Gig Economy Laws and Franchising

The gig economy is a job market where people work on short-term projects or freelance gigs instead of having permanent jobs. They often find these gigs through apps or online platforms. There are, of course, laws and regulations in place that impact the gig economy. But how is all of this affecting the franchise industry? 

The intersection of gig economy regulations and franchising models presents both challenges and opportunities. 1851 Franchise spoke with Pete Potente, CEO and founder of POTENTE, to learn more.

“The embrace of gig workers in the post-pandemic era has led to a significant increase in their integration with franchising models embracing flexibility and entrepreneurship,” he said. 

The gig economy is part of a broader trend where individuals are increasingly seeking independence and control over their work schedules. This desire aligns well with the franchising model, which offers the opportunity to operate within an established business framework.

However, the current legislation includes a bias that significantly impacts franchisors. 

“The current legislation skews in favor of classifying workers as employees over independent contractors, which, in effect, heightens employer liability and increases operational costs that will likely need to be passed on to the customer,” Potente said. 

This reclassification requires franchisors to navigate complex regulatory landscapes while balancing the need to maintain profitability, and, in short, costs the consumer more money.

The rapid growth of the gig economy has also highlighted inadequacies in benefits for gig workers, including access to medical care and retirement savings, according to Potente. This concern underscores the necessity for a clear distinction between W-2 employees and gig workers, as it impacts how franchisors manage their workforce.

So why not reclassify gig workers as employees to ensure they receive proper benefits? In short, because it is expensive to do so.

“Franchisors navigating gig economy regulations may encounter cost-related challenges when reclassifying gig workers as employees,” Potente said. “Employers may see an increased cost with this reclassification, as employees are subject to additional expenses, which may significantly impact the bottom line. Employee expenses may include minimum wage compliance, paid time off, health insurance and workers compensation benefits.”

Potente believes that to better support both franchisors and gig workers, legislative changes must aim to balance flexibility with access to essential benefits. 

“Ending misclassification is a crucial step, but should be accompanied by measures that preserve the flexibility desired by gig workers while ensuring access to benefits like health care and retirement savings,” he said. 

Collaborating with third-party staffing companies emerges as a viable strategy for franchisors. These companies can provide hourly workers, thereby offering benefits like access to a vetted pool of W-2 employees and shifting liability from the franchisor to the staffing company. This approach helps franchisors manage their workforce more effectively while mitigating legal and financial risks.

Franchising offers entrepreneurs an incredible opportunity to own their own business with an existing support model. It does, however, also come with the responsibility of employing a team of individuals, which in itself can be a complex process requiring careful consideration.

“Franchising offers a promising avenue for businesses in the gig economy to mitigate liability associated with the self-employed model while enhancing profits, performance and brand recognition,” said Potente. “By professionalizing services and leveraging the entrepreneurial energy of franchising, businesses can drive innovation and explore new opportunities in operational systems. However, solving misclassification issues is the best first step for all involved.”

Interested in learning more about franchising? Check out the following resources on 1851 Franchise:

• 1851 Growth Club
• Here’s What's Trending in Franchise Innovation for 2024
• How To Successfully Transition From Employee to Franchise Owner