HR 22 December 2016

Why the gig economy will be a compliance nightmare in 2017

Uber
There could be ramifications of the Uber ruling for the self-employed in 2017

Compliance expert Nick Henderson reviews the rise of the gig economy in 2016 and some of the issues that could arise for business owners next year.

Over-reliance on the gig economy is exposing businesses to a raft of risks, from labour exploitation to due diligence to tax evasion.

Research has found half of business leaders already believe the use of such casually contracted workers exposes them to compliance risks. A quarter couldn’t even say how many contract workers they employed. 

Traditionally, hiring a company for a service meant undertaking some form of due diligence and having, at least, a sense of security that the business adheres to basic legal and ethical standards in its conduct. Summoning a worker via an app offers no such assurance, and leaves little room for a reasonable defence should the issue wind up in court.

The firm fist of a regulator or one scathing employment tribunal is ready to dismantle the flimsy structure that the gig economy is based on, and part of it is already being chipped away.

Uber claimed that its 40,000 drivers in the UK are self-employed, and therefore not entitled to pensions, holiday pay, or other basic employment rights. An employment tribunal in London disagreed, calling Uber’s argument that it was simply a technology company “ridiculous”, and they were relying on “fictions and twisted arguments.”

While the decision was only handed down at the end of October, there will doubtless be more claims against other firms with large self-employed workforces in 2017, not to mention the ramifications of the Uber ruling. Up to half a million workers in the UK alone may be wrongly classified as self-employed.

Falsely classifying workers as self-employed is costing the UK up to £314m per year in lost tax and national insurance contributions.

HMRC is already investigating delivery giant Hermes for paying workers less than the minimum wage. Staff receive no holiday or sick pay, and risk losing work if they can’t make their rounds due to illness or childcare.

Any business that use such services bring those workers into their supply chain, and with increased scrutiny on supply chains since the Modern Slavery Act, companies are getting entangled in high-risk situations.

It’s not only minimum wage violations that are cause for concern. The gig economy is highly vulnerable to discrimination claims.

Researchers have found significant evidence of bias against female programmers or workers with black sounding names on some of the major gig apps, including Fiverr, TaskRabbit and AirBnB.

While AirBnB recently updated its discrimination policy to prevent such abuses, it doesn’t stop others from letting bias influence their ratings of service providers on gig apps.

Using these apps for business could require much more care and due diligence to ensure that discrimination does not factor into any procurement decisions made as a result.

The risks related to third party suppliers go much broader than even that. FTI Consulting investigated the possible risks to multinationals of supply chain outsourcing and found the risks included bribery, money laundering, sanctions violations, cybercrime, conflict minerals use and use of defence-related goods. 

Anti-money laundering and anti-bribery regulations extend into a company’s supply chain. Relying on a multitude of “self-employed” workers who receive no training or are under no obligation to be aware of the policies and procedures of who they are supplying to creates a gigantic danger zone for corrupt practices.

Under the Modern Slavery Act, large businesses operating in the UK have a legal obligation to produce a statement detailing exactly what steps they are taking to eliminate exploitative labour practices in their supply chain.

A number of Amazon workers in Scotland resorted to sleeping in tents beside the warehouse, braving sub-zero temperatures, because they could not afford what Amazon charged them for transport.

A series of poor employment practices at Amazon have been alleged, from threatening to dismiss a worker with cancer to penalties for bathroom breaks. One significant question posed by modern slavery is at what point do poor employment practices cross over into abuse and exploitation?

As the gig economy is rife with examples of poor practices, from employment to training to tax, using such services is more and more of a risk for business.

Rather than saving money or cutting down on bureaucracy, there’s a very real danger that relying on the gig economy could lead to a compliance nightmare.

Nick Henderson is director of course development at VinciWorks, a provider of online compliance solutions for business.

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