08 May 2017

The 'gig' economy, could it be right for you?

More and more of us are finding out what life is like in the growing gig economy. Most people working in the gig economy are self-employed, working for a range of organisations on either a fixed term or freelance basis. 

They might be employed by firms for one-off projects or to cover maternity leave. The number of self-employed workers in the UK rose by 20% between 2008 and 2015 according to the Office for National Statistics (ONS), up from 3.8 million to 4.6 million. They make up over 15% of Britain's total workforce. For comparison, only 7.8% of British workers were self-employed in 1970, according to the OECD.

Who works in the 'gig' economy?

Major sectors in the gig economy include transport and courier services, storage, property, finance and marketing. There's a concentration of gig economy workers in London and the south of England, often single adults or couples without children.

New gig economy workers are not always working full-time. The ONS found that part-time self-employment grew 88% from 2001 to 2015, but just 25% for full-time workers.

They also found that “self-employed workers are broadly content and relatively few report negative reasons for becoming self-employed".

Why is the gig economy growing?

It helps employers reduce fixed overhead costs because they can employ staff on a flexible basis at busy times but not keep them on the payroll permanently. The internet has also made it easier to connect workers with clients remotely.

In today's job market there are fewer permanent positions on offer and many more fixed-term, temporary or even zero-hours contracts. This makes becoming self-employed more attractive for many.

Gig Economy Profile: Ben Salisbury, Journalist

"Journalism is one sector that has seen a big increase in self-employment. As a journalist myself, at the sharp end of the gig economy, I've experienced the benefits and disadvantages.

I qualified as a journalist at the end of 2008, just after the financial crash, when newspapers and other media were shedding workers rapidly. Companies cut overheads to improve the bottom line, but they still needed staff, so they axed permanent positions and hired replacements on a freelance basis. Entering journalism in 2008, there weren't many permanent jobs so I started out freelance and didn't look back."

And this trend is continuing in the industry. A survey by Press Gazette in 2016 found that 84,000 journalists in the UK were self-employed, up 20,000 in just one year.

What are the benefits?

Working on separate projects for different employers is varied and interesting. It involves learning new skills and tackling a range of areas and clients that you probably wouldn't get in a single job.

You are your own boss, though you still need to satisfy your clients. You'd have more scope to decide when you take holiday and when you work.

What are the risks?

You're not guaranteed a regular wage. That can be scary if the bills pile up and you're not sure where your next payment is coming from.

The transition to the gig economy can be less unnerving if you're working in a sector where you already have contacts and experience. The more established you become, the more likely you'll be able to line up work in advance. Organising and planning your finances then gets easier.

However, there are risks you need to consider and extra financial obligations you need to manage yourself.

How would it affect your finances?

Mortgages

You normally need to show your last three years of HMRC self-assessment accounts to get a mortgage as a self-employed person. Lenders require form SA302 from HMRC, a document that shows your profit from self-employment, plus any income from employment, and the tax and national insurance (NI) you've paid.

Savings

Try and save a month's income as a buffer. It's a good idea to put extra income into an easy access savings account or ISA with a competitive interest rate. You could also put some aside in a savings bond that ties your money up for a fixed period but potentially pays a higher rate of interest.

Credit

If you're struggling to build savings to dip into, set up a cheap way of borrowing, like a 0% purchases credit card. You can use this in an emergency without incurring interest. Try and pay it back in full each month.

Retirement savings

A disadvantage of being self-employed is you won't be able to pay into a company pension and will miss out on employer contributions. There are some good online resources available to help you plan. The Money Advice Service has information on how to make provision for retirement when you're self-employed.

Tax and National Insurance

You need to pay your own tax and NI with a self-assessment tax return, even if you're employed on a PAYE basis for some of your work.

Income tax on self-employed earnings is paid at the same rate as for PAYE employees, as set out in the following table. These rates apply from April 6, 2017:


0% £11,500
20% £11,501 - £45,000
40% £45,001 - £150,000
45% £150,001+

But the NI rates for the self-employed are different. Most self-employed individuals pay Class 2 and Class 4 NI contributions (NICs). 

For 2017-18, class 4 NICSs are paid at 9% on profits between £8,164 and £45,000, and 2% on profits above £45,000. Class 2 NICs are paid at £2.85 a week on profits above £6,025. Class 2 NICs are planned to be scrapped from April 2018. It's well worth checking the gov.uk website for all the information you need.

The content displayed on our recent news and articles page is for information purposes only, and is accurate at the time of publication. The information will not be maintained, and so we cannot guarantee that at any given time the information will be up to date or complete. Please verify any information you take before relying on it.

Nationwide is not responsible for the content or availability of external websites. Nationwide does not make any recommendation or endorse any advertising, products, services or other content on such external websites. Views expressed on third party websites are those of the public and unless specifically stated, are not those of Nationwide.

Most popular

You may also be interested in...

Our helpful guides

We've created a range of helpful guides to help you make better financial decisions regardless of your circumstances. Find out more about owning property, growing wealth and planning for life events.

Our products

Whether you are after a current account, a savings account or even looking for a mortgage, Nationwide has a range of great products that could help you, no matter the situation.