The gig economy and your finances: How to make it work for you

Gig economy work has been under the spotlight in recent years as workers demand improvements to their working conditions. 

Drivers working for Deliveroo, Uber and Amazon are all part of the gig economy, with workers taking on flexible hours or one-off jobs when they need to.

However, these kinds of jobs are well-documented for poor working conditions, with some workers earning below minimum wage, or not receiving benefits like sick pay or holiday pay. 

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Here’s what you need to know about the gig economy and how you can make your budget stretch if you’re working outside of traditional employment. 

What is the gig economy?

Gig economy workers tend to be on zero-hour contracts or short-term freelance contracts rather than permanent jobs, earning money for each task or “gig” they complete rather than an hourly or daily wage.

In 2023, the CIPD found almost half a million people (463,583) work in the gig economy in the UK, making up 1.4% of total employment. Its report found Black and minority ethnic (BME) people and disabled people were the most reliant on gig work, with 24% of BME gig workers claiming it was their main source of income. Among disabled people, 29% of gig workers said it was their main source of income. 

Gig work has also been criticised for its irregular payments; research by think-tank Fairwork in 2021 found only two of 11 UK gig economy platforms they evaluated could demonstrate that staff were guaranteed to be paid the minimum wage after costs.

Alex Marshall, president of the Independent Workers’ Union of Great Britain (IWGB), explained that gig workers “not only have to deal with incredibly low pay, frequently taking home below minimum wage, but are also burdened by a lack of basic employee rights, including a lack of proper holiday pay, sick pay and protection against discrimination and unfair termination”.

He added: “Gig workers are forced to work excessive hours to make enough money to pay their bills, often 12-15 hours a day, seven days a week, with no ability to take paid time off work to see their families or recover if they are sick or injured.”

Marshall explained that the IWGB focuses on “organising some of the most precarious workers in society, including in the gig economy, outsourced workers and migrant workers – areas which are often neglected by legislation or larger institutions,” adding that the union is “using our strength as a collective” to work towards “the changes we desperately need and deserve” in the industry.

How to budget on an irregular income

Managing the irregular income that can come from gig work and freelance jobs can be challenging, but experts say budgeting is a good way to make sure you have enough funds to cover months when work is a little slower. 

Rebecca Fearnley, budgeting lead at the Money and Pensions Service, told the Big Issue: “It can be tricky to manage your money each month when you’re unsure how much you’ll have coming in. 

“Start by understanding what your regular outgoings are, eg. your rent or mortgage, bills, rough spend on food and any other commitments such as debt repayments. From there you should roughly know what you have leftover to save or spend.”

She added that you should plan your budget based on “your lowest monthly income”, that way “when you have a month with higher income, you can put more money aside for savings or spending”.

Assured Private Wealth gives three main strategies for freelancers and gig workers to help them stay on top of their finances. 

• Create a budget: Track your income and expenses using budgeting apps
• Build an emergency fund: Aim for 3-6 months’ worth of living expenses to cover lean months
• Diversify income sources: Engage in multiple gig jobs or side hustles to stabilise income

Big Issue has collated budgeting resources and tools, whereas charities like MoneyHelper, Turn2Us and StepChange can also help you search for available funds.

If you’re on universal credit, you can apply for an advance payment to pay for essentials. This is an interest-free advance on your universal credit, but you do need to meet certain criteria. 

Do I have to pay taxes as a gig worker?

If you’re freelance or own a small business and you earn more than £1,000 from it, you will need to register as self-employed. Some gig economy workers, like Deliveroo riders, qualify as self-employed, so if you’re earning money through gig work or side hustles, you’ll need to check if you should submit self-assessment tax returns.

Despite the Supreme Court ruling in 2021 that Uber drivers are workers, not self-employed, meaning they are entitled to holiday pay and minimum wage, they remain self-employed for tax purposes. This means if you drive for Uber you must submit a self-assessment tax return each year. 

Fearnley explained: “If you’re self-employed, you are responsible for paying tax and National Insurance, so it’s important you have enough money to cover this when it’s due”, adding that the amount you owe is related to how much you have earned in the tax year, which runs from 6 April. 

“Putting some money aside regularly will help ensure you have enough money to pay your tax,” she added.

You should register with HMRC as soon as you start your business, gig work, or side hustle. From there, if you earn up to £12,570 – including earnings from any other work – you will not need to pay tax. This is called your personal allowance. If you earn between £12,571 and £50,270, then your tax bill will be charged at 20%. 

As a rule of thumb, you should save one fifth of all your earnings to pay in tax if you’re within this 20% band.

If you are struggling to meet your tax bill you can spread payments, provided you owe HMRC less than £30,000. You can go to gov.uk/difficulties-paying-hmrc for more information.

What about a pension?

Gig economy workers typically do not participate in employer pension schemes, as they are not classed as employees. According to research conducted by CMC Invest, a “worryingly high” number of self-employed people are not preparing for retirement, with an estimated 1.7 million flexible workers (41%) not paying into a personal pension.  

It’s worth checking if you are entitled to any pension benefits based on the platform you work on – Uber drivers are eligible for a pension plan for example – but generally speaking, freelancers and gig workers may have to set up a personal pension to save for retirement.

Money and Pensions Service’s website Money Helper has valuable information about starting a pension for self-employed people, including entitlement to the State Pension, and what schemes you can use. 

Fearnley explained that most people contribute to their pension monthly, but “if your income varies, you can contribute more in higher-income months”. 

“It’s useful to pay into a pension if you can, as this will provide income for retirement. It also offers tax advantages as you’ll get tax relief on money you pay in – a basic-rate taxpayer will gain an extra £25 from the government from paying £100 in,” she explained. 

She added that those struggling with their money, including “those self-employed or on irregular incomes” can come to MoneyHelper for “free and impartial guidance”. She added that the organisation’s Debt Advice Locator tool can help find free debt advice near you. 

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