Who’ll take the global edge in the gig economy?

Any country that can get the legal and regulatory framework right – striking the balance between flexibility and security – may give itself a significant edge

Policy- and law-makers are wrestling with the challenges of the gig economy. The heart of the issue is the balance between flexibility and security. While studies consistently show that two-thirds of individuals engaged in gig work do so by personal choice, that still leaves a third who say they would prefer something more permanent or are supplementing other work out of necessity. The questions of what employment legal protections giggers should have and what tax legislation should govern them are highly pertinent.

Most countries only have two employment statuses: employee and self-employed. While tests vary, perhaps the most common marker of an employee is that he or she works under the direction and control of a third party to whom he or she must provide personal service. Multifactoral tests often also focus on the extent to which an individual is dependent on a third party for their income, the degree to which they are integrated into the third party organisation, who takes the risk, who provides the tools and equipment, and whether sub-contracting is permitted.

Some countries have an intermediate status that brings with it a set of rights greater than those of a self-employed person but short of those of an employee. In the UK, for example, a 'worker' is someone who performs services personally for a third party who is not a client or customer of the individual’s business. Spain and Canada also recognise the concept of an economically-dependent contractor, while in South Korea ‘tuk-su go-yong’ workers who work almost exclusively for one client may be entitled to workers’ compensation on the same basis as employees. Debates rage as to whether this sort of intermediary categorisation is the solution to providing gig economy workers with some basic protection without the rights and obligations attached to 'full-blown' employees.

Employment status is primarily important because it determines what claims you can pursue as an individual. However, as most people aren’t looking for ways to sue those who provide work to them, arguably as or more important is the tax and social security framework that covers giggers. In many countries the self-employed benefit from more favourable tax treatment, rewarding the greater entrepreneurial risk they are perceived to take. But the quid pro quo is often that they receive less generous coverage when it comes to sick pay, unemployment benefit and pension contributions.

It is increasingly unclear whether this difference in treatment between employees and the self-employed is sustainable in the long term. The rise in self-employment is causing tax authorities to identify shortfalls in their revenue projections, and individuals who would like to work more flexibly are often deterred by the absence of social protections – and gig economy companies from providing them by concerns about the implications for status classifications.

Incubating, developing, attracting and retaining gig economy businesses is likely to be a key strategic focus for governments the world over in the years ahead. Set against the efforts some are making to 'solve' the challenges of the gig economy, other governments may see an opportunity. Any country that can get the legal and regulatory framework right – striking the balance between flexibility and security – may give itself a significant edge over its competitors.

While no-one may have got there just yet plenty are trying, and whether the future involves multiple different approaches or convergence around certain common themes, the journey will shape the economy of the future.

Colin Leckey is one of the UK leads for international employment law practice Ius Laboris and a partner at Lewis Silkin