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Risk and opportunities in the ever-changing sole trader marketplace

At a glance

  • Networked global marketplace matching buyers to sellers online
  • Low barriers to entry providing digital work opportunities for UK sole traders and the businesses that employ them
  • However both may be exposing themselves to legal liabilities by working across international digital platforms

Written by the Economist Intelligence Unit exclusively for Zurich’s brokers

The rise of online job exchanges is proving to be a double-edged sword of both risk and opportunity for globalised sole traders.

Online talent exchanges, such as PeoplePerHour.com, Elance.com, oDesk.com, Freelancer.co.uk and AuthenticJobs.com, offer a host of one-off or contract-based services, while exchanges such as PitchMe.org and Contently.com, specialise in just one business sector.

Blur is another firm at the forefront of technology with plenty of potential for growth. Since its formal launch in 2010, more than 2,000 projects have been completed for clients including Butlins and betting group Coral.

Search giant Google has also just entered this marketplace, launching its ‘Helpouts by Google’ service, which connects users with an expert in their chosen field. The service is delivered via enhancements to the existing Google video chat, which enables the remote sharing of a computer screen, collaborative edits of documents and the ability to record the Helpout session.

Google describes the service as: “Real help from real people in real time” and over 1,000 brands have already signed up for it, including Weight Watchers and Rosetta Stone. There are currently eight categories of Helpouts, including Art & Music, Computers & Electronics, Cooking, Education & Careers, Fashion & Beauty, Fitness & Nutrition, Health, and Home & Garden.

PeoplePerHour’s chief executive Xenios Thrasyvoulou told the Institute of Directors: “When technology coincides with the economic cycle, magic things happen and now this has resulted in work being outsourced online.”

Risks for the sole trader

Broker top tips

  • Globally networked supply and demand of labour carries increased reputational risks for both the sole trader contractor and their employer but contractors can demonstrate that they take the integrity of their work seriously by taking out professional indemnity insurance and displaying verifiable proof of purchase
  • Contractors/sole traders operating from a small office or their own home need to ensure that, if they receive clients as visitors, they carry public liability insurance because they also owe a duty of care under the Occupiers Liability Act.
  • Further complications include working across international borders and risk management issues

While Mr Thrasyvoulou considers the talent exchange to be “empowering citizen entrepreneurs”, there are risks for both sole traders soliciting on these websites, and their potential employers. A key risk is that neither side really knows who is behind the online pseudonym provided. Complaints from employers include contractors misrepresenting their country of origin, falsifying profiles, withholding completed work until good feedback is given, dragging out deadlines on per-hour job contracts, claiming skills they do not have and supporting these with fraudulent examples.

Then there are the quality risks. One post on the oDesk community stated: “Of the 30 contractors I took the time to interview, 18 of them left the conversation when I asked them to explain “why” something they’re doing works or “how” their tactics actually improve my [SEO] position; of the remaining there were only three with somewhat acceptable answers (that’s 10% for par).”

Risk for the employer

On the other side, complaints from contractors include employers substantially under-pricing work and extending the scope of the work initially requested (during the job) without paying an additional fee. Most serious are those about abuse of the escrow accounts, designed to give contractors confidence that they will be paid for work.

For example, if an employer claims the money held in an escrow account to be there fraudulently, their contractor cannot be paid for the services rendered. Some ‘employers’ even encourage contractors to start work before placing money in escrow, leaving sole traders new to such websites vulnerable to scams.

Global workforce

In addition, a digital sole trader workforce raises the problem of employment laws spanning international jurisdictions. For example, the terms of use of online talent exchanges base the legal status in the country the company is listed — US for Elance16, England and Wales for PeoplePerHour.

That said, a globalised marketplace, with low barriers to enter the fast-growing emerging markets, is providing exciting opportunities for UK sole traders to expand into regions previously unthought-of for small businesses.

Image © Getty

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