The way work and pay have been conducted has stayed largely unchanged in the past few decades. Although, some argue that a seismic shift is underway. Something that will mean people are not paid for their time put into work, but rather for the outcomes they deliver, also known as the gig economy. In this write-up, we will cover how the gig economy rose, what benefits and challenges it will pose, and argue whether the future may adopt this trend on a wider scale as it continues to gain momentum.

Key Takeaways:

✓  The economy continues to shift to an outcome-based model.

✓  This can result in greater profits, flexibility, and autonomy for both workers and clients

✓  A number of issues should be addressed before widespread adoption, such as worker rights, low skilled workers, and job security.

The Rise of the Gig Economy

The gig economy, or also referred to as the freelance or on-demand economy, paints the picture of a labour market characterised by short-term, flexible engagements rather than the more traditional full-time employment. Gig workers, also known as freelancers or independent contractors complete projects on a contingent basis. These are requested by clients or companies, and a freelancer typically has multiple projects to complete at once. 

The gig economy has seen an explosive rise in recent years, largely fueled by advancements in technology, shifting attitudes towards work, and changing preferences among workers. Platforms like Uber, Airbnb, and Upwork have helped change our perception on the standard working model. Furthermore, companies have discovered that it can be a lot cheaper to pay a premium fee for pieces of work that would otherwise require a complete hiring process and employment of a specialised skill set the company may only need for one project. Additionally, the freelancer who has these skills is charging a premium for the service as they are aware of their sought after skills. This has led to an increase in income for gig workers, whilst reducing overheads for companies.

The Shift Towards Outcome-Based Pay Models

A core component to the gig economy is the concept of outcome-based pay models. This is where compensation is tied directly to the results or deliverables achieved, as opposed to the hours worked. For example, a company may pay a fixed $2,000 for a website, regardless of how long it took to build. Pay can sometimes change depending on scope changes and other unforeseen circumstances.

This model of outcome-based pay however, is not a one-size fits all for gig workers. Outcome-based pay models can take many forms including:

• Project-Based Billing: Clients pay freelancers a flat fee for a specific project or task, regardless of time taken to complete.

• Performance-Based Incentives: Compensation is tied to predefined performance metrics or outcomes. This could be sales targets, project milestones etc. For example, a lead-generation agency may only receive pay if they bring in a certain number of qualified leads in a month.

• Revenue Sharing: Freelancers receive a percentage of the revenue generated from their work. For example, affiliate marketing commissions or royalties from creatives they produce.

The Pros of a Gig Economy

• Incentivised Results: By tying pay with outcomes, workers are more incentivised to deliver a high-quality result in a timely manner, as this will result in a better payout for them. This can help increase productivity, and accountability. Full-time employees may waste time on various tasks as this will either lengthen the project resulting in more pay, or they’re simply less motivated as the project outcome does not affect their pay.

• Flexibility & Autonomy: Being a gig worker means being your own boss. This allows for greater flexibility and autonomy in choosing what you work on, and when you do it. This can help improve motivation and work-life balance as you can actively pursue areas you’re interested in.

• Fairness & Transparency: Due to the pay being based on the outcome of a project, this model is often seen as more transparent and fair for both parties. Compared to traditional pay structures, where compensation may be based on subjective criteria or seniority. For example, an employee could earn much less pay than their senior for a successful project, even if they’re the reason for its success.

• Cost-Efficiency: As I touched upon earlier, employers can benefit from an outcome-based pay model, as they're paying for the results achieved, removing the risk of low quality work by an employee, or having to hire for specific skills only needed in one piece of work.

The Cons

So, from afar, the gig economy appears to benefit the worker and the client. Although, this might not be the case all the time, or for everyone in the workforce.

• Unpredictable Income: Just like anyone selling a product or service, it’s not always easy to know if demand will stay consistent. Gig workers face uncertainty in their income. There may be times when no one is in demand for their skills. Or, if they rely solely on outcome-based pay there may be an unfortunate amount of circumstances that result in poor quality of work, or the work taking longer than expected. With a traditional employment, you have the security of knowing that your pay will not fluctuate week-by-week.

• Potential for Exploitation: Some companies may take advantage of the insecurity in pay for gig workers. This can leave a freelancer with very little bargaining power or leverage when the client requests extra changes or withholds pay.

• What about low-skilled workers?: Whilst a gig economy looks amazing for a skilled worker with high demands for their arsenal of skills built from years of experience, where does this leave people just entering the workforce?  Companies won’t pay for pieces of work done by those with no skills if they can get a better outcome for the same pay in less time. This leaves young workers with no work, or forced to take pay way below the market price. This will also mean companies are less likely to take on young workers and train them up in the hopes of their continued loyalty in a company as there will be no incentive for long-term employees.

• Lack of worker rights: For the gig workers, there are no employment laws or benefits, meaning if they get sick or want to take holiday leave, this will be at their own expense. Gig workers will also have no pension schemes or other benefits.

What About the Future?

As more companies see the benefits to paying for contractors, and skilled workers have a demand for their work at a good price, the gig economy will continue to expand and evolve. Outcome-based pay models are more likely to become the norm across various industries and sectors. If the majority shift towards this model of work, there will be the introduction of more laws to protect both workers and clients for a gig economy.