Rob Hodgkinson, investment director at Beringea, explores the future of the ‘freelance economy’ within the financial services industry.
From TaskRabbit to Deliveroo and Uber to Helpling, on-demand startups are growing at a startling rate powered by major injections of venture capital.
From finding jobs to fitting paid work around unpaid pursuits, much has been said of the possible change we will likely see in upcoming years.
In June 2015, a McKinsey and Company report called ‘Connecting talent with opportunity in the digital age’ provided an in-depth analysis of the future of the so-called ‘freelance economy’.
The report suggested that by 2025, as many as 60 million people globally would be able to find work that more closely suits their skills or preferences, while an additional 50 million could shift from informal to formal employment as a freelancer.
However, this growing business model does not come without its own challenges, particularly relating to financial services.
Indeed, incumbent financial institutions fail non-traditional customers, especially contract workers, freelancers and entrepreneurs.
Welcome to the mainstream
Shifting economic conditions, the downsizing of corporates, employee dissatisfaction as well as the appeal of having greater control over your career are all well-documented reasons for this huge growth in entrepreneurship and freelance working.
This has been powered by Internet technologies, which have changed the way we think about work, life, leisure and business.
Not only do app and cloud-based communication allow entrepreneurs to run their business from their phones; workers can talk with each other from virtually anywhere and there are now many platforms designed to match companies with talented workers.
In the final quarter of 2015, the UK saw the number of self employed people rise by 30,000, meaning 14% of the workforce is now a freelancer.
This pattern can be seen across industries and age groups – in the UK since 2008, there has been a 46.5% increase in freelancers over the age of 50. The ONS estimates that 732,000 of the new 1.1m workers in the UK since 2008 are self-employed. This is mirrored in the US, where 35% of workers engage in freelance activity, forecast to grow to 50% by 2020.
It might be tempting to consider freelancing as just a trend for millennials, but it is in fact a way of life infiltrating across generations – one that will have a profound effect on workers’ rights, pay and benefits.
Balancing work and benefits
On the surface, freelance life can be attractive: work can be done from a sun lounger next to a pool and if the lack of human contact becomes too much to bear then coworking spaces can offer that sense of community and more: many even offer additional support such as human resources, accountancy and web consultancy.
In reality, most freelancers – and startup entrepreneurs for that matter – wear a variety of business hats, juggling their assignments with office admin, chasing up outstanding invoices and keeping their accounts up to date.
These are often taken for granted when working as a permanent employee. Permanent employees have their employment rights protected by law and if they work for established organisations often benefit from workplace pensions, childcare vouchers, private health insurance and other perks.
While startups may offer different employee benefits such as a great location, exciting work practices, and the opportunity to be closely involved in building something from scratch, the entrepreneurs and freelancers behind it can find often themselves exposed financially.
In a world in which 50% of the workforce could one day be freelance, we need to look at services aimed at these workers. Mortgage amounts and approvals, loans and credit card allowances, pensions and even bank accounts are decided on after a regular annual income is proven via payslips.
Salaries fluctuate and more often than not freelancers pay themselves minimum PAYE income to minimise their tax burden, while it’s common for entrepreneurs to forego a salary altogether – certainly at the start of their journey.
Freelancers have long complained about their disadvantaged position when it comes to obtaining a mortgage, renting a home or taking out a loan. We are now also seeing issues arising around personal and business insurance for sharing economy workers in particular.
The future economy is increasingly focused on flexible opportunities – whereby businesses benefit from only paying for labour when they need it, and in which individuals can fit work in around their needs and other commitments. Yet, this increased need for convenience needs to be balanced with a level financial playing field for entrepreneurs, freelancers and permanent staff alike.
The financial services industry has been slow to adapt to workers’ changing needs. They will need to sit up and pay attention – to produce a wide range of products that suit non-traditional workers personally and professionally.