United States: The Impact Of The Gig Economy On The Hospitality Industry

Last Updated: November 13 2017
Article by Lariza A. Hebert and Pamela Williams

What Is The Gig Economy?

When many employers hear the term “gig economy,” they immediately think of popular services such as Uber and Lyft. However, the gig economy reaches far beyond ride-sharing services. It impacts almost all industries, and even large, multinational corporations are becoming part of this burgeoning workforce development.

What is the gig economy exactly? The word “gig” is a term that originated with the music industry – musicians usually move from job to job and are hired to play on a per-gig basis. The gig economy is built on the concept of an employer hiring a worker for a particular task or a finite period of time, with no necessary ongoing connection to the business. And because just about everyone has a smartphone these days, there is a perfect digital platform to efficiently connect a consumer with a worker who has some free time on their hands.

Gig workers cover many industries and occupation groups. Jobs that are common in the gig economy include ride-sharing drivers, makeup artists, house painters, freelance photographers, appliance repairmen, and even pet-sitters.

Gig Workers In The Hospitality Industry

How does the gig economy affect the hospitality industry? Quite simply, the gig economy has already changed the hospitality industry in more ways than you think. People are spending more money on travel and restaurants – cue ride-sharing services such as Uber, food-delivery services such as GrubHub, and retail-delivery companies like Amazon.

In particular, ride-sharing services have helped increase business in the hospitality industry. Knowing they have a safe mode of transportation home via a ride-sharing service, some patrons may worry less about exceeding a specific drink limit, thereby offering consumers more flexibility. Further, gig staffing companies (such as Jobletics, Rota, and Wonolo) now provide hospitality businesses the ability to summon an hourly worker as easily as one would secure a ride from Uber. In this business model, hospitality establishments frequently post their shifts (“gigs”) and workers apply to fill the role. This process allows employers to pick up workers both on advanced notice and on a need-now basis. The gig workers are paid through the staffing company, not the employer, and the staffing company handles all HR functions such as payroll. Many of these staffing companies also allow gig workers to be on standby – which in turn, means less chance of under- or over-staffing.

Gig workers can be especially helpful in the hospitality industry when it comes to staffing for high and low seasons. For example, many wedding caterers are busier during the spring and fall than in the winter and summer. Embracing gig workers means hospitality employers only pay for workers when needed. The benefits of a gig workforce to the hospitality industry are obvious - employers do not need to maintain an unnecessary (and costly) labor force and workers have the flexibility to work when they choose.

The Common Problem Of Misclassification

As with employers in a traditional workforce model, a company that utilizes gig workers has the responsibility of ensuring compliance with all applicable state and federal wage and hour laws.  Hospitality employers must be cautious to avoid misclassification of gig workers under the nation’s main wage and hour law: the Fair Labor Standards Act (FLSA). This can be very challenging because regulations regarding this sector of the workforce are still evolving.

There has recently been significant media attention regarding gig worker classification. This, in turn, has led trade unions and employee advocacy organizations to place a substantial focus on gig workers in hopes of creating additional workplace rights for them. In response, various states have introduced assorted legislative measures in an attempt to address issues surrounding the appropriate classification of these workers. Unfortunately, litigation surrounding appropriate classification of gig workers has also been increasing.

In short, the gig economy, as a whole, has been riddled with questions about whether gig workers should be classified as independent contractors or employees. Appropriate classification is vital as employer costs for failure to comply can be substantial. Workers misclassified as independent contractors may be entitled to compensation for minimum wage, overtime, and liquidated damages.

The test for determining whether an individual should be classified as an independent contractor versus an employee can be unclear given the ever changing regulations and judicial interpretations regarding this issue. Texas state and federal courts that have grappled with this issue have historically considered an employer’s level of control (or right to control) of the work. 

Texas-Specific Considerations

Several months ago, the Texas legislature passed House Bill 100, which ensures that gig workers of ride-sharing companies will be classified as independent contractors provided they satisfy some simple requirements, therefore possibly avoiding costly misclassification lawsuits. While the bill applies solely to ride-sharing companies, some believe it may be a sign of things to come for gig businesses in other industries. 

Takeaways For Hospitality Businesses

The gig economy is still relatively unchartered territory when it comes to legal battles. Several large gig economy businesses, particularly ride-sharing companies, have been dragged through legal battles over independent contractor classification and wage and hour issues. Regardless, the benefits of retaining gig workers to perform work for your business – the flexibility, cost-saving measures, and back-up workforce – are sometimes too good to pass up, so employers must take deliberate steps to ensure legal compliance.

Remember, just referring to a worker as an “independent contractor” is not enough. Generally, independent contractors are hired for a specific job, paid a specific amount, and not supervised or directed as to how that job is performed. In contrast, an “employee” is usually hired to perform a list of duties, is paid by the hour or by salary, and their work is directed and supervised by the employer.

If you are already employing gig workers, an audit of your workforce may be helpful to determine whether you have the appropriate controls and protections in place to ensure success and reduce risk. 

This article originally appeared in Texas Hotel & Lodging Association

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Lariza A. Hebert
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