The Rise of Gig Economy: Contract Work over Outsourcing

Companies across the world are likely to favour the gig economy. From outsourcing work to IT services providers over insourcing to their captive units in India; to hiring contract workers, companies are following a different path. They are dealing with cost pressures and digital transformation initiatives following the Covid-19 pandemic. Moreover, Indian IT services providers such as Tech Mahindra and Infosys said there is already a move towards outsourcing. Software services exporters have, today, built up expertise in a new way of establishment of tech companies.

Further, there has been a significant rise in contract staff in the IT Business Process Management (BPM) industry. While driving the digital transformation, companies are looking to hire people quickly for short-term projects. According to an ET report, the IT-BPM sector is likely to add an estimated 24,900 employees on contract this fiscal year. This is little more than 10,000 staffs compared to last year. Of the 44,16,000 employees in the IT-BPM industry, the number of contract hires stood at 1,11,975 last year. This year, Hans Digital stated that the number is set to increase to 1,36,962 out of an estimated total workforce of 45,95,000 in the industry.

What is Gig economy?

A gig economy is a free-market idea where temporary roles are prevalent. Companies hire workers for short-term assignments, as the word "gig" translates to a short work assignment. The gig economy represents impermanent employment. Due to the rise of the work-from-home environment, culture and personality of the work, organisations are changing rapidly. Further, this has made it mandatory to adapt to the new normal of the gig economy.

The gig economy has reduced the resource utility, office space and training needs of the employee ultimately reducing the costs. Further, it reduced hiring costs of full-time employees and improved the quality of living and work-life balance. The global digital-gig-economy generated a gross value of over $200 billion last year. The size of the gig economy is projected to grow by a 17 per cent CAGR and cross $450 billion by 2023. India has emerged as the 5th largest country for flexible-staffing after US, China, Brazil and Japan.

The Indian Gig Economy

The Indian Gig economy viz., Contract working, short term work comes under the purview of The Contract Labour (Regulation and Abolition) Act, 1970. Yet, in the mainstream Indian economy, gig workers have no form of social security. Indians have very less work transparency, tech enablement, and the contracts happen through third-party contractors. Yet, in the Indian economy, the obligations that employees and employers have under the law are very less.

How is the Contract Work different from Outsourcing?

To understand this, first, we need to understand what Outsourcing means. Outsourcing is a business practice of hiring a party outside a company to perform services and create goods that traditionally the company's own employees and staff performed. Outsourcing is a practice usually undertaken by companies as a cost-cutting measure. But, contract workers are in-house employees. They are just for a short term purpose.

Outsourcing has been prevalent in the Indian IT sector with the advent of ITeS. The major names in the sector are Infosys, Wipro, HCL, IBM, Accenture, etc. These take up the digital activities and distribute it to their own team. These are not the employees of the companies' hiring an ITeS. On the other hand, contract workers have a short term contract for which they are the employes of the company. Both of these have their own roles and importance.

Benefits of contract working

The pandemic has provided a base for independent workers. For example, the value of UK outsourcing contracts across Europe, the Middle East and Africa (EMEA) grew by 60% in the third quarter of 2020 compared with 2019, according to the latest ISG Index. Similarly, in India, ASSOCHAM predicted in January 2020 that India’s gig economy will grow at a CAGR of 17% to $455 billion by 2023. The shadows of COVID-19 and the subsequent nationwide lockdown gave a great push to the gig ecosystem.

Moreover, it gives the workers the benefits of teleworking — flexibility, lesser commute time, better health benefits, etc. As the dust settles on the largest health crisis in the recent human history, gig economy has found its own way of becoming a full-fledged ecosystem. Lastly, gig working is not limited to contract working. It also includes freelancing, independent job workers, etc.