Auditing the Gig Economy and Non-Traditional Workforce Models

One notable emerging challenge affecting organizations and internal auditors results from shifts in employment relations, including new working arrangements like the gig economy and non-traditional workforce arrangements. This article explores compliance, governance, and risk management issues because corporations are sourcing contracts and engagements for gig workers and the flexible workforce model. According to Charles (2014), internal auditors have a critical task to assess the risks connected with decentralized and flexible workforce solutions and ensure that the organizations are equally compliant with traditional employees.

The Growth of the Gig Economy

The gig economy can be defined as a business model that favors short-term positions and self-employment instead of long-term employment contracts. Some examples of contingent workers include self-employed persons, temporary employees, and those hired on a contractual basis or those who work for the company for a limited period. The sharing economy has appeared with the assistance of platforms like Uber, Airbnb, and Fiverr and offers employees independent, flexible work agreements (Pathania, 2022). It is, therefore, important for organizations involved in the gig economy to consider the following risks despite the benefits accruing from the action being flexibility to both the employees and employers.

Duggan et al. (2021) stress that internal auditors need to gain knowledge of the gig economy environment to assess its risks appropriately. For instance, gig workers can hardly be monitored like conventional employees, so ensuring they comply with the set organizational policies and regulations becomes cumbersome. Moreover, decentralized employees pose new challenges like misclassification, in which some employees might be hired as freelancers, making the company and law face many legal complexities.

Key Risks Associated with the Gig Economy

Given the fact that the gig economy continues to experience immense growth, there are several risk factors that internal auditors need to be mindful of while conducting audits on organizations that use this model of employment. According to Charles (2014), compliance with labor laws and regulations is a significant risk. Improper classification of workers may attract legal consequences, tax issues, and, more importantly, tarnish the company's reputation. Internal auditors must decide if there are enough measures to identify workers correctly and if the company complies with all labor regulations.

Data security and privacy are other significant and crucial risks. Freelancers may need to work from home occasionally or constantly and use their devices when accessing corporate networks or information (Pathania, 2022). This increases the probability of mishaps, such as violations of data breaches and cybercrime, as some of the devices and networks employed by gig employees are difficult to monitor. Internal auditors must assess the remaining data security policies and measures as they apply to gig workers so that the organization can put adequate controls in place to address the identified risks.

Further, operational risks are also evident in the gig economy. Uncertain scheduling patterns of freelancers make it challenging to ensure that service deliverables are consistent and high-quality (Huang et al., 2020). It is important to note that internal auditors must determine how gig workers' performance, training, and supervision are managed to guarantee that these individuals work efficiently and meet the same qualitative standards as regular employees.

Adapting Audit Processes for the Gig Economy

Internal auditors must change their audit approach to be relevant for evaluating the risks around gig workers and non-traditional workforce models. The first step may be ascertaining the gig economy's risks to develop corresponding solutions (Duggan et al., 2021). This entails identifying risks within gig work's legal, financial, operations, and reputation perspectives and assessing how they affect the organization's risk profile.

Huang et al. (2020) advise that auditors engage human resource, legal, and compliance departments to develop a framework that addresses the risk of the gig economy. This framework should also have perfectly outlined policies and procedures about the recognition of the workers, approach to data protection, and even perform monitoring procedures. Auditors should also determine how these policies work and whether they are uniformly implemented within the business entity.

There is also a need to engage in constant surveillance and provide real-time analysis because the gig economy is a fluid environment whose threats are likely to evolve at any time. Managers should also utilize drones to track and analyze the performance of gig workers and flag irregularities and compliance breaches in real-time (Tan et al., 2021). This approach enables an organization to manage contemporary risks promptly, hence changing strategies when necessary.

Ensuring Ethical Treatment of Gig Workers

Although compliance and risk management remain vital, internal auditors must guarantee that gig workers are accorded ethical and reasonable treatment. Pathania (2022) emphasizes that companies that hire gig workers are also responsible for ensuring that DEI is followed as is done for full-time employees. Auditors should check whether the organization has complied with these ethical standards and whether gig workers can enjoy similar protection and benefits to ordinary employees.

Auditors should also determine whether the gig workers are remunerated relatively and whether the company complies with wage and hour laws. Gig workers can be objectively analyzed on contracts, payment regimes, and working terms and conditions, which shows that the company does not exploit them (Huang et al., 2020). Therefore, by ensuring the ethical treatment of the gig workers, auditors highlight strong relations with the workforce and minimize legal backlash and reputational problems.

The Future of Auditing the Gig Economy

Since the gig economy is growing, internal auditors need to shift their focus and act to audit popular non-standard work arrangements. According to Tan et al. (2021), there are certain trends and technologies that would change the gig environment in which auditors should be aware, such as AI and automation, discussing how these developments might pose a danger to organizations or present them with new opportunities.

In addition, auditors should reflect on current trends under which the gig economy impacts organizational culture and governance. For instance, some organizations will need help to create and maintain organizational culture or even ensure that gig workers have a clear vision of the company's vision and mission statement (Pathania, 2022). Therefore, auditors should be able to determine the effects of these factors on their governance structures and policies and develop recommendations for a positive organizational culture.

Conclusion

The gig economy and non-traditional workforce models can inspire organizations but also pose threats and risks. Internal auditors, thus, have a critical responsibility to assess and monitor the risks created by these workforce models. Therefore, internal audit functions must create integrated risk assessment models, work with other departments, and practice ongoing monitoring to guarantee organizations' compliance and sound governance despite adopting new economy nontraditional work models such as the gig economy. As these current workforce models progress, internal auditors should be flexible and forward-thinking in maintaining organizational integrity.

References

Charles, S. (2014). Charles Financial Strategies LLC. Charles Financial Strategies LLC. https://www.charlesfs.com/fractional-audit-services

Duggan, J., McDonnell, A., Sherman, U., & Carbery, R. (2021). Work in the gig economy: A research overview. Routledge. https://doi.org/10.4324/9780429351488

Huang, N., Burtch, G., Hong, Y., & Pavlou, P. A. (2020). Unemployment and worker participation in the gig economy: Evidence from an online labor market. Information Systems Research, 31(2), 431-448. https://doi.org/10.1287/isre.2019.0896

Pathania, R. (2022). AN INTRODUCTION TO THE GIG ECONOMY. Clever Fox Publishing.

Tan, Z. M., Aggarwal, N., Cowls, J., Morley, J., Taddeo, M., & Floridi, L. (2021). The ethical debate about the gig economy: A review and critical analysis. Technology in Society, 65, 101594. https://doi.org/10.1016/j.techsoc.2021.101594