What Is the Gig Economy?

Quick Answer

The “gig economy” is a name for the market of work that independent contractors and freelancers create and is characterized by its temporary nature and flexibility. If you’re considering gig work, it’s important to understand the pros and cons so you can weigh your options.

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The gig economy is the market of temporary and part-time jobs that independent contractors and freelancers fill. The workers who complete this type of work are often called "gig workers," and the work they complete is often called a "gig."

Gig work varies widely, including anything from driving for a ride-hailing company to working as a personal assistant to designing websites. The gig economy has perks for gig workers, who often pursue this work for its accessibility, independence and flexibility. But gig work doesn't offer the same stability, job security and benefits that full-time employees receive.

Here's what the gig economy is, the benefits and drawbacks to this type of work, and how to start working gigs now.

What Is the Gig Economy?

The gig economy is a name for the market of work that independent contractors and freelancers produce. The IRS defines gig work as a way to earn income through providing on-demand work, services or goods, typically done through a digital platform.

You might hear gig work referred to as a "side hustle." It's characterized by its flexibility and temporary nature, although many freelancers and contractors work with regular clients for a span of time—without the need for long-term commitment.

Examples of Gig Work

Any short-term project, task or service you complete for cash is gig work—and is taxed as such (more on this below). Here are some common examples of gig work:

  • Driving for a ride-hailing service such as Uber or Lyft
  • Earning money online as a freelance web designer, writer, tutor, project manager or through another in-demand skill
  • Providing paid care for children or animals
  • Doing temporary work, such as a temp receptionist or day laborer
  • Selling items, such as furniture or crafts, online

How Are Gig Workers Paid?

Gig workers may be paid by assignment, via a retainer, per task, by the hour or through another agreed-upon system.

For example, a driver for a ride-hailing or food delivery platform accumulates earnings for each ride or delivery they complete. Depending on the pay structure of the platform, they may have instant access to their funds, or their funds may be transferred into their bank account at regular intervals, such as once per week.

Similar payment structures typically apply for freelancing platforms such as Upwork or Fiverr. If you freelance outside these platforms, you'll invoice your clients directly—and set your own terms. Unlike on a platform, which may guarantee that the funds are held in escrow before you complete the work, freelancers who go it alone will need to be prudent to ensure they're only working with clients who will pay as promised.

Pros and Cons of Working in the Gig Economy

Finding your niche in the gig economy can be a lucrative way to bring in cash. But if you're considering gig work, it's important to understand its drawbacks, too, which include lack of benefits and security. Here are the pros and cons of working in the gig economy.

Benefits of Working in the Gig Economy

  • You'll have flexibility and independence. One of the main reasons people pursue gig work is the opportunity to work for themselves and enjoy total independence. While logistics vary, gig workers are able to work where they want and when they want. They can also generally choose to take on jobs they want and turn down those that don't work for them. Some gig workers, such as freelancers, can set their own rates and choose their ideal clientele.
  • It's versatile. If you're someone who tends to bore of predictability, the gig economy can be a continual breath of fresh air. Depending on the job, you may be able to vary the projects you take on to keep learning and trying new things. Even jobs with less variety, such as in delivery service, can offer some novelty as you choose whom to drive for and when and where to drive.
  • The sky's the limit. A commonly cited reason for going freelance or starting gig work is that there isn't a formal cap on your income when you're a gig worker. Whereas a nine-to-five offers a predictable salary, in the gig economy, you can earn more income by completing more tasks.

Drawbacks of Working in the Gig Economy

  • Your income isn't consistent. Perhaps the most daunting aspect of the gig economy is the inconsistent income. How much you earn depends on how much work is available and how much you're able to complete. When you aren't able to work, you won't be paid. That makes budgeting for emergencies all the more vital.
  • You'll lack benefits. One key downside of gig work compared to regular employment is the lack of job security and benefits. When you're a contractor, you usually won't have employer-provided health insurance or retirement savings accounts. You'll need to choose your own insurance and set up an individual retirement account (IRA).
  • Burnout is a risk. Freelancing can be stressful. You're solely responsible for ensuring you find enough work to pay the bills, and in addition to your actual work, you'll need to manage a business. It's a lot of pressure, and it can lead to poor work-life balance, stress and burnout.
  • You're on your own with taxes. Traditional employees usually have their taxes withheld automatically, which means they'll receive paychecks with the taxes already deducted. As a gig worker, you'll need to calculate your income and set aside money to pay taxes on your own. It can be easy to set aside too little, which puts you in a bind. If you don't pay enough before the deadline, you'll be hit with penalties by the IRS.

How to Start in the Gig Economy

Whether you're starting a side hustle to bring in additional income or want to make gigs your main occupation, these five steps can help you get started in the gig economy.

  1. Pick a gig. The gig economy is vast and varied, so find a gig that works for you. Think in terms of accessibility and your passions. If you have a vehicle, getting paid to give people rides or deliver food has a low barrier of entry. As another example, if you have skills in web development, finding freelance gigs in that field may be promising.
  2. Understand the pay. It's important that you nail down how much you can expect to earn before you invest resources into pursuing a gig. Search the web for how much the gig you're considering pays. Be sure to also consider any platform fees, as well as taxes, when determining whether the rate will support your cost of living. Also consider expenses—such as extra car insurance for a professional driver or marketing for a freelancer—and how it will eat into your income.
  3. Choose a platform. Many gig workers use platforms to find clients, deliver services and handle billing. Do some research to determine which platforms offer the most benefits for your gig. For example, Uber, Lyft, DoorDash and Instacart are among the most popular platforms for drivers. Upwork, Fiverr and Freelancer are top marketplaces where freelancers offer their services.
  4. Plan ahead for taxes. Avoid a tax surprise by learning about how self-employment taxes work and how much you'll need to set aside right away. Quarterly tax deadlines can sneak up on you quick, and you're responsible for ensuring you've planned to adequately cover your tax obligation. Consider reaching out to an accountant for help.
  5. Look out for scams. Employment scams are on the rise, and gig workers can be a target for identity theft and phishing. Avoid job postings that seem too good to be true, rife with errors or that immediately ask for identifying information or access to your bank account.

The Bottom Line

The gig economy is made up of the services, jobs and goods that freelancers and contractors produce. Whether you're just hoping to bring in some additional income on the side, or want to start your own business and become a full-time gig worker, there's likely a gig for you.

But even if the flexibility and independence of gig work appeals to you, beware the downsides. Irregular income, stress, burnout and self-employment taxes present unique challenges for gig workers. Before you take the plunge, make a plan for how you'll track your income and expenses, budget as an independent contractor and pay self-employment taxes each quarter.

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