More Americans are shunning the idea of working 9 to 5 to make a living and are instead embracing employment in the gig economy. The gig economy refers to the workforce of people engaged in independent, freelance, or side hustle work. According to a recent McKinsey survey, 36% of employed respondents—roughly 58 million Americans—identify as this category of worker, up from 27% in 2016.

While greater independence, flexibility, autonomy, and the freedom to select work aligned with one’s interests are some of the commonly cited upsides of gig work, this employment model also comes with a degree of financial uncertainty. A steady stream of employment gigs is required to ensure consistent pay, and even then, the amount gig workers earn may not offset some of the costs they’re responsible for outside of a traditional employment contract, such as health benefits, self employment taxes, or work related equipment and materials.

In this article, we’ll consider some common financial challenges that gig economy workers are likely to face and explore how on-demand pay solutions combined with holistic financial wellness solutions help tackle cash flow constraints. 

The Rise and Reign of the Gig Economy

Recent surveys underscore the prominence of gig-style employment as an attractive alternative to conventional office jobs:

· The number of people who report income from platform-based gig work to the IRS has increased in recent years to nearly five million.

· In 2022, 43% of Gen Z workers and 46% of Millennials engaged in freelance work.

The explosion in the number of gig and independent workers in the US is the result of several factors. Many people who were laid off during the pandemic—and some who weren’t—turned to gig work because they needed additional income sources. More recently, inflation has driven workers in all income brackets to take on side hustles.

Meanwhile, technology such as remote collaboration tools and videoconferencing services have made it easier than ever for people to work remotely. If we look at specific sectors, ridesharing and digital food delivery platforms have grown exponentially in recent years, and employers are continually looking to grow their workforce to meet their needs. 

For businesses, especially small ones and start-ups, employing a workforce composed of more gig workers than permanent employees has compelling advantages. The ready availability of gig labor reduces the cost and lowers the barriers to launching and operating a business.

Gig workers also allow companies to quickly fill seasonal or ad hoc capacity gaps. Almost every organization needs extra or more specialized help at some time, whether it’s a social media expert to assist in marketing a new product or additional retail customer service staff over the holiday season.

The “But”

Despite its many upsides, gig work isn’t for the faint of heart, especially when it comes to consistency of income. Bringing in sufficient work to provide a stable income from gigs alone isn’t always easy or possible. Even after completing a gig, workers may face periods of no income if there are delays in getting paid. Also, many gig workers miss out on annual leave and sick leave. Without paid time off, no work means no pay.

Another challenging side effect of working in the gig economy is that managing individual finances is more of a challenge than within the pre-established structures provided by a traditional employer. Things like saving for retirement and keeping track of accounts for tax filing purposes can be tricky and time intensive.

Perhaps the most significant downside of gig work is that many open positions are low-paying ones. According to HBR research, while gig and independent working models transcend all ages, education levels, and incomes, it tends to skew toward younger workers and those with lower incomes. And almost half of all immigrants surveyed report being independent workers. Moreover, contrary to the narrative that’s been set forth, some gig companies fail to offer family-sustaining pay and benefits:

• More than a quarter of gig workers earn less than the state minimum wage.
• Gig workers are more likely to use the government’s Supplemental Nutrition Assistance Program (SNAP),to help put food on their tables.
• Only 32% of independent workers receive health insurance from their employers or unions.
• Twice as many independent workers use government assistance programs as those who are employed full time.

To make ends meet, many gig workers turn to notoriously predatory payday lending, which can result in dramatically high-interest repayment rates and push them into an ever-deepening cycle of debt. Some may take out other expensive forms of short-term credit, such as auto title loans or pawn loans, or incur overdraft and late fees.

Earned Wage Access – a Payroll Solution for the Modern Gig Economy

This is where digital on-demand pay or earned wage access (EWA) solutions come in as game-changers. These fintech tools allow gig workers to access their accrued wages before their regular payday. EWA adds immense value to gig workers on two levels:

· Financial security: People are financially equipped to deal with mid-cycle expenses and unplanned emergencies without having to borrow at an exorbitant cost.

· Psychological security: Gig workers gain a sense of financial self-reliance and dignity.

If you’re an employer of gig workers considering introducing this benefit, you may want to consider offering more than just an EWA solution. Look for a provider that offers comprehensive financial wellness solutions that help your employees manage their finances, build financial resilience and reach their financial wellness goals. These solutions can include a budgeting and saving tool, financial counseling, marketplace discounts and more.  

Also, make sure that the EWA solution you select can be seamlessly integrated with your payroll software, supports flexible payment options, and has a transparent fee structure.

Today, gig workers are in-demand, but their well-being is often overlooked. Companies will best attract— and serve—these employees if they closely align their payouts to the completion of their shifts. In addition, the right EWA solution can play a critical role in gig workers’ ability to save for the future and live better financial lives.

Payactiv is a leading EWA provider offering employer sponsored EWA and a suite of financial wellness tools  designed to empower workers. Our platform and digital wallet serve 2,000+ businesses and level the playing field for millions of workers who struggle with cashflow between paychecks.

Learn more at www.payactiv.com

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