Personal Liability in the Gig Economy

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   By John Wolf  

 The gig economy is yet too new to have everything under control. The benefits and insurance issues are, however, to be resolved. How the millions of Gig workers impact the insurance industry.  Saving for the old-age pension too is not yet determined.   

Another issue that needs to be resolved is the liability coverage of the gig economy business activity, as service givers or product makers. A young person that starts his life or someone that worked as an employee for years has no knowledge and conscious of the responsibility of owning a business and the liabilities that are involved in committing the clients. Wrong advice or a bug in software can end in a legal suit. A sole owner limited liability company (LLC), with a good insurance policy, can help protect you in case one of your clients files a lawsuit or claim damages. Watch Barbara Weltman’s video Insurance, tax and legal advice for freelancers

Today’s gig economy includes a few types of workers who work out of home or office as independent contractors rather than regular employees. The taxi drivers, like Uber and Cycle food delivery services, handyman and freelancers that get orders through Upwork and work from home or coworking spaces. 

 According to Gallup, about 36 percent of the U.S. workforce is now working in the gig economy. Some full time and others as part-time, earning some extra money.  Hustle after a long day of working and looking for new work or new passengers. Many gig economy workers do not realize that it is like a one-person band that has to know every instrument and plays it on time. Each gig worker is a whole operation, a micro-business that can be held responsible for any mistake or small accident while working for a client of him. 

Personal Liability of a Sole Proprietor

 Starting to work as a gig worker converts you to a sole proprietor, your status is of sole responsibility for your actions, you will have to repair the damage up to the last cent. For example, your client claim that you did not make the software correctly, and it caused him tens of thousands of dollars. If you are sued and lost the case, you will have to pay with all that you have.  Everything you own is on the line, including all of your bank accounts, your car, and your house or other property. 

The way to protect yourself is to set up an LLC  that will protect you from losing more than the worth of your company. You are entirely separate from your business. Your private money and properties are safe. 

It would help if you remembered that your negligence keeps being yours,  whatever you do wrong out of work is your liability. You are two personas for commitment. Having insurance will help you not to lose your business if anything terrible happens. 

 

Corporation vs. LLC

  As a sole owner, there is no difference between an LLC and a corporation. You will have the same level of liability protection using one of the two forms of organization.  A corporation will need mush complicate administration, as shareholders, officers, and directors, Meetings, and record-keeping are complicated. BUSINESS FORMS AND CHARACTERISTICS part I

 

Taxes as an LLCs

There is an excellent reason to use the LLC form of business. It is the IRS regulation that gives you the option to choose the tax classification that is better for you. As the sole owner of your LLC, you can use the S corporation or C corporation.  LEARN ABOUT: BUSINESS FORMS AND CHARACTERISTICS part II

• Being taxed as a sole proprietor, you are self-employed and have to pay yourself on payroll taxation rules. Being an employee will be the right solution for your benefits too. Your paycheck will have the deduction for Taxes and social benefits like Social Security, health insurance, and saving for retirement. LEARN ABOUT: BUSINESS FORMS AND CHARACTERISTICS part III
• Using the LLC as your business form, you will report your taxes to the IRS and the state tax authorities as one only tax-payer. You can deduct your costs as commuting office stationery or any other purchases or fee you had paid to be able to do your work.   Self-employment income is taxable up to a 12.4% Social Security tax and a 2.9% Medicare tax. If you’re a member of a partnership — it includes an LLC taxed as a partnership — that manages a trade or business, you’re considered as self-employed.
•  If you consider your tax report as an S corporation, you are an employee of your company. You as their employee and your company as the employer will pay Social security and medicare. Aditional profit will be calculated with all your tax rate. S corporation may save you money on taxes on self-employment and allow you some additional deductions. 
• If you choose to use the C corporation taxation, you will be taxed on your profit by corporate tax rates. That means that your self-employed salary will have personal tax rate and the corporate tax rates will impose your benefit from the company. 

Finding the right tax rates is a complicated issue; you better get some advice from an accountant or a lawyer that is experienced in this area. 

Getting the Right Insurance

Forming a company so the liability will fall on the company is only one measure. It saves only your assets. To defend your business, you need an insurance policy to cover all the risks you take while you work with your clients. 

• If you are a freelancer that works at home, you will need coverage for: Negligence can be covered by insurance, but not by the formation of a company. Insuring negligence covers you and your company in the case that you forgot to do something or just delayed in delivering it. It also will defend you if a client tripped in your home office. A car accident that is your fault will be covered too.
•  Uber or Lyft drivers are covered by big fathers insurance. However, all insurance has limits, and your car insurance liability policy has its limits too. Check well if you are covered for any disastrous accident.  

Though you are a freelancer or any online work or service, you better act as a business person. Get someone to advise you about all the options of insurance. Do not count only on one insurance agent. There is a joke around insurance people. If you let them, they will ensure your three atones that are at the bottom of a swimming pool against fire. 3 Types of Insurance Freelancers Need

Being a gig worker, working at home on the hours you like to work, with no boss on your shoulder, watching your screen, and micromanage you will be complete only if you start thinking like a business and protect yourself for the dangers of being independent.   

 

 As a working member of the gig economy, you have some options. Whether you need to form an LLC or secure the right insurance protection—once you have your business structure and insurance in place, you can enjoy the potential freedom that gig work brings while protecting yourself and your income.