NerdWallet's Smart Money Podcast - Understand the Gig Economy: Why Millions are Choosing Freelance and Side Hustles

Episode Date: October 9, 2024

Learn how the gig economy impacts workers' finances and get tips for managing taxes, savings, and benefits. How does the gig economy affect people financially? How can gig workers save for taxes and retirement without employer benefits? Hosts Tess Vigeland and Sara Rathner are joined by Rick VanderKnyff, NerdWallet’s senior news editor, to explore what defines a gig worker, how many Americans are involved in gig work, and what this means for benefits like healthcare and retirement. They discuss the complexities of gig work, its rise during the pandemic, and what gig workers can do to manage their finances and save for the future. Plus: Tess and Sara cover some of the week’s top financial headlines, including the latest job market report, tax filing extensions for Hurricane Helene victims, and rising interest rates on credit card debt.  Learn about the best no balance transfer fee credit cards: https://www.nerdwallet.com/article/credit-cards/best-no-balance-transfer-fee-credit-cards  In their conversation, the Nerds discuss: gig economy, gig workers, freelance jobs, side hustles, independent contractors, gig work benefits, gig worker taxes, freelancer taxes, how to save as a freelancer, managing freelance income, self-employment tips, self-employment tax, gig economy trends, freelance health insurance, gig work flexibility, saving for retirement as a freelancer, freelancer budgeting, part-time jobs, gig economy apps, freelance income tips, budgeting for gig workers, self-employed retirement plans, healthcare for gig workers, gig economy statistics, gig economy news, freelance careers, gig worker rights, independent worker benefits, alternative work arrangements, and freelance tax tips. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

Welcome to NerdWallet's Smart Money Podcast. I'm Tess Vigland, in for Sean Piles. And I'm Sarah Rathner, in for Anna Hilhoski. The cats are away and the mice are gonna play, baby. That is right. And this is our weekly money news roundup, where we break down the latest in the world of finance to help you be smarter with your money. We'll go deep into a single topic and then leave you with the latest money headlines. Today, we're talking about gigs. Yeah. Tess, you got a gig? I do. I sub for Sean. I'm also a part-time photographer, so I would say that's a gig. Lots of other Americans have gigs, so much so that they've got their own

section of the economy, the gig economy. Yes, not just for jazz musicians anymore. That's right. So today we are joined by a name that's familiar if you listen to the credits each week here. Rick VanderKneife is our fact checker on the Weekly News Podcast and NerdWallet's senior news editor. But for this episode, he's with us to talk about the gig economy as our guest. Rick, welcome to the front of the microphone, a new gig for you. Hey, thanks, guys. I am glad to be here and I am always up for a new experience. Let's start by defining gig workers and the gig economy. These are terms that are tossed around

and most people probably have an idea of what we mean, but give us the rundown. Is gig worker just another word for a freelancer? The definition of a gig worker is actually pretty fuzzy, so it depends on who you ask. The most visible gig workers that we're all familiar with are people who find work through apps like Uber and DoorDash. But the definition can be expanded to include a lot of categories like dog walkers, freelance designers, on-call healthcare workers, day laborers, YouTube creators, even people who sell stuff on Etsy. So it's a long, complicated list. And the BLS, which is the Federal Bureau of Labor Statistics, they don't currently have a definition of gig worker.

Instead, they individually track an array of what they call alternative work arrangements. Do we know how many gig workers are in the gig economy? Anybody tracking that? And if so, how are they tracking it? Again, it depends largely on how you define the gig worker and the gig economy. If you want to take a really broad view of the category, here's a big number, 64 million Americans, which works out this 38% of the workforce. That's how many active freelancers were estimated in a study put out last December by Upwork, which is an online marketplace for the services of independent workers. The consulting firm McKinsey pegged what it calls the independent workforce at

58 million in a 2022 study. And that was 36% of all workers, up quite a bit from the 27% that McKinsey estimated in 2016. So clearly the numbers are growing. If you want to narrow it down to just the folks who get their gigs from online platforms like ride-hailing apps or delivery apps, the Pew Research Center did a study in 2021 that found that 9% of respondents were current gig workers. Only about a third were doing it as their main job, though, while two-thirds were calling it a side gig. If you remember the pandemic, there was a big bump in that type of gig work as a result. You know, we mentioned numbers from McKinsey and Pew.

It seems a bit surprising to me that there aren't more solid numbers on this from the labor department. Gig work has been around for a while now. Yeah, it's tricky because people work multiple gigs and they've been very hands-off, but it looks like they're finally done sitting on the sidelines, at least when it comes to data. So in June, just this last June, a federal body called the Interagency Work Arrangements Committee started diving deep on the subject. The committee is chaired by the BLS and includes a bunch of different government agencies like Social Security Administration and the IRS. Their mission is to, quote,

improve the measurement of work arrangements, including nonstandard and contract work, end quote. So they expect to finalize the recommendations in 2026. So you can check back with me in a couple of years. But until then, yeah, until then, all we can say definitively is that the gig economy is a lot of people. And one of the things that defines this pretty large group for the most part is they don't have benefits from employers, right? So things like employer-sponsored health healthcare, retirement plans, none of that. Basically, yeah, you're right. It's a very diverse group of workers that don't have a lot of common,

except most of them do not have access to all the things that full-time workers take for granted. They don't get health insurance, dental insurance, health savings accounts, retirement contributions. Paid time off is another big one. A lot of these people are not taking any time off because that eats into. A lot of these people are not taking any time off because it eats into their income. So on top of all that, at the end of the year, they get hit with the self-employment tax. It's worth pointing out that many gig workers do get benefits through other channels. Some have full-time jobs and take gigs to supplement their income. Some have health insurance through their spouses. And of course, they all have access

to insurance through the Affordable Care Act, but that's entirely on their own dime. As compared to full-time workers, the employers pay on average about two-thirds of the cost of family medical coverage. What are some of the reasons why people would choose to go this route without the benefits of, you know, a quote-unquote traditional job? Hey, Tess, flexibility, be your own boss. Yeah. At least that's what the Ubers of the world are selling. The truth, as you might guess, a little bit more complicated.

In that McKinsey study I mentioned, about a quarter of respondents did say they take gig work for the autonomy and flexibility it offers. Another quarter said they do it because they enjoy the work. But another quarter said they do it out of necessity to support basic family needs. Of the rest, about 20% said they do gig work for the additional income. So basically a side gig. Gig work is not necessarily a first choice for a lot of people, but it can fill a gap. So the bottom line is, even in a pretty robust labor market like the one we have right now,

not everybody has access to a traditional job with benefits. A lot of factors, education level is one, about 40% of gig workers have less than a high school diploma. Let's talk a little bit more about this benefits situation or the lack thereof for gig workers. What percentage of gig workers go without the benefits that many full-time workers kind of get automatically? What percentage really have to just kind of cobble together a benefits package on their own? It's a little fuzzy. I wrote a story last week about a new study conducted by MasterCard and Stride. And Stride is a company that has an app that helps gig workers manage their benefits and

their finances. Among 1099 workers in the study, that's those who get a 1099 tax form at the end of the year, self-employed and gig workers, 75% reported getting no employer benefits whatsoever, and 92% said they get no health-specific employer benefits. So they're largely on their own. What does that mean in terms of savings for this population that's in the gig economy. In that same stride survey, about three quarters of all respondents say they are able to save, but generally said they struggle with balancing between savings goals, like establishing an emergency fund or saving up for a car. Among those 36 and up, saving for retirement becomes the number one goal. Most gig workers, according to the McKinsey study, make less than $50,000 a year, and more than 30% of them earn less than $25,000 a year. So when you add that on top of the uneven income streams, you can see why there are real savings challenges. So in a lot of ways, gig workers

really are on their own. Any tips for those who are trying to save for these costs like healthcare and the ability to save for retirement costs like health care and the ability to save for retirement? Yeah, if I could draw from personal experience, don't do what I did when I was a freelance writer early in my career. Yeah, one year I completely miscalculated how much to save for taxes. You know, they all come at a lump sum or they should come quarterly, but I did it at the end of the year.

Ended up paying a $7,000 income tax bill with a credit card. So that's not standard nerd wallet advice for sure. For the record, I was an entertainment reporter then, not a personal finance writer. You know better now. A little. I think the important thing, it's kind of the standard advice, actively manage your finances. Have a budget, save when you can, develop clear savings goals. But there are now several apps on the market specifically designed for gig workers, and they help you track your income, your savings and expenses. They help you plan for taxes.

And in some cases, they even help you use your tax credits to attain health insurance from the ACA. So long term, yeah, if you're so inclined, you can join one of the early efforts to get union representation for gig workers. That's heating up. So Rick, what does this tell us about the system we have in this country where basic benefits are handled by traditional employers?

How do we get this system in the first place? Economic historians will tell you that our employer-funded health benefit system is essentially a historical accident. There's a lot of factors. Medicine and healthcare really became a bigger part of people's budgets in the 20s. That would be the 1920s? The 1920s, yeah, not these 20s that we're in right now. I mean, it continues to these 20s, right? Yeah, basically. Modern medicine came around and there was a hospital building boom, it continues to these days, right? Yeah, basically. Modern medicine came around and people, there was a hospital building boom. So which is a great thing, right? Except that healthcare got more expensive. And lo and behold, the market provided the first private health insurance

company. Blue Cross came along with a prepaid plan in 1929. There was signs that we could have passed universal healthcare in the early 30s at the same time as social security, but it didn't happen. So that left the field open to a big boom in private insurance. And then things really took off during World War II when workers were scarce during the war and they put wage controls in place to prevent inflation. So companies that were competing for scarce workers began offering, quote, non-wage benefits to compete. And then unions started including benefits in their contract negotiations. So basically, here we are. It kind of put those things in place and made them a little bit hard to move. Obamacare did alter the landscape a bit. And today,

about 60% of Americans under 65 are covered by employer-provided health insurance. Bottom line is the benefit system we have in this country developed at a time when unions were stronger. Workers might spend their entire careers working for a single company. That system is really not serving a growing portion of our much more diverse workforce. So for many people, our benefit system is essentially broken and not just for gig workers. Most part-time workers, for example, don't get benefits to their employer either. So basically, it's a problem that's waiting to be solved. There's some interesting things being floated

and the fact that Congress asked the BLS to count these people. So I think they're trying to think about what kind of regulations and laws can be put in effect, but it's going to be years out. Well, Rick VanderKneife, thank you for sharing this with us and with our listeners. This and all the work you do for every Money News episode, usually behind the scenes, away from a microphone. We appreciate you. No, thanks very much. This was fun. Thanks, Tess and Sarah. All right. And folks, be sure to keep an eye on your podcast feed tomorrow for the second episode of our Policy and Personal Finance special series. We'll be diving into how presidential policies, tariffs, immigration, all that sort of thing can impact your everyday expenses from groceries to

gas prices. If you enjoy these Money News episodes, you're definitely not going to want to miss it. All right, up next, a few money headlines from the last few days. Well, Sarah, we've been talking about jobs and the employment picture here in the U.S. is still going strong. The Labor Department reported last week that employers added 254,000 jobs to the economy last month. That's the best showing since March. Yeah, and the unemployment rate dipped from 4.2% in August to 4.1% in September. And all of this could be a good sign that the economy will experience a so-called

soft landing without going into a recession in the wake of high interest rates. The employment gains were the highest in food service, healthcare, government, social services. The Bureau of Labor Statistics also revised upward its employment numbers for both July and August, adding another 72,000 jobs to what had already been tabulated. The Labor Department did note that Hurricane Francine,

which made landfall on September 11th, did not have any significant effect on the national employment picture. We'll see what they say about the aftermath of Hurricanes Helene and Milton when October figures come out next month. Speaking of Hurricane Helene, the IRS announced that it's giving victims extra time to file their taxes, extending that deadline for various payments to May 1st of next year. And this is for folks in the seven states that experienced damage from that hurricane, including Alabama, Georgia, North Carolina, South Carolina, and certain areas of Florida, Tennessee, and Virginia. The IRS says taxpayers in those areas now have extensions to file various federal individual

and business tax returns and to make tax payments. That includes 2024 individual and business returns normally due in March and April 2025, as well as quarterly estimated tax payments. Just to note that as this episode airs, Hurricane Milton is making landfall in Florida. So we don't yet know what assistance will be available for anyone who will be affected. But we're thinking about you all and everyone affected by these recent catastrophes. And the Wall Street Journal has a piece this week that's a heads up to anyone who carries a credit card balance. Several months ago, the Consumer Financial Protection Bureau imposed an $8 cap on late fees charged by banks, including those that issue

credit cards. But that cap is now the subject of a lawsuit and has been put on hold by a judge in Texas. But banks are anticipating it anyway. Yeah. And so in an effort to offset the potential loss of that income from late fees, if the court case doesn't go their way, banks are already starting to jack up interest rates on unpaid card balances. And some are implementing different fees to replace the late fee, including one bank that's charging customers $1.99 just to receive a paper statement. Well, you know what they say, nature abhors a vacuum. So it inserts fees. Exactly.

So the CFPB's original aim was to crack down on late fees that cost people a collective $14 billion in 2022 if they didn't pay their bills on time. But it appears as though banks are planning to get those fees one way or another. So it's as important as ever to pay your credit card bills on time. Try not to carry a balance as much as your budget allows. Sometimes that's hard, but do your best. It's good advice no matter what. Always. And if you're not happy with your current credit card agreement and you want to change to another card, hop on over to NerdWallet's article on the best no balance transfer fee credit cards. We'll include a link in today's show notes or just search online for NerdWallet no transfer fee credit cards.

And that's it for this week's money news. We always welcome your money questions and comments. Turn to the nerds and call or text your questions at 901-730-6373. That's 901-730-NERD, or send us a voice memo at podcast at nerdwallet.com. And remember, you can follow the show on your favorite podcast app, including Spotify, Apple Podcasts, and iHeart Radio to automatically download new episodes. Today's episode was produced by Tess and edited by Amanda Derengowski. Megan Maurer mixed our audio. And here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply And with that said, until next time, turn to the nerds.