- The gig economy is leading to an increase in independent contractors, freelancers and sole traders.
- An unintended consequence of such work means that many individuals will have lower superannuation balances come retirement.
- The solution could be multi-faceted, involving changes to legislation, innovation from superannuation providers or the platforms themselves.
Anyone who’s ordered a meal to their door using services like Deliveroo, UberEats or Foodora has participated in the gig economy.
The emergence and growth of a gig, or task-based economy is changing the way workers and employers interact. In some ways, the power is in the hands of individuals, free to choose work their way and at times convenient to them. But there is a long term price paid for this way of working in terms of job security and insufficient retirement savings.
Technology has enabled the new ways that independent contractors, freelancers and casual workers engage. Can it solve the unintended consequences to retirement too?
What is the
It’s referred to as the platform or freelance economy and even confused with the sharing economy, but really what the ‘gig economy’ boils down to is independent workers employed to complete tasks, often via web-based digital platforms. Estimates vary as to the how many people are currently working in the gig economy in Australia, with anywhere from 100,000 to 4.5 million depending on the definition of flexibility.1 What is certain however, is that it’s growing.
In many ways, gig work isn’t a new idea. Temp, freelance and casual workers have been doing task-related work for organisations for decades. Instead of a temp agency organising who gets what work, the organisation is now completed via a digital platform – such as Uber, AirTasker, Expert360, Amazon’s Mechanical Turk or Hipages – that helps people requiring tasks connect with task-doers and vice versa.
For individuals, this can be simpler and more empowering than going through a third party. Job search and recruitment is quicker, and personal skills can be made use of. It also allows a flexibility that traditional work often lacks.
For employers, costs are lower, recruitment is quicker and a business has access to very specific skill sets without the need to employ full-time workers.
For these reasons, gig work is very attractive to workers and employers alike. The problem, however, occurs with where the balance of the benefit lies.
Gig workers in Australia are considered independent contractors or sole traders and as such do not have the same protections as those considered true employees, such as minimum wage guarantees, mandatory breaks or work hour maximums. They fall into a largely unregulated employment gap.
In the UK, the independent Taylor review into modern working practices suggested that such workers be classified as ‘dependent contractors’ as a class in between fully employed and self-employed workers, with subsequent access to employment rights.2
In Australia, there is an added complication when it comes to super. Gig workers do not fall under the Superannuation Guarantee, and therefore do not earn retirement savings. Additionally, the majority of Australians have access to life insurance solely through the default opt-out cover provided via their superannuation fund, and so a rise in gig economy workers also potentially leads to a rise in underinsurance and a less resilient population.3
According to the ATO, the self-employed have lower superannuation balances across all ages, and those approaching retirement only have around half that of employees. Self contribution to superannuation has not led to an evening out of balances. Data from 2014-15 shows that only a quarter self-employed Australians made tax deductible contributions to their super.
The rise of the gig economy could contribute to a financial inadequacy for Australia with a higher reliance on the government provided pension. Superannuation providers too could face a decreased relevance.
Solving the gig-super
Assuming that the rise of the gig economy should be seen as a potential problem that needs to be addressed, the question becomes how.
The Association of Superannuation Funds of Australia’s (ASFA) recent discussion paper puts forward two main recommendations to address the potential shortfall. Firstly, they argue that the Superannuation Guarantee should be extended to the self-employed and individual contractors. With no employer to pay the wage into a super fund, they suggest that a Medicare-style surcharge on taxable income for those that don’t contribute to their super could be effective.
Second, AFSA suggests, if the Superannuation Guarantee were extended, the AU$450/month minimum threshold should be removed so that so-called ‘dependent contractors’ would get contributions from their gig ‘employer’. As a side issue to this, low-balance super accounts below AU$6,000 should be protected from transference to the ATO as lost.
Innovation could also go some way to a solution. Gigsuper.com.au is one such example of a company providing an app-based option where superannuation and wages can be easily transferred by the worker without administrative burden.4 Superannuation funds could similarly work on products that catered to different work styles or be proactive in engaging customers who may have transitioned into gig work by prompting, or even helping them to maintain a self-contribution stream.
Finally, as the gig economy heats up, the platform providers themselves could provide the answer.
A PwC survey in 2017 found that giving employment rights to gig workers would boost the number of people willing to consider gig work for 2 out of 5 respondents.5 Understandably, job security, benefits and the ability to make a sufficient income are all prime concerns for those contemplating independent work. If the growth of gig economy platforms increases, the need for talent may prompt these ‘employers’ to offer benefits such as superannuation as a point of differentiation.
As the gig economy grows, so to do its opportunities and potential unintended consequences. For some, it provides the ability to contribute to the workforce in ways they were unable to before. For others, it is business as usual, but with the added ease of self-management and convenience.
These are good things, however the nature of the gig economy may lead to difficulties for individuals, superannuation providers and the government down the road.
As society grapples with the change in employment dynamics brought about by the sharing economy, this is one more aspect that all involved need to be aware of and active in addressing.
Everyone will be better off in the long run if they do.