Freelancing and The Future of Work
Xenios Thrasyvoulou (CEO & Founder of TalentDesk and PeoplePerHour) and Glen Hodgson (CEO & Founder of Freelance Movement) discussed shaking up the employment game, refreshing the tax rulebook, and removing the final hurdles to a super-flexible workforce.
Tune into the The New Gig podcast on Spotify below, watch the interview on YouTube or continue reading for the full details as Glen and Xenios discuss the dynamic workforce of today and in the future.
Glen: Could you just give us a little bit of a background on yourself and your journey but also TalentDesk as well, why you started the platform and the problems that you're solving?
Xenios: Sure. I mean, go all the way back to my birthday because it was the 1st of May which is Labor day, so I guess I was destined to serve the labor market at large. I’ve been in the labor market since 2007 with the founding of PeoplePerHour. That was the first business I started in the labor space and it was one of the early marketplaces for freelance services connecting freelancers with mostly small businesses at the time. Of course, the recession happened in 2008 and there was a big need for supplemental income and unemployment went up. People were looking for alternative sources of making money and surviving. PeoplePerHour became a very important resource and therefore a successful business off the back of that. That was our entry into freelancing.
TalentDesk was born 10 years exactly into that journey, so 2017. The idea came from conversations we had with customers who were slightly larger companies. I heard something repeatedly that I didn't expect. So, what we heard was “you know, finding freelancers is useful but actually, we have a bigger problem at hand which is managing the ones we already have.” I thought okay, the first couple of times you ignore it, but when you hear it a dozen times if you know you need to start listening. Otherwise, you're asking the wrong question. So, digging in to understand what that meant I realized that companies that had slightly bigger headcounts tended to have more freelancers than your typical mom and pop shop, which is the market for PeoplePerHour.
These larger companies tended to have a slightly bigger problem, everything would be done on spreadsheets, tracking the freelancers that they’ve worked with, any contracts that they’ve signed, review history wasn’t being tracked, allocation of work was done in disconnected ways. Things were done over email and phone. Paying freelancers was all disconnected as well. Sometimes freelancers wouldn’t be organized. They might send an invoice with no project description so people within accounts wouldn’t know what work the invoice was relevant to. They don’t know if it has been approved or if it’s within budget. I quickly realized that at the larger end of businesses, even companies that had a dozen of freelancers, the whole process of managing them manually on emails and spreadsheets, starts breaking down. I thought “this is a real problem” and I had heard it enough times.
We knew the freelancer space, we knew software. We’ve been building software for 10 years. This seemed to be an opportunity for an adjacent business which is a software business, a SaaS platform, that solves this problem end-to-end. We provide this software solution to our customers who then don’t have to do all the manual things I described earlier. It’s all tracked in one place from the beginning until the end. From onboarding, to the work allocation, work tracking, compliance, budgeting and new features including time tracking, tasks at a granular level, collaboration tools, in app messaging. The essence of the idea was substituting manual spreadsheets and processes. When you think about it, that’s kind of what every SaaS business did in the beginning. CRM substitute, managing your pipeline on a spreadsheet - which we actually did as well at the start before HubSpot! That’s what TalentDesk is trying to achieve and solve.
Glen: Given that the whole freelance market is growing and it’s not just startups, it’s larger corporations who are trying to manage their freelancer community and make sure it is as efficient as possible. We seem to be in this developmental stage where the future of work is evolving at an increasing pace thanks to digitalization and the changes in the market conditions as well.
Xenios: Yes absolutely, it’s a trend I think. You look back and think retrospectively that you got lucky that a catalyst happened, but actually there will always be something that acts as a catalyst. It’s just the law of gravity.
When we started PeoplePerHour, people thought that it was luck that the recession happened and people became in need of extra income. Actually, the trend was cycle agnostic with the increase of people wanting to go independant. Of course, there were other tailwinds along the journey such as covid and the move to remote working, but even if it wasn’t for that I think something else would have happened to accelerate it. As that trend grows new challenges come into play, for example, compliance becomes a bigger issue and then you need to figure out how to solve that. This new problem wasn’t a part of the mix when you started but then it gets big enough that people begin to ask “how do we add an extra layer of security?”. Like any entrepreneurial story you have to back a trend, hope for some tailwind luck and solve new problems as you evolve.
Glen: And it really is a trend because more people are demanding flexibility and more decision making on when, where and how they work. At the same time we have this counter wave of government and policy makers who want to push people down the traditional 9-5 route and continue with traditional employment, even though the talent itself is demanding something different. The rule makers are saying everyone should have a 1950’s view of the labor market and everyone should be employed. We seem to be going in the wrong direction in some ways, don’t we Xenios?
Xenios: It’s like any innovation. The systems that you’re battling with were designed decades ago in a different era and they’re no longer applicable. You have to somehow wave your way through them. The definition of employment and self employment were designed when the world worked in a completely different way. When people would physically clock in and out with a card. I think if you were to re-design the system today, you would design it very differently and you would file employment very differently to what it was years ago. I think the last time the labor laws were fundamentally changed within the UK was in 1972. The world was different in 1972. I don’t think we even had email. So, we have to live with these laws because it’s very difficult for the system to change.
In regards to the government, I would be inclined to think that they don’t really care if you’re an employee or a contractor. They care about the tax collection, which is fair enough since that is their source of income and it keeps the economy afloat. It simply so happens that collecting tax from companies where everyone is an employee is just a lot easier. You do your deductions at source and there’s one payroll log, everything is clean. When you have a mix of contractors who file their own taxes there’s just a lot more admin to be done. It is a lot harder.
Then you come to this point where you’re trying to solve a tax collection problem with an employment status question, where the two should be quite independent. In a world where you could collect taxes as easily and efficiently, regardless of employment status, then the government is really out of the question. It would then go back to the worker, as it should, as to what they would like to be. If you rate freedom over traditional benefits, as a lot of people do today, then you opt for that. Then you find a company that’s a good fit for you.
The benefits question is an economics question. If an employer is willing to give you a benefits package it’s about paying extra for it. We’re bundling too many things into one question of employment status. There’s what you earn, which should be completely independent from the benefits. That shouldn’t really be determined by the nature of the contractual relationship. You could earn more as a contractor or less. If an employer says “I’ll pay you an extra 30% extra to cover for insurance” or other benefits you would get under employment, you’re actually better off. They should really be decoupled. It’s the economics question of what you earn, there’s the contractual nature which is a trade off between certain things (freedom being a key one), then there’s the government thing and making sure that they don’t lose taxes.
Glen: I guess the issue currently is battling with these legacy systems, but also the legacy mindset which can hamper some of the progress that we should be looking for in the sector. To me it’s a meet up with the reality of what’s going on at the moment.
Xenios: Yes they’re always stuck in the old system. It’s like trying to put a square peg in a round hole, it’ll never fit. If the government approached this with a fresher mindset you would almost start with a clean slate and you could say in today’s world where the boundary between full-time employment, traditional employment and contracting is blurred because employees work remotely and there’s very little difference. It really is converging and if you were to design for the current way the world works and continues working, it puts a system in place that doesn’t live in the past.
I also think you should really be paying the same amount of tax. The tax you pay should be based on your income. Why should you be taxed differently if you are an employee or not? You do the same work for the company. In a world where you solve that by digitally submitting your income, that would be a very clean system for tax collection. That would solve tax issues without regard to your employment status. If you were able to submit your taxes cleanly and digitally, the government would no longer care.
Glen: Yeah. They would get their money.
Xenios: So the next question is “you as an employee, what would you prefer?”. I think there’s some that would prefer to be employees, but even that distinction I think would break down in the future because as employers evolve they might say “we can offer you the same benefits whether you’re a contractor or an employee, because actually, why does it matter?”. I would argue that contractors working for a company are just as crucial as the employees. Even if they’re doing 4 days per week, that person might actually be doing 4 days of more critical work, so why should they matter less to the company? Every hour of work done under any contract is actually the same for the company. That boundary would also get blurred because once you take the tax equation out it comes down to things like trade off of freedom and benefits.
At TalentDesk, we give the same amount of freedom to everyone and people can work remotely. We’ve had full-time employees who have worked from a different country for a few weeks because they want to travel. Traditionally, you’d only be able to enjoy those things as a contractor but now you also can as an employee. If you’re eliminating it down to one variable it really is a trade off of benefits and security. It’s a commercial question for a company to say “I will provide that security regardless”. Once you get rid of the risk of the government knocking on your door, there’s nothing stopping a company from offering the same maternity benefits etc. The problem is that if you go and do that now to the contractor, that could look like employment and you would get in trouble.
Glen: Yes. We see this in so many different geographies. The whole idea of Agent of Record (AOR) and Employer of Record (EOR) and that if you’re seen as an employee or an employer, it’s becoming so expensive with all these services. It’s making it difficult for companies who want to take on open talent with this minefield and worry in the back of their mind that they’re doing things incorrectly and misclassifying.
Xenios: Yes it’s a bit of a catch 22. It’s a vicious cycle. The fact that there’s a government risk because of the tax collection problem means that you as an employer cannot offer what you would have otherwise offered. You would do it but by doing it you end up in a classification question, which like I said earlier, is only relevant to tax collection. That’s because of the square peg in a round hole problem we have where you’re trying to collect taxes based on an old system that hasn’t evolved with the new digital age and how people work today.
Glen: Absolutely. It’s individuals that lose out as well because a lot of organizations would like to give these people benefits but they’re scared to death of doing it because they’re caught in an old system that’s going to penalize them for it.
Glen: It’s a crazy situation we’ve gotten ourselves into. However, how would you see things evolving? The technology is there, a lot of the tools and services are there to make this easier. Is it the case that we need these root and branch changes in the approach to taxation and the collection of it that will allow us to move forward and iron out some of the problems that we still see today?
Xenios: There are 2 questions and unfortunately the answer is different. Is it what should be done ideally or what can be done? I think what should be done is what I addressed before. Other than the bureaucracy and the red tape, it’s not that difficult. For example when covid happened, in a matter of weeks, the government had set up a portal for furloughing etc. When you are in a bit of a pickle and you have to act fast, you kind of do. If you wanted to really solve the tax collection problem and do it digitally, you could completely reinvent how taxes are collected. You wouldn’t have this problem of duality and asking if they’re a contractor or employee and having different taxes. It would be less about classification and more about the tax collection difference.
So, what should happen? There should be a reinvention of the tax man’s method. It’s not that difficult. You could set up a portal where you submit your income, you write a cheque to the government and that’s the end of it. If you’re a contractor and you’re getting paid the same amount as an employee, there’s no reason why the company should withhold your taxes on behalf of the government. This thing was designed way before the digital age when contracting was a small thing and employees turned up at work. The distinction was clear and now it’s not.
If you’re earning £50,000 as a contractor or employee, it shouldn’t matter. You’ve got national insurance contributions but that’s not that difficult. It’s just a matter of saying that you can choose to pay that as a contractor or not. It’s an economics question but the collection needs to be solved first so that the government isn’t fussed about whether you’re classified as a contractor or employee. That contractual arrangement should only be between the two people in the contract, which is the employer and the worker. Those should be the only two people concerned. There wouldn’t be a risk, so the government wouldn’t be at risk. You’ve solved the tax collection problem so it would become a purely commercial discussion between two parties which is “what do you want to be?”.
Will this happen? Maybe. We may need another catalyst. Catalysts help change because you are forced to change. We might need some tectonic shift again and we don’t know what that’s going to be. There might be a lawsuit where the company is too big to fail. If there was a massive multi-million classification claim and the government had this trade off, would they shut down someone like a HSBC? Hundreds of thousands of jobs lost. Maybe it will require something very big like that.
Glen: Necessity is often the mother of invention in most cases so even though we shouldn’t be wishing for these things, sometimes it takes a huge shift to move things forward. Regardless, would you say the future's looking bright? Technology is accepted and mindsets seem to be changing to accept the possibilities that technology is bringing forward to the labor market and beyond.
Xenios: There’s no question that technology is improving both work and productivity. It saves the day every time. Technology has changed the ability to produce more output per human hour. We were more productive with computers than without and the internet than without. We will be more productive with AI despite all the questions around it because it’s an added enhancement. That productivity gain drives prices down on the economy as well. Computers used to cost hundreds and thousands and now everyone has one because of productivity.
Technology drives productivity and productivity drives long term economic growth. If we get infinitely more productive that’s when everything drops to zero. I don’t have any question that we won’t be more productive at work because of not only this shift, but the ecosystem that is created around it. The 9-5 check-in used to be a card at a door that you’d check-out of. I remember my first job where I would physically check-in and check-out. Now it’s when you log into Teams or Slack that you enter your team environment. So, the future of work isn’t necessarily just about the worker/employer relationship, it’s also about the tools that have been created to make the work more productive. We have more instant communication. Once email was mostly used and now messaging is taking over. We might look back on emailing and think it was a joke.
Glen: Yes. The efficiency gains from an organizational perspective and also from the individual perspective are there and should be harnessed. Let’s hope that this happens because too often the tendency for decision makers to fear what they don’t understand puts artificial blockages in place. This doesn’t bring things forward, actually quite the opposite. It really reduces the impact for growth and development.
Xenios: Unfortunately that won’t change any time soon. Whilst I’m an optimist and a lot of what I said is looking to improve the future, I also am a pragmatist. I acknowledge there’s people putting barriers because of being stuck in old systems and protecting interests and it’s not going to change. I think it will be a constant battle like it is in every industry that needs to be deregulated, modernized and you will always have the battle between those who want to drive change and those who don’t. I don’t think that’s going to change. It’s just human nature. But what are the catalysts that drive these tectonic changes? I don’t know. Great leadership and forward thinking people who decide to make it happen.
Glen: Yeah we need all those things, Xenios. I think it’s important to shine a light on the reality of these things. Keep fighting the good fight - it’s been a pleasure to have you on this episode.
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