Initially hailed as the Future of Work thanks to its convenience and flexibility, the gig economy is slowly transforming into a nightmare for many Australians who have immersed themselves into this new form of work. While it offers an innovative platform where companies can source affordable talent and where workers can choose whom to work with, it still suffers from certain structural weaknesses that make it a costly option for many workers, plunging many deeper into poverty or financial insecurity.
The main issues include the uncertainty of income, lack of job security, low below the market wages and the fact that workers in the gig economy are neither insured nor entitled to a Super Guarantee. Gig economy workers earn below the minimum wage and are not entitled to holiday pay or sick leave. The uncertainty of gigs also means the income from this kind of work is highly unpredictable. That can be very problematic because while workers have to grapple with fluctuating and unstable income, the expenses remain largely the same, thereby putting many under a lot of financial pressure.
There is the fear that the expansion of the gig economy will create an underclass of workers, living below the poverty line, with no worker rights and with a bleak financial future. Some like portals like Airtasker have taken corrective measures and now offer optional social safety nets such as income protection insurance and other forms of coverage. But self-regulation in the industry will be long in coming, especially when the platforms are already minting billions of dollars in this kind of quasi economy.
Still, as a gig worker, you could take the initiative and incorporate personal financial and work decisions that will help you make the most of the gig economy and achieve financial security. Here are some of the measures that you can start practicing in order to ensure that the gig economy works to your advantage before government regulation catches up with the players, if at all it ever will.
Determine Your Tax Status and Pay Taxes
If you are using your personal efforts or individual skills in a flexible economy, the most important thing is to start by determining your tax status. The first question that you will need to ask is whether you will be liable for any taxes. Granted, it might be difficult in determining your tax status if you are involved in multiple types of gigs. However, you need to establish with the help of a tax agent or an accountant whether your income is classified as a personal services income (PSI) or a personal services business. There are considerable differences between these two with differing tax implications.
Register for GST
If you are earning more than $75,000 in your gigs annually through your ABN, you will need to register for a GST. If you are an Uber driver, you will need to register for a GST no matter your income threshold. Talk to a professional accounting firm Melbourne practice to advise you accordingly on whether it’s possible to use your existing GST registration.
Start Paying Your Superannuation
Self-employed people or independent contractors rarely have the motivation to make super contributions. If you are using all your income to fund your lifestyle, work or wanderlust, you are doing your future self a great disservice. It is prudent to build a good retirement nest egg that you can draw on in the future when you are no longer able to put in the long hours to earn good money in the gig economy.
With the gig economy, you don’t have the luxury of the Super Guarantee so you have to do your own calculations on how much you are going to put into your superannuation account, taking into account the fluctuating nature of this kind of income and the annual concessional contribution caps.
For greater portability and flexibility in your investments, consider setting up a self-managed superannuation fund (SMSF). You can also maximize on your contributions during the peak seasons when you are able to earn a healthy amount of income in the gig economy. This will help offset the low contributions that you are likely to make when you earnings plunge during the low seasons.
Finally, taking into account the fluctuations in income, you should set aside enough money to take you through the lean seasons. Remember that superannuation is a long-term retirement savings option that you will only access when you are retired.
Buy an Income Protection Insurance Policy
If you are an independent contractor in the gig economy, you have to shop for your income protection insurance and purchase a policy that will protect you from loss of income due to illness or incapacitation. Some of the gig economy platforms such as Airtasker are already ahead in the game, offering contractors an opt-in income protection insurance policy to cover situations where they may be injured and no longer be able to complete their tasks.
On top of their superannuation guarantee, PAYG employees typically have workers compensation coverage that assures workers protections in the full-time labour market. In the flexible labour economy, you have to take the initiative as a contractor and look for a suitable income protection insurance option that will serve your needs for a period should you suffer a disruption or incapacitation.
Go for the Tax Deductions
Working in the flexible economy means that you will incur lots of out of pocket expenses in the process of generating your income that you can lay claim to. There are also plenty of entitlements that you may have access to across a section of industries. Negotiating these might be a complex affair though an accountant Melbourne professional can help you work out and make the most of these.
To claim most of your tax deductions, ensure that you keep very good records of all the expenses that are related to your work. Some of the claims that you can make include internet costs, co-working space rental, software costs, project fees charged by the platform, travel expenses and equipment depreciation. Where you are using assets for both personal and professional use, ensure that you correctly apportion claims so that you are able to go for only the work-related expenses.
Factor in the low season contingency plans
A major characteristic or weakness of the flexible economy is the fluctuating nature of work. You will also have little control over the rates and these will fluctuate from gig to gig. Sometimes, you may be forced to take very low paying work just to earn an income for the week. But how will this play out in the overall scheme of things especially if you have obligations such as tax, health insurance, income protection cover, equipment purchase, travel, superannuation, rent or mortgage?
The best strategy is to factor in all these obligations into your costing structure and set a base rate that you will be comfortable with and which will cover all your expenses.
You also have to put in place contingency plans for the low work seasons. Balance your current projects with the pursuit of future work so you can have a steady income throughout the year. Look for long term clients that can give you a steady stream of work over the long haul.
Need help in making the most of the flexible gig economy so you can achieve financial stability? Talk to an accountant Melbourne professional to advise you and help you develop a contingency plan that will put you on a surer financial footing.