What Are Gig Workers?

The American labor market has undergone significant restructuring in the last decade or so. Modern employment incorporates concepts like remote work, flex-time, and side hustles. These innovations challenge our traditional understanding of what it means to be an employee.

Gig workers are often understood to be independent contractors. However, whether gig workers are employees or independent contractors is an important distinction. Worker classification has a major impact on employee benefits, labor laws, and legal protections. To understand more about gig economy workers and worker classification, talk to an employment law attorney.

Characteristics of Gig Workers

Gig workers and the gig economy is a recent term that refers to on-demand and part-time work by contractors and freelancers. Gig workers differ from traditional employees. Gig workers generally do short-term freelance work, work as much or as little as they want, and can work for multiple businesses at the same time.

Gig workers often sign up with a digital platform or app to find and accept jobs. Digital platforms connect gig workers with customers and manage payment details. The type of work in the gig economy includes:

• Rideshare drivers (Uber and Lyft)
• Food delivery app drivers (DoorDash and Instacart)
• Freelance and contract platforms (Fiverr and Upwork)
• Property rentals (Airbnb and Vrbo)

Many workers appreciate the flexible work schedules and ability to earn extra money. However, there are downsides to self-employment and not working for a traditional employer. Gig workers generally do not get perks like healthcare and retirement plans and have to pay their own self-employment taxes. In most states, gig jobs do not have legal protections against sexual harassment, employment discrimination, and wage and hour violations.

Gig work increased significantly during the COVID-19 pandemic. Many workers lost their jobs and there was an increased need for delivery drivers. Full-time job employees got used to remote working conditions. These employees turned to the gig workforce instead of going back to in-office work arrangements.

The Problem of Misclassifying Workers in the Gig Economy

“The thing about the gig work economy is that people want to make everybody within that an independent contractor,” says Antoinette Choate, an employment law attorney in Chicago, Illinois. “But misclassification of employees is a significant concern.” Certain sectors are particularly prone to misclassification. Commonly miscategorized work includes construction, delivery driving, and offsite services like housecleaning.

If you’re classified as an independent contractor and do not have employee status, most state and federal labor laws do not apply. The company you perform work for doesn’t have to pay you minimum wage or offer overtime. Employers avoid payroll taxes, sick leave, workers’ comp, and health insurance mandated by the Affordable Care Act. Misclassification also costs the United States government billions of dollars in revenue.

Federal and State Laws Govern Worker Classification

There can be obvious incentives for business owners to shield themselves from the expenses of employees. Businesses can save 30 percent or more in labor costs with independent workers.

However, classifying a worker as a full-time employee or independent contractor is not a matter of choice. Even an agreement for contract work that states the worker is a contractor does not determine their classification. Instead, federal, state, and local laws determine worker category. Intentional misclassification can have costly outcomes for the employer.

How To Determine Worker Classification

Determining a worker’s classification is largely an assessment of who controls the work itself. “You look at the degree of control the employer has,” says Choate. “Do they set your schedule, give you your shifts, give you your supplies? Do they control the way you effectively do your work? If so, you’re truly an employee of the company.”

The U.S. Department of Labor (DOL) finalized a new rule in March 2024 for determining if a worker is an independent contractor under the Fair Labor Standards Act (FLSA).

Choate elaborates on what can be a common misconception: “As I understand the gig economy, it’s temporary. But just because it’s temporary or seasonal, like holiday-season workers for a retailer, that doesn’t mean you’re not an employee. They’re setting your schedule, telling you when to show up; you have to comply with their code of conduct. You may have a transient project, but if you’re making them come to your workplace and act like any other employee, it may be a gig, but they must still be an actual employee.”

The Internal Revenue Service (IRS) also classifies workers based on their degree of control and independence. Whether gig workers are employees determines income tax filing and who pays Social Security and Medicare taxes.

State laws may have different factors to determine if a worker is a traditional employee or a freelancer. An employment lawyer can help determine which tax and labor laws apply based on where you live and work.

The Consequences of Misclassifying Workers

When employers get it wrong, the results can be severe. “There are tons of actions where people get misclassified,” Choate says. “For example, I represented drivers who worked for a restaurant where the restaurant called them independent contractors. The judge agreed that, under the law, they were employees. When that happens, they can be owed wages because they may not have been paid overtime. Any time an employee works more than 40 hours in a given work week, they get time-and-a-half under the Fair Labor Standards Act and Illinois and local law.”

“Depending on whether the conduct was willful, you may also get liquidated damages under federal and state law, which is double damages plus attorney’s fees and costs. Under Chicago and Cook County employee law, you can get treble damages if you fail to pay someone properly.” Willful misclassification can lead to unemployment and workers’ compensation fines, and potential criminal charges.

Find an Experienced Employment Law Attorney

There are significant risks to assuming project workers are independent. “Be very careful when you classify because misclassifying you can get into a lot of trouble,” Choate says. To help evaluate your workers’ classifications, talk to an experienced employment attorney. For more information about this area, see our overview of labor law and wage and hour laws.