoby, SPHR, is the founder and president of MJ Management Solutions, a human resources consulting firm that provides small businesses with a wide range of virtual and onsite HR solutions to meet their immediate and long-term needs. From ensuring legal compliance to writing customized employee handbooks to conducting sexual harassment training, businesses depend on our expertise and cost-effective human resources services to help them thrive. This article first appeared on the MJ Management Solutions blog.

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