According to the Bureau of Labor Statistics (BLS) there were roughly 16.5 million workers in the United States in 2017 who either had contingent work arrangements – work engagements that were strictly temporary – or those who had alternative work arrangements. Independent contractors, workers on call, and those on temporary help-agency rosters fit the latter category according to the government.

A 2016 survey by the McKinsey Global Institute, however, reports that something on the order of 54 to 68 million workers in the United States are independent workers. The delta in the two sets of numbers is due in large part to McKinsey’s methodology which counts the self-employed, the part-time worker, and those holding multiple jobs.

Much has been made of the growth of the so-called gig economy and McKinsey’s numbers seem to underscore if not portend a new phenomenon in the labor force.

WHAT EXACTLY IS NEW?

Since time immemorial workers have relied on holding down multiple and simultaneous job engagements in order to put bread on the table. It was only with the advent of the Industrial Revolution that a fixed job with a fixed employer became the norm.

In more modern times, industry sectors as diverse as transportation, energy exploration, and manufacturing have been heavily reliant on the services of independent contractors. These workers, by virtue of their specialized skills, contract with an employer for the duration of one or more projects at the conclusion of which they are ready to move on to a different project either with the same employer or with someone else.

I have engaged hundreds of independent contractors placed in our employ by third-party agencies. Clearly, hiring contractors through an agency is more expensive – agency markups can run as high as 50% of the worker’s hourly rate depending on the scarcity of the required skills set – than hiring someone off the street but the agency bears the onus of finding, vetting (conducting skills testing, drug screening, criminal, and credit checks), and recruiting the worker in question. And, if the worker does not pan out the agency replaces the worker with new talent at no additional cost. At the end of the year, the agency-placed worker receives a W-2 for wages earned and taxes withheld. If an independent contractor is offered permanent employment the agency is entitled to an additional placement fee.

Temporary work is now held to be a “gig.” The term, having moved from smoky jazz halls, now refers to a worker’s engagement in any field of endeavor for some period of time or for some specified project. In the broadest terms, a freelance gig worker is no different than an independent contractor as described above. Beneath the covers, however, the differences between the two are stark and customers should be wary and take note.

Gig workers, by and large, are not agency-placed as they market themselves out through on-line platforms (corporate branded or not), by word-of-mouth or in some other way. And, unlike their independent contractor brethren they juggle multiple short-term projects for multiple employers at the same time. Gig freelancers may or may not receive a 1099 from their employers – a homeowner, for example, who hires a handyman will likely not report the worker’s earnings even if they meet the IRS minimum of $600 – for wages earned but, in any event, they become responsible for reporting their earnings and therefore their taxes.

IS THERE A PLACE FOR SERVICE IN THE GIG ECONOMY?

The service consequences of hiring gig workers should be obvious as the crush of employers to hire labor as cost-efficiently as possible throws customer service caution to the wind. According to the accounting firm of Ernst and Young the number one driver by far, at 66%, for large enterprise companies – $5 billion and above in revenues – to hire temporary workers is to control cost.

News flash: cost efficiencies and not service effectiveness have always ruled the roost in corporate America. In a McKinsey study in 2017, 87% of executives and directors surveyed reported pressure to demonstrate strong financial performance in two years or less. Worse, 55% of executives and directors said their companies would delay a new project to hit quarterly targets even if it sacrificed some value. This is nothing new. Peter Drucker decades ago suggested that, “…the need to satisfy the pension fund manager’s quest for higher earnings next quarter, together with the panicky fear of the raider, constantly pushes top managements toward decisions they know to be costly…”

Customers accustomed to slipshod service from established providers should ready themselves for this latest onslaught of poor service courtesy of the gig economy. It stands to reason. As I argue in another essay, The Principal-Agent Problem in Service to the Customer, freelancers have no common cause or mission with those who employ them whether they be general contractors or ultimate consumers. Some freelancers go so far as to “outsource” their work, as it is now not uncommon to find in food delivery, to others who receive zero vetting and who may not even have working papers at all. The relationship, clearly, is strictly transactional as there is nothing substantive bonding the parties.

The principal advantage to being a gig worker is the freedom that comes from not having to report to a nagging boss or to live by a set of strict corporate norms and the politics that go with it. In other words, the gig worker and not his employer is in control: in control of work schedules, job performance, and customer interactions. My further take is that the main benefit the gig worker enjoys is having the ability to flit from one job to another picking off low-fruit, high-margin jobs and never having to risk being called on the carpet for non-performance.

This fragmented governance model will make a shambles of protecting the integrity of any enterprise brand but it doesn’t have to be that way. Independent contractors I hire, once vetted, receive orientation sessions that stress our “customers are first” culture. I also require that contractors abide a set of confidentiality and security of information provisions. Also, contractors are required to receive a modicum of education and training, and are on-boarded and off-boarded just like permanent employees. Performance reviews are also part of managing the contractor workforce. Furthermore, except in extreme cases of negligence on the part of the contractor, the company is answerable to any claims of liability.

The gig economy, as it is currently framed, is at cross purposes with what we as customers seek from those who work for us. Enterprises might be giddy at the prospect of hiring just-in-time workers to mitigate costs but unless they fix the broken governance model as alluded to above all of the cost savings in the world will be for naught. A brand’s reputational damage can scarcely be compensated for by shaving pennies off a worker’s hourly wage. Customers seek competitive prices, that is true, but they also seek intangibles such as competence, loyalty, honesty, and integrity. And, until the gig economy serves up these qualities customers are well advised to seek more conventional sources of labor as imperfect as they might happen to be.

Raul Pupo

Management Advisor