Uber doesn’t seem to be doing much right at the moment. The crowdsourced ride-hailing firm has faced accusations of sexual harassment and fraud (among other things), and now has admitted to underpaying its drivers in New York City. Uber was taking commission out of the fare including sales tax, rather than the pre tax amount. And drivers dispute whether they should be paying the tax at all. So how do you make sure you pay gig economy workers fairly (and legally)?

New York recently became the first city in the US to give its freelance workers some of the same rights as full time employees. The Freelance Isn’t Free Act (FIFA) includes the right to a contract and specified pay date for anyone earning over $800.

In the UK, the HMRC – the organization responsible for collecting taxes – has set up a compliance team to address the rights of gig economy workers following reports of “chronically low pay and poor working conditions” at Hermes. One British politician also proposed the idea of a minimum wage for gig economy workers.

Compliance issues

However, if you’re a small business that has hired gig economy workers, you’ll likely come up against issues surrounding payroll and compliance with labor laws.

For example, imagine that up until now you’ve always hired employees within the same state and paid them via bank transfer. But now you have a short-term project that you need help with so you decide to quickly onboard a freelancer in India. Maybe due to the time constraints you hire from an online gig economy platform such as Upwork and don’t go through the usual recruitment process and checks and balances.

This doesn’t make you exempt from any laws: you must consider which method you will use to pay them, and how you will ensure that you’re complying with regulations.

The consequences of not paying wages correctly (whether intentionally or not) are severe. Here are some tips to help you pay gig economy workers better:

Ensure proper worker classification

First and foremost, it’s key to make sure that with your gig economy workers are properly classified as contractors and are not, in fact, legally employees, as this will affect how you will have to pay them, as well as their contract. This is another area where Uber found itself in hot water, as it lost the right to classify its drivers as freelancers in the UK in October 2016.

According to a blog post on employment legal firm Strong Advocate’s website, there are three areas which define whether your worker can be classified as an independent contractor or as an employee. These are:

  • Behavioral
  • Financial
  • Type of relationship.

If you don’t have an HR department or anyone that has legal/compliance knowledge in your business then it’s important to seek third-party advice. Alternatively, if you’re using an HR solution, find out if the software provider has any functionality that can ensure you are staying compliant.

Integrated systems

If your IT systems are a tangled mess of non-connected solutions then it’s time to get that sorted. Your payroll and payment systems needs to work with your HR and scheduling solutions to ensure that shifts are fully paid for, same goes for project management and time tracking.

Here are some options for your business:

  • Choose an all-in-one HR app that includes payroll functionality. Examples of this are: Ultimate Software, Namely, Zenefits, Kronos, and Workday.
  • Ensure that your payroll software has native integration with your HR solution and payment offerings. An example of this is Xero‘s Marketplace, which enables native integration with payment apps such as PayPal and Stripe.
  • If you’re cash-strapped, find out if your current HR, accounting or payroll software has an open API to enable you to at least build integrations between your existing solutions instead of forking out on new ones.

Offer flexible, real-time payment options

If you’re worried about not meeting payment deadlines and falling foul of new legislations such as FIFA – especially with the headache that comes with paying a global workforce that doesn’t all have the same payroll requirements – then instant payment apps such as PayPal and Stripe can help by offering instant payments.

Stripe built an instant payment program for Uber rival Lyft, while Uber allows drivers to instantly cash out earnings at an ATM through a mobile bank account at Green Dot Corp.’s GoBank.

Hyperwallet is another option, as the platform allows companies to make payments to different countries and in different currencies. This includes recurring payments.

One point to take into account is that using these apps outside your normal payroll can lead to issues with compliance, especially if they are out of state or a different country.

Invest in mobile

Being able to make payments on a mobile device is crucial in making sure that you adhere to deadlines – especially if you don’t have an accounting or HR department and you’re the one responsible for payroll.

Rather than just using a mobile website, you can invest in an accounting or HR solution that comes with a robust mobile device for Android and iOS. GetApp’s ranking of the top 25 accounting apps takes into account mobile capabilities as one of its data points. Here are some leading options in the mobile accounting space:

PayPal and Stripe also come with robust mobile apps to enable on-the-go payments anytime and anywhere.

How do you pay gig economy workers?

If you have any tips for how to better pay gig economy workers and avoid emulating Uber, let us know in the comments below.

Alternatively, check out these resources: