Home » ‘Gig Economy’ Services Struggle with Increased Scrutiny

‘Gig Economy’ Services Struggle with Increased Scrutiny

by Bruce Haring

They call it the “gig economy” or the “sharing economy.” It’s made up of people who cobble together a living based on multiple part-time and/or temporary jobs, stitching together the monthly nut with a few hours here and there.

It comes with no benefits, no security, no promises, and no prestige. And now it comes with the added burden of figuring out how much in taxes and fees the middleman of government will collect from your use of service providers like AirBNB, Uber, Lyft, TaskRabbit and other companies that specialize in providing short-term workers and/or services.

AirBNB has recently agreed to implement a program that will see its hosts start paying hotel taxes this summer to the cities where they rent apartments, homes, and rooms through the service. In San Francisco, that’s 14%; New York City is 15%. Portland is also on the clock, with 6% to be added to the bill.  More cities are sure to follow.

The increases will be passed along to the customer via AirBNB, and will cause rent increases for the spaces provided. That will no doubt affect occupancy rates, which means the income for the provider (ie, the gig economy participant) will likely dip.

Companies like Uber, Lyft, and others will soon likely have to comply with local and state laws; this will increase business costs…

There’s other trouble on the horizon for AirBNB. Landlords and local governments are starting to look askance at what are essentially unlicensed hotels being operated in their jurisdictions. In a recent well-publicized case, a New York resident who rented out his apartment for the weekend discovered it was being used for an advertised orgy. And that’s not the first time a rental has gone bad, or at least prompted complaints.

Landlords and governments are voicing concerns about the strangers who inhabit their buildings without vetting and, in some cases, in violation of agreements not to sublet. Add in complaints from neighbors who wonder just who is taking the apartments, given that not all of the occupants of the rented spaces are quiet and compliant with local regulations.

It all means that the party may be grinding to a halt for those who have made some side income with AirBNB, as additional fees tacked on to their lodgings make them less of a bargain. And it raises questions about other services that may have to start getting right with the law, thereby taking away the punch bowl from the gig economy party.

Rules of the Game

Uber is a particular whipping boy for those who are seeking to rein in gig economy companies that are disintermediating their business. Chicago cabbies are suing what they term “unlawful transportation providers,” ie those who grab their fares and devalue their medallions. In New York, where cab medallions cost over a million dollars, there have been claims that the resale value is threatened by allowing unregulated drivers to abscond with their business.  To date, it’s all in legal limbo, but it’s not an issue that’s going away without a fight.

Companies like Uber, Lyft, and others will soon likely have to comply with local and state laws, and start to generate the appropriate fees to the ever-hungry tax man in those areas. This would mean, for example, that drivers for car services comply with all regulations, which would in effect make them licensed taxis. This will increase the business costs, which may make these companies less attractive when they look for their next round of funding, or decide to go public.

Taking it one step further, it’s not hard to envision requirements for other services that provide deliveries or other tasks, being required to collect taxes and fees from their users, and at least get bonded. That will add to your bill, and perhaps make you think twice about using them. But the loser isn’t the service — it’s the guy at the bottom of the food chain, otherwise known as the worker. Fewer people renting rooms, fewer people taking alternative transportation, fewer delivery services used. It all adds up to less income for the gig economy.

In other words, the jig is up. Or, in this case, the gig. And that’s a real downer for those who depend on these services to scrape together a living in an economy that’s increasingly moving away from full-time employment.

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