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Is Your Payroll System Ready for the Gig Economy?

Posted by Dawn White on Sep 22, 2021 8:21:49 AM
Dawn White
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Gen Z man working remotely in a coffee shop as part of the gig economy

The gig economy isn’t just for side hustling anymore. Over the last couple of years, several trends have converged, making gig workers a normalized sector of the workforce. And all signs indicate that these independent contractors are here to stay long-term.

Technological advances have made remote work more and more viable, allowing employees to work from anywhere. SaaS business applications also make it easier than ever to operate as a one-person business.


At the same time, the coronavirus pandemic created two important realities: organizations were forced to rely on remote work, and workers’ employment statuses were unpredictable. As companies were forced to cut spending, once-stable jobs became uncertain. Employees began side hustling more.

The third trend was the next generation of employees entering the workforce. Generation Z is naturally predisposed to the kinds of benefits and freedoms that gig work provides. This segment of workers values flexibility and lifestyle. They are not looking for a stable long term salaried job with a pension. Instead, they’re willing to do hourly work if it allows them to work on their own terms and move around from job to job.

These three trends all came together at the same time, catapulting gig work into the mainstream business culture, all within just a couple of years.

It isn’t only Millennials and Gen Z workers who are attracted to gig jobs. Today, almost half of U.S. workers prefer working remotely post-pandemic — and many are willing to transition to gig work to make it happen. In fact, according to HR Dive, a staggering 60 percent of the workforce will be considered “independent professionals” by 2027.

Once the domain of contractors and skilled workers, the gig economy is now becoming an “expert economy” of subject matter experts and industry leaders. Professional services businesses can benefit from independent contractors that can bring years of expertise and experience in a gig-style working arrangement.

Payroll Implications and Challenges of a Gig Workforce

There’s no standard method of paying gig workers. Some are paid hourly, others send invoices. You could be paying them daily, monthly, or anything in between. So naturally, the implications for the way you do payroll could be tremendous.

When contract workers are paid hourly instead of salaried, overtime complexities come into play — especially if your regular full-time employees are salaried. Payroll becomes even more complicated if your gig workers are paid under certain jobs or receive bonuses.

Other considerations that could affect payroll include pay frequency. On-demand or daily pay may be necessary. Millennials and Generation Z form a major part of the gig economy, and they expect to be paid more flexibly and conveniently. Professional services companies will need to adopt new technologies and processes in order to attract and retain top talent.

Semi-monthly and monthly payroll adds complexities to overtime calculations. You’ll also need to keep an eye on FLSA compliance as you ensure that gig workers’ bonuses and commissions comply with labor laws.

As the gig economy gains momentum, HR managers and payroll professionals will need to find ways to stay fast and lean. Most companies pay gig workers through Accounts Payable, but that keeps them separate from the HR system. As you add independent contractors to your workforce, HR will need to have a way of managing them — especially when it comes to onboarding and offboarding them.

Related reading: Will Your Payroll Plan Work in the New Normal?

IDI Simplifies Payroll Complexities

At the rate that the gig economy is growing, payroll managers need a solution that can easily handle even the most complex payroll calculations. Your HR and payroll systems need to be flexible enough to handle all of the exceptions and special calculations that gig workers introduce.

IDI's suite of solutions for the professional services industry is fully integrated with your time and payroll systems. When IDI is run at the end of the pay period, it retrieves the time and labor information from the time system and associates the specific rates of pay, including any premiums and benefit earnings, with the contract, job, and worker classification, performs any lookbacks, and calculates the weekly average rate of pay, or FLSA rate, used for all overtime hours in accordance with FLSA guidelines.

See our solution guide for professional services organizations.

IDI’s system is designed to handle the kinds of complexities that gig work introduces into your payroll process. Automate your time-consuming processes and eliminate payday
anxiety. We understand the professional services industry and have been developing HCM solutions for decades.

Professional Services Video

Topics: Professional Services Industry Solutions

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