Optimising the gig economy for payroll

Stuart Holmes, AFEX’s EMEA sales director, explains how to balance the dynamism of today’s workforce with payroll efficiency and tax compliance.

Almost 8 million people in the UK are considering signing up for the gig economy, eager to take advantage of its flexibility and time-efficiencies.

Meanwhile, over 25 per cent of the UK’s SMEs have employed at least one gig economy worker in the last 12 months to improve their workforce management capacity.

However, it is these same SMEs that account for over half of the £737 million in taxes and penalties collected by HMRC in a recent crackdown on tax and payroll errors for casual employees; indicating that some businesses are tripping over themselves in the rush to adopt gig workers.

The issue has been thrust into the spotlight with the commissioning of the Taylor Report, enacted by Theresa May in October 2016 to assess ‘’the implications of new forms of work,’’ intensifying scrutiny on correct payroll classification of employees.

To avoid suffering further damaging penalties as a result, businesses must get on top of their payroll governance today and leverage third-party solution providers to streamline payroll and employee management for greater business efficiency.

GDPR, globalisation and compliance

Payroll issues with the gig economy could be compounded with the new EU General Data Protection Regulations (GDPR).

The regulations, designed to secure data privacy for EU citizens, will come into force on 25th May 2018. They will dictate that any non-EU business must appoint a representative within the Union if managing and storing the personal data of its residents.

With almost 46 per cent of SMEs reporting that they expected to increase their international payments in 2016, and only 28 per cent expecting a commensurate rise in domestic payments, GDPR will apply to many globalising UK businesses.

The gig economy can facilitate this international growth by providing easy access to a local labour pool for geography-specific projects or tasks. But, under GDPR, it could present a significant pitfall.

Payroll data is made up of sensitive personal information. Businesses that fail to correctly classify EU gig workers as employees and take responsibility for this data can expect HMRC penalties to be accompanied with a fine of 20 million euros or 4 per cent of annual global turnover for non-compliance with GDPR.

Such extensive financial loss could irreparably cripple business growth, making it crucial for payroll managers to begin preparing for GDPR’s impact on the gig economy today.

Workforce management

One advantage of the gig economy is that payroll managers can avoid paying out benefits, holiday pay, or sick leave reserved for full-time employees.

Employers can also expect gig workers to provide their own equipment, manage their own pensions and fund their own training, saving time and money.

But with one in ten SME decision makers recently reporting that gig economy workers represent 90 per cent of their employees or more, this approach is unconducive to an efficient, motivated workforce.

Ultimately, gig workers are still representatives of the business for the duration of their contract or ‘gig.’

This is especially important given that 40 per cent of UK SMEs report concerns that gig economy work can lead to a less dedicated workforce and 30 per cent agree that it can result in a less motivated workforce.

This potential apathy can be curbed by ensuring that gig workers are paid promptly. The UK’s freelancers are currently owed an average of £5,431 in late payments, with almost half considering quitting their line of work because of such issues.

Additionally, of all countries surveyed in a recent study, UK employees were most likely to be paid incorrectly. 41 per cent of these employees would consider leaving their job as a result.

The solution

There are clear issues with UK payroll’s management, compliance and efficiency for the gig economy. But a wealth of innovative technologies can go some way to resolving these issues.

Prepaid card programmes can enable the easy management of multiple payroll cards for employees via responsive online portals and control expenditure limits, add, distribute or withdraw funds with no per-payment fees and rapidly produce comprehensive data-rich reports.

Adopting technologies such as these will be crucial in helping SMEs include gig workers as part of their growth strategy, while coping with GDPR and an intensified scrutiny on tax compliance.

Stuart Holmes is the Sales Director, EMEA at AFEX and has worked in the global payments industry for more than twelve years. 

Praseeda Nair

Praseeda Nair

Praseeda was Editor for GrowthBusiness.co.uk from 2016 to 2018.