The gig economy has become a hot workforce topic. However, despite the hype, the concept has numerous hidden management problems.
Recently, executives have been drawn to the concept because of its lower benefits costs, but also for the scalability that a gig workforce provides (with the ability to quickly add talent for growth and to release it in a downturn with few legal constraints). A gig workforce is a relatively modern employment concept when you look at the history of employment over the last 75 years. Hiring a large percentage of contingent or gig workers (instead of permanent employees) is an option that has never gained much traction. In addition to the well-publicized employee/contractor legal issues, on closer study, you’ll find that having a workforce containing a large percentage of gig workers is also fraught with dozens of serious management problems.
It may be worth noting that, in what may be the start to reversing the trend, a California delivery firm recently announced it was converting its gig workers to employee status. So, if you’re curious about the many management pitfalls of a gig workforce, here’s a checklist covering the problems that you need to plan for.
The Top 10 Problems Associated With Hiring a Large Percentage of Gig Workers
The management problems related to managing a gig workforce are listed below. The problems with the highest negative impacts appear first.
- The high turnover rate creates multiple problems — the single most impactful problem is the likely, three times higher, turnover rates associated with a gig workforce. The turnover is so high with gig workers for several reasons. First, their intention to stay may be limited because most gig work assignments are not their dream job. Or, because earning extra money is the worker’s chief motivator, many will simply leave the minute they reach their money goal or get a slightly higher money offer. The intention to stay is often further reduced because of the limited company commitment. Because, by only giving them a gig assignment, the company makes it clear that they desire no long-term commitment to the gig worker. Permanent employees steadily build their capabilities through long tenure. Short tenure means that gig workers don’t have the opportunity to build up their knowledge, experience, or skills over time. Damage also occurs because their short tenure won’t allow strong relationships to build with their managers, coworkers, or customers. And, the constant leaving, unfortunately, means that gig workers will limit your team’s capabilities for providing a consistent product or customer experience. The significantly higher turnover rate will require the team’s manager to continuously recruit, which will take up a great deal of their time. And, finally, this high turnover will mean that HR will need to spend a lot of time processing their departure paperwork.
- Collaboration and innovation will be limited — if your firm must have continuous innovation, the No. 2 most impactful problem will be increasing collaboration with a large percentage of gig workers. Continuous collaboration between coworkers directly leads to innovation. However, the temporary nature of their work will mean that there will be few times when all your gig and permanent teammates will be in the same space to collaborate. Even if you develop a mechanism to increase collaboration, their lack of engagement and long-term commitment make it highly unlikely that gig workers will devote much of their brain power and time toward developing innovations for your firm. Because they’re not technically employees, legally it will also be hard to take ownership of any innovations that gig workers do create.
- Low gig worker engagement will hurt productivity — a gig’s engagement and commitment level are likely to remain continuously low throughout their short tenure, knowing from the start that their intention to stay will be limited. Unfortunately, many may take a job where they don’t share your company’s values and they haven’t bought into your mission. And mixing highly committed permanent employees with barely engaged gig workers will certainly hamper your workflow. And, with their fixed pay rate, they have little individual incentive to produce much more than the minimum requirements.
- Expect problems with their work quality — in addition to low productivity levels, gig workers will likely produce low quality work. They get little training and they won’t stay long enough to build the skills and develop the commitment that is necessary to produce quality work. This combined with low engagement levels likely will result in weak customer service and high error rates. Gig workers in sales jobs will likely produce lower revenue. And because for many gig workers your job may be their second job, you may find that large numbers of them arrive at work exhausted or falling asleep, further lowering their already low work quality. Even though highly agile and adaptable workers are essential for quality work in this fast-changing world, the gig workers you hire are unlikely to be highly adaptive. Their lack of agility may cancel out the scalability benefits that were gained from hiring workers who are easier to release.
- Customer relationships are harder to build — a large gig workforce will be noticed by your steady customers, especially, when your gig workers have a great deal of customer contact with the possibility of return engagements. Their low engagement might mean that they will have no interest in building relationships. And their short tenure might make building and maintaining relationships with customers nearly impossible. For part-time gig workers, their short work hours will also make it hard to ensure that the same gig workers will be consistently available to their customers.
- The best gig workers may not be available at times when they are needed most — one of the obvious advantages of full-time employees is that they are continually available during normal work hours. However, many gig workers take a job because it offers the flexibility to work primarily when they want. So, their limited available hours make staffing during the key times or shifts when a manager really needs the work done more difficult. Even though you would want your top-performing gig workers to be on the job during critical time periods, unfortunately, they may have other responsibilities that limit their availability during those critical times. Finally, scheduling a large number of part-timers will always take up a lot of the managers time.
- Gig workers will slow the workflow — because many gig workers only work short hours, every time they leave their unfinished work, it must be handed off to another. And every work handoff takes time. In addition, it offers an opportunity for errors that can result from the inevitable confusion and miscommunication that surround each handoff. On long-term projects, the high turnover rate of gig workers might mean that they may not even be around when their portion of the work comes up. Offering short duration work hours that many gig workers prefer also means that you must also hire a larger number of gig workers.
- Recruiting gig workers is also problematic — because of their high turnover rate, there will literally be many more bodies to hire, train, and to generate paychecks for. And you can’t be successful unless you have a robust recruiting function to continually fill all your gig openings. If your gig work requires high levels of skills or experience, when recruiting, managers must realize that most of the prospects that meet your requirements won’t be willing to work in gig jobs with little job security. Because hiring managers and recruiters know that gig workers won’t become permanent, HR has been known to take shortcuts in sourcing, candidate assessment, and reference checking processes. If your gig hiring processes are not as rigorous as those used for permanent employee hiring, you will end up unintentionally hiring many weak performing gig workers and maybe even a few toxic ones. Finally, in this time of record low unemployment and competition for gig workers, the amount of pay that you need to offer in order to attract quality gig workers may rise to the point where their higher pay offsets any savings resulting from not paying them benefits.
- Gig workers make it harder to maintain teamwork — the very nature of part-time gig work means that you will have a large number of workers who will seldom work at the same time. And this lack of interaction between all teammates, as well as a high gig turnover rate, will make it difficult to build and maintain teamwork. In the cases where your permanent employees are allowed access to higher levels of data, meetings, and information, this often results in an “us versus them” dual status workforce where the two groups don’t mix well. Not only does the separation make building teamwork much more difficult, but it will also likely have negative effects on team morale, spirit, camaraderie, and cohesion.
- Gig workers are more difficult to manage — because they often work fewer hours, the number of gig workers required to cover your work will be large. And with many more workers on the team, individual accountability will be more difficult. In addition, because they have lower levels of commitment and engagement, the odds are that a large proportion of gig workers will be high maintenance and much more difficult to manage on a day-to-day basis. Also, because gig workers are seldom eligible for recognition, bonuses, stock, or promotions, there are fewer reasons for gig workers to continually improve themselves and their work. Finally, because of their short tenure with the firm, unlike regular employees, once a manager learns their key motivators, knowing how to motivate them won’t provide value for very long.
You can’t read a business publication these days without hearing about the gig economy and how it can help companies. However, despite the hype, the concept brings with it numerous hidden management problems. In the worst case, think of the gig workforce as a bunch of temps with low commitment levels competing against permanent teams that have been working together as a cohesive unit for years.
The Remaining 10 (Out of 20) Problems Associated With Hiring a Large Percentage of Gig Workers
The remaining major management problems related to managing a gig workforce are listed below.
- Long-term project completion is more difficult with gig workers — If your work involves a series of long-term projects, the frequent turnover of gig workers makes continuity difficult. In addition, because long-term projects involve a great deal of information sharing, it is difficult when gig workers have restricted access to company databases. And, sharing becomes even more difficult when employees are forbidden from sharing critical/confidential information with gig workers. So, when a team containing both gig workers and employees is working side-by-side on a problem, reaching a consensus will be difficult among those who have different levels of information. Also, because gig workers have a lower status and lack job security, it may be extremely difficult to get honest proactive feedback or information sharing about problems with project leaders who require honest feedback.
- Gig workers are more likely to behave badly — Gig workers are unlikely to be fully committed for the multiple reasons already mentioned. Knowing they have no long-term future with your company, they may be less concerned about losing their job when they violate company rules. This means that gig workers are less likely to respond appropriately to disciplinary actions relating to absenteeism, theft, harassment, and safety. In fact, in one recent case, large-scale gig worker misconduct forced a scooter company to shift to permanent employees.
- The absence of benefits may cause them to come to work when sick — To limit corporate costs, gig workers seldom get healthcare and sick leave benefits (unless they have held benefits from another source). Gig workers, because they need the money, are likely to stay sick longer and to come to work even when they’re sick. By infecting others, they unwittingly further contribute to a loss of team productivity.
Problems with broader business and HR implications
Some of the problems related to having a gig workforce also have impacts outside of the individual manager. They include:
- Training is problematic — with high turnover rates, whatever training you invest in may soon walk out the door when the gig worker inevitably leaves. As a result, some companies offer no training, while others offer only limited training to gig workers. This can cause a company to have under-skilled gig workers because they generally join with less experience and education than permanent employees have. Training so many gig workers is expensive. Failing to provide them with the necessary training may cost more as a result of higher on-the-job error and accident rates. Managers should also realize that the temporary nature of the job may, unfortunately, mean that your gig new hires won’t be motivated to take any offered training seriously, or to learn on their own. And unfortunately, failing to provide new hires with upfront training may discourage applicants for your gig jobs.
- Gig workers make it harder to maintain your culture — Gig workers frequently lack engagement and commitment. These two factors might mean that gig workers will never read your mission or corporate values statements, have no interest in understanding, or maintaining your team’s culture. And to make matters worse, with gig workers coming with experiences from many different companies, their many added diverse perspectives may actually contribute to the dilution of your current corporate culture.
- Frequent gig departures mean continuously losing company secrets — The loss of company secrets can be an added cost resulting from the constant turnover of gig workers. The loss of secrets is exacerbated in some industries where gig workers freely move between companies. Every time a gig worker leaves, it is another opportunity for them to take company plans, new ideas, secrets, and customers with them. This continuous leakage makes it harder for a firm to maintain its competitive advantage.
- With so many leaving, it will also be difficult to retain corporate knowledge — In addition to losing secrets, high gig turnover makes it difficult for the company to retain its acquired knowledge, which is an important issue at many companies. Just like any employee, gig workers are continually gaining knowledge, and developing solutions. However, with their high turnover, it means that whatever knowledge that gig workers have acquired regularly leaves with them. And because many knowledge capture systems ignore gig workers, a great deal of valuable learning is lost.
- A smaller leadership pool will be available — A company must continually develop leaders to grow. Normally a company looks for a percentage of new hires to become future leaders. High-potential programs ignore gig workers, which means that when a significant percentage of your new hires are gig workers, your potential leadership talent pool will be much smaller. And because managing a large population of gig workers is extremely difficult, some of your permanent employees may even be discouraged from seeking a leadership role.
- Reference checking and onboarding become even more critical and expensive — Even though gigs are contingent workers, you still must be able to trust them. That trust only comes after thorough background checks. Many companies conduct only minimal reference checks on gig hires. To avoid the bad PR resulting from bad new-hire behavior, gig reference checking must be robust. The high volume of gig hires, the number, and the cost of thorough gig reference checking will be high. This is especially true for companies involved in transportation, education, childcare, or medical care. The reference-checking process may have to be continuous to ensure that a good hire doesn’t go bad months after they are hired. Effective onboarding is also critical because it gets all new hires up to speed quickly. Once again, many companies don’t onboard gig hires, and even when they do offer it, the lower engagement levels of gig workers might mean that they will pay little attention during it.
- Current and future legal issues will be a continuous concern — Workforce planning around the gig workforce model is extremely difficult because the high volume of legislative and legal challenges surrounding “contractor versus employee status” creates a great deal of uncertainty. Executives need to be aware that misclassifying new employees has already resulted in significant economic liability at several companies. Executives should also be aware that if these U.S. legal and legislative efforts are successful, employing a large percentage of gig workers may no longer even be possible. Incidentally, if you have a global company, the laws of many countries already make gig work extremely difficult to defend.
When Does Gig Labor Add the Most Value?
If you’re considering a gig workforce option, be aware that this model adds the most value in four cases. First, when you need to rapidly scale up or scale down your talent capabilities. Second, gig workers also make sense for peak time and seasonal needs. Next, they make sense when the work itself is relatively repetitious or boring so that work quality can only be maintained by a worker for a few hours. And finally, in the case of startups where there just isn’t enough money to pay more and to make a long-term commitment to your workers.
The Bottom Line — The ROI of a Gig Workforce May Not Be Positive
Build a strong business case before you take any steps toward creating a gig workforce. As a first step, talent leaders should work with your CFO to ensure that your business case analysis includes all of the mostly hidden added costs and risks outlined in the checklist above.
Be aware that at most companies, in my analysis, the actual costs from managing a gig workforce often exceed the cost savings from avoiding payments for Social Security, unemployment, workers’ comp, and retirement payments.
At companies that really need the savings resulting from not offering benefits to workers, the actual savings are real. In many cases, your failure to offer benefits may hamper recruiting, retention, and lead to vigorous unionization efforts.
If you operate a startup, then the payroll, benefits savings, and increased scalability combined can provide a positive ROI for a year or so. But those savings must be weighed against the definite reduction in innovation. Once a company gets to medium size, in my analysis, is the only time that the benefits will likely outweigh the real total-management costs that occur when your company operates in a highly volatile VUCA environment where scalability is the most critical factor.
It’s hard to argue against the fact that traditional workers with longer tenure and higher engagement are superior, when you need workers that you can trust and that are committed to growing, learning, and building relationships with your customers. Having a stable employee workforce not only increases productivity and work quality, but it also allows managers to avoid spending a significant portion of their time dealing with the increased recruiting, retention, scheduling, and control issues that occur with gig workers. Offering gig-work opportunities may have some advantages for individual workers who want flexibility. From the company standpoint, the burden added under the gig model in most cases seems to far outweigh the few benefits that a gig workforce can provide.
Author’s Note: If this article stimulated your thinking and provided you with actionable tips, follow or connect with me on LinkedIn, subscribe to the ERE Daily, and hear me and others speak at ERE’s Recruiting Conference in October in Washington, D.C.