In today’s world of change and being different, the Gig Economy is a relatively new term for a way of earning money. The Gig Economy relates to individuals making money through offering personal services or renting personal property, often through the use of an app or website. Think Uber or Lyft drivers for rideshare services. Think DoorDash or GrubHub for delivery drivers. Think Airbnb or VRBO for travel stays instead of a hotel. Think about all the apps on your phone, offering everything from people providing exercise workouts to teaching you a foreign language to allowing you to learn a new skill.
The definition for Gig Economy is “a labor market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs.” One key component to being part of the Gig Economy is the flexibility. You get to work when you want to work and often have the freedom to set your hours. This means it can be great for those who have life commitments that require flexible work hours.
The negative to that freedom and flexibility – there is unpredictability in what income may be. If I have a room available for rent through Airbnb, I cannot be sure if it will be rented for the entire month or if it will be empty for a month. If I am driving for a rideshare company, will I be busy driving all night with paying passengers or is there little activity for the night?
If your vacation rental is in a popular destination, you may be able to keep it fully rented. If you are in a major city with a lot of traffic, being a Lyft or Uber driver could be a full-time occupation. Is it likely that a room could be rented all the time or could you manage to stay busy all the time driving in a more rural area?
If you want to be part of the Gig Economy and you are providing services, you need to realize that you are considered an independent contractor and running your own business. You must pay income taxes and pay self-employment taxes on your net income. You will need to keep track of income and expenses.
If you are renting either real estate or personal property, you will be subject to income taxes on your income after expenses. Personal property is renting machinery or equipment. Maybe you affiliate with one of the websites that allow individuals to rent your lawn equipment, patio furniture, camping equipment, sporting equipment, car seats, cars, or any occasionally needed items. You will typically file a Schedule E as part of your personal income tax return.
IRS has rules and requirements for business owners or those acting as landlords that you will need to become familiar with and follow. Most often, you will be filing a Schedule C as part of your personal tax return. It is not the responsibility of the company whose app you are using to get jobs to keep track of your income and expenses. This is your responsibility to keep track of and to determine the correct amounts.
Can you work in the Gig Economy full-time as your primary job? It depends. In a big city, the likelihood is you could keep yourself busy enough to earn a full-time income being a rideshare or delivery driver. You could probably get a steady income from renting out either a room in your house or maybe a whole home in a tourist destination. Is that true in your area where you live? In Upstate NY, where I am, I think it would be challenging to earn a full-time income in the Gig Economy unless you were stringing several different opportunities together.
The Gig Economy could provide you the extra income as a 2nd job. Maybe your primary job has irregular hours – sometimes you are working days, sometimes nights and/or sometimes on the weekend. Not having a consistent schedule would make it difficult to get a 2nd job that has set hours. You could easily become a GrubHub delivery driver and set your schedule around your primary job’s schedule. You can be a VRBO owner that allows you to work a primary job and manage renters outside of regular work hours.
Maybe you are a student full-time and need the flexibility around class schedules that change every semester or around heavy study times. Are you a stay-at-home parent and looking to fill time or earn some money while the kids are in school? The Gig Economy offers flexibility when a traditional 9-5 job does not work for you.
Are you retired with the standard concern that many retirees have – will I run out of money? Did you recently retire and have a spouse tell you that you need to get out of the house? Maybe you are bored at home? For some, working in the Gig Economy provides an opportunity to prevent social isolation.
There is any number of reasons individuals can choose to work as part of the Gig Economy. It could be the need to supplement your primary income source to manage a budget. It could be to avoid boredom and fill time. It could be the desire to earn extra to get ahead, purchase something special, or possibly retire early. Maybe you are looking for something to keep you active. Some like that every day at work is different and they feel continually challenged. Whatever the reason is, most choose the Gig Economy for that reason and for the flexibility and freedom over being a part-time employee.
Before you decide to become part of the Gig Economy, consider what it will cost you and make sure that you can earn what you are looking to earn even after expenses. For example, take someone who is acting as a rideshare or delivery driver. Individuals often think of the everyday cost of gas in the car. Many do not factor in the extra wear and tear on the vehicle. That wear and tear means more frequent new tires, more oil changes, and the likelihood of needing a new car sooner than standard driving patterns.
Purchasing a property with the intent of an Airbnb means the daily expenses of utilities, insurance, and property taxes. It also means preparing for major repairs like a new roof or possible damages done by a renter.
Consider what your extra expenses may be if you are out working in the Gig Economy. For example, if you are going to be eating dinner out because you are going from one job to your Gig job. Are you going to be at the local coffee shop purchasing coffee or at the local convenience store purchasing soda because of the extra time on the road? Are you going to have to pay a babysitter to watch your children while you are working in the Gig Economy?
On the opposite side- what will you not have time to do if you are out working in the Gig Economy? Does that mean you are not home shopping online? Does working in the Gig Economy keep you healthier because you are more active or have the opportunity to interact with others socially? Does the fact that you are working improve your self-worth in your eyes because your identity has always been very tied to your work? There is any number of non-financial reasons you may want to work.
Make sure that you understand what you really are earning as your true rate per hour. Factor in both business expenses and the non-business, personal expenses, as well as what the tax bite is going to be. Divide this by the number of hours you will devote to get your true rate per hour. Once you know what the true rate per hour is, you can make an informed decision about whether this is worth it for you to do. Even if the rate per hour is low, it might still be worth doing if you are looking at it for non-financial reasons. You do want to make sure it is not going to cost you money. If you are doing it for financial reasons, make sure that you can earn what you need before getting started.
