RSU and the Gig Economy

Casey Fenton

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September 2, 2023

As the gig economy continues to grow, more and more businesses are turning to alternative remuneration models like RSUs to attract and retain top talent. In this article, we'll take a closer look at what RSUs are and how they can benefit both gig workers and companies in this industry.

What is Restricted Stock Unit (RSU)?

RSU stands for Restricted Stock Unit, which is a form of equity compensation that employers use to reward employees. Essentially, RSUs are an agreement between the employer, which are typically among private companies, and the employee that grants the latter the right to receive a certain number of shares of the company's stock at a future date.

However, unlike traditional stock options from the last decades, RSUs come with restrictions. For example, the employee may not be able to sell or transfer the shares for a certain period of time, which is typically several years. This is meant to incentivize the employee to stay with the company and work towards its long-term success.

Who Belongs to the Gig Economy?

The gig economy encompasses a diverse range of workers who engage in various types of gig work. These workers often have different demographics, occupations, and motivations for participating in the industry. Understanding the non-traditional employees’ profiles and the types of gig work they engage in can provide data insights into how RSUs may be applicable in different gig worker segments.

Demographic Profile

Recent HR data has discovered that gig workers come from diverse backgrounds and demographics. They can be young or old, male or female, and may have varying levels of education and experience. The other types may even include individuals who are looking to access flexible work arrangements, seeking supplemental income payments, or pursuing their entrepreneurial ambitions. 

According to a report by Pew Research Center, gig workers tend to be younger, with a higher representation of Hispanic and Black workers compared to traditional workers.

Types of Gig Work

Gig work can take various forms, including independent contractors, freelancers, platform workers, on-demand workers, and more.

Independent contractors may offer professional services such as consulting, design, or writing for diverse customers and client organizations.

Other types such as freelancers may work in creative fields like photography, graphic design, or articles and content creation. 

Meanwhile, on-demand workers may provide services like ride-sharing transportation services, food delivery, or home repairs for a variety of customers under a firm or a corporation. The other types of gigs can vary greatly, and the nature of the work may influence the applicability and feasibility of RSUs.

In recent years, the rise of digital platforms and online marketplaces has given birth to a new wave of gig market labor known as "platform workers." These individuals engage in temporary or project-based work through digital platforms or an app, often as independent contractors. Digital platform workers perform a wide range of tasks and services on-demand, from ride-hailing and food delivery to freelance writing, graphic design, and virtual assistance.

Platform workers have become a significant part of the modern gig industry, which is characterized by flexible hiring and work arrangements, short-term engagements, and reliance on digital platforms for work opportunities. The digital platform-based and app model has disrupted traditional employment models, creating new opportunities that increased inclusion, and at the same time, challenges for workers, companies, and policymakers alike.

Digital platform work offers several perks to workers, including flexibility in terms of work hours and location, and a source of income for those who may have difficulty accessing traditional job opportunities. However, digital platform work also presents challenges for workers, including issues related to worker classification, work security, inconsistent pay, lack of legal protections, and limited worker rights and benefits.

One potential solution to address some of these challenges is offering Restricted Stock Units (RSUs), a stock-based remuneration that some companies offer to their employees, including digital platform workers. RSUs can align the interests of platform workers with the organization's success, provide potential for wealth creation if the company's stock price increases, and offer long-term incentives for workers to contribute towards its goals.

There are ongoing discussions around worker classification, labor rights, and social safety nets for platform workers. Some argue for increased regulation and protections for platform workers, while others highlight the privileges of flexibility, advantages to contractual payments, and entrepreneurship that platform work offers.

Many platform workers face challenges related to job security, worker rights, and financial management. As such, RSUs and other potential solutions may be considered to address some of these challenges and strike the right balance between flexibility and protection for affected platform workers. It requires careful consideration by policymakers, companies, agencies like the Internal Revenue Service (IRS), and other stakeholders to ensure that platform workers are fairly compensated and protected in the evolving world of gig economy labor.

RSU and the Gig Economy: The Gig Workers’ Turf

In the gig economy, many workers are independent contractors or platform workers rather than full-time employees. This can make it challenging for both public and private companies to offer traditional remuneration packages like stock options or 401(k) plans. However, RSUs can be a flexible and attractive alternative.

For example, a freelancer who is working on a project for a business might be offered a certain number of RSUs as part of their remuneration package. These RSUs could vest over a period of several years, giving the freelancer a stake in the firm's success even if they are not a full-time employee.

How Does RSU Benefits the Gig Worker?

As the gig market continues to thrive, freelancers and contractors are exploring new ways to secure a financial future. Restricted Stock Units (RSUs) are emerging as a popular tool that can offer significant perks to freelancers, platform workers, contractors, and other gig economy participants. Beyond the obvious financial rewards, the idea of leveraging RSUs can align the interests of the gig worker and the organization, create a sense of loyalty, and serve as a prosperity-building opportunity. Here are some of the advantages that RSUs can bring to them:

1. Financial Incentive

RSUs provide a financial incentive for gig workers to work towards the success of the organization. As RSUs are usually tied to the performance of the company's stock, if the startup does well, the price of the RSUs will increase, potentially providing significant pay for platform workers down the line. This can motivate them to put in their best effort, assume accountability, and contribute to the success of the organization.

2. Alignment of Interests

RSUs can help align the interests of gig workers and the business. Since RSUs typically vest over a period of several years, the gig worker has a vested interest in the long-term success of the business. RSUs can incentivize platform workers and freelancers to stay with the organization for the long term and work towards its growth and success.

3. Financial Success Building

RSUs can be a valuable tool for building financial prosperity over time. If a gig worker receives RSUs and the value of the stock increases, they can potentially sell the shares down the line for a significant profit. This can provide an opportunity for freelancers to accumulate wealth and achieve their financial goals.

4. Diversification of Income

Workers from this labor market often rely on multiple income streams, and RSUs can offer a way to diversify their income. RSUs can provide an additional source of potential income, separate from the fees or payments they receive for their gig work. This diversification can help freelancers and platform staff manage their financial risks and create a more stable income portfolio.

5. Recognition and Inclusion

RSUs can provide platform staff and contractors with a sense of recognition and inclusion in the organization's success. By being awarded RSUs, gig workers may feel valued and recognized for their contributions, even if they are not traditional employees. This can boost morale and engagement, leading to increased motivation and productivity.

6. Professional Development

RSUs can also offer freelancers opportunities for professional development. As RSUs are often tied to the performance of the company's stock, contractors may develop a keen interest in understanding the financial performance of the firm and the factors that impact stock prices. This can lead to increased financial literacy and a better understanding of the overall business landscape, which can be valuable for freelancers in their future endeavors.

7. Networking and Relationship Building

RSUs may also provide opportunities for freelancing staff to network and build relationships within the business. As RSUs typically require communication and interaction with the company's HR or finance department, freelance staff may have the chance to connect with key decision-makers and build meaningful professional relationships that can benefit them in their current gig work or future opportunities.

Why Should Companies Consider This Equity Compensation?

There are several compelling reasons why public and private companies should consider incorporating RSUs into their remuneration packages for independent talents.

1. Attract and Retain Talent

For private companies in the gig economy, RSUs can be a powerful tool for attracting and retaining top talent. Many gig workers, such as freelancers or platform workers, may not have access to traditional benefits like health insurance or retirement plans. Offering RSUs can help to make up for this and make the organization more attractive to potential hires.

2. Align Interests 

RSUs can help to align the interests of freelancers and the organization. By giving contractors a stake in the business's success, most private companies can incentivize them to work towards the long-term goals of the business. This can create a sense of ownership and commitment, encouraging gig workers to actively contribute to the business's growth and success.

3. Cost-Effective

RSUs can be a cost-effective way to compensate freelancers. Since RSUs typically vest over a period of several years, they can be spread out over time and do not require immediate cash payments or outlays. This can be especially valuable for startups or smaller organizations that may not have the resources to offer large salaries or other forms of remuneration.

4. Foster Long-Term Commitment

By granting RSUs that vest over multiple years, companies can incentivize them to engage in and stay committed to the business for an extended period of time. This can result in greater stability and continuity for the organization's operations, as freelancers are more likely to remain loyal and committed to the business’s goals and objectives.

5. Enhance Company's Reputation

Offering RSUs for independent contractors and freelancers can enhance a company's reputation as a forward-thinking and innovative organization. It can signal to them that the firm values their contributions and is willing to reward their efforts beyond just immediate pay. This can boost the company's brand image, attract top talent, and differentiate it from competitors in the gig economy space.

6. Provide Financial Prosperity Opportunities

RSUs can offer contractors the opportunity to build financial assets over time. If the value of the company's stock increases, grantees can potentially benefit from the appreciation in stock value when they eventually sell the vested RSUs. This can serve as a valuable long-term investment strategy for freelancers, providing them with an additional financial incentive to contribute to the organization’s success.

How Gig Workers Can Maximize Their RSU Gains?

As gig workers, maximizing the gains from Restricted Stock Unit (RSU) can be a key financial goal. RSUs are a stock incentive type that can provide significant value if managed properly. Here are some tips for freelancers on how to maximize their RSU gains:

1. Understand the Basics

It's important for freelancers and contractors to focus and fully understand how RSUs work. RSUs are typically granted by employers as part of their equity compensation program. They represent a promise to grant shares of company stock to the gig worker at a vesting date, usually based on a vesting schedule. RSUs are subject to tax compliance by the Internal Revenue Service (IRS) and may have different rules compared to other stock compensation options like the Incentive Stock Option (ISO).

2. Monitor Share Price and Vesting

The stock price of the company's stock and the vesting schedule of RSUs can greatly impact the potential gains for freelancers and contractors. Keeping an eye on the company's stock performance and understanding the vesting schedule is crucial. If the stock price is high, it may be wise to hold onto the RSUs until a later date to potentially benefit from further stock price appreciation. Additionally, understanding the vesting schedule will help them plan for when they can access and potentially sell their RSUs.

3. Plan for Taxes

Taxes are an important consideration for freelance staff with RSUs. RSUs are generally taxed as ordinary income when they vest, based on the fair market value of the stock at that time. Contractors should be prepared for potential tax implications and consider consulting with a tax professional to assess their tax situation and develop strategies to minimize tax liability. It's important to keep in mind that taxes on RSUs can significantly impact the overall gains, so proper planning for taxes is crucial.

4. Leverage RSU Gains for Financial Goals

Contractors and freelance staff can leverage their RSU gains for various financial goals. For example, RSU gains can be used to pay off debts, invest in other assets or funds, save for retirement, or even purchase additional stock. It's important for them to carefully consider their financial goals and develop a plan to make the most of their RSU gains in line with their overall financial strategy.

5. Stay Informed and Seek Professional Advice

The world of stock compensation and taxation can be complex, and rules and regulations can change over time. Freelancers and platform staff should stay informed about the latest updates from the IRS and other relevant authorities, and seek professional advice when needed. The HR department, tax professionals, and financial advisors can be valuable resources for freelancers to assess, comply with rules on taxes, and optimize their RSU gains.

Overall, proper management of RSU gains can significantly impact the financial well-being of affected staff members in this labor market, making it an important aspect of their overall remuneration and financial strategy.

Upstock’s Equity Compensation Plans for Every Modern Job

Indeed, RSUs can be a powerful tool for both gig workers and employers in the gig economy. By offering flexible and attractive remuneration, RSUs can help to align the interests of gig workers and companies and create a sense of loyalty and commitment. As the gig economy continues to grow and evolve, RSUs are likely to become an increasingly important part of the equity compensation landscape.

No matter which segments your HR department pulls your valued talents from—may they be contractual employees, freelancers, or platform workers—Upstock can readily provide your team with the gift of equity to make them feel part of the organization from its humble beginnings til its eventual success. As one of the industries that also hire from the gig economy, we at Upstock know the ins and outs of RSU as an equity-based remuneration. Give us a holler to find out more about this comprehensive information provided just for you!

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ABOUT THE AUTHOR

Casey Fenton

Founder, Upstock & Couchsurfing, AI and Equity Innovator

Casey Fenton, the founder of Upstock & Couchsurfing and an AI and equity innovator, has revolutionized how we perceive and implement equity in the workplace. His foresight in creating platforms that not only connect people but also align their interests towards communal and corporate prosperity has established him as a pivotal figure in technology and community building. Casey speaks worldwide on topics including ownership mindset, worker equity, With Upstock and Couchsurfing, he has demonstrated an unparalleled expertise in harnessing technology for the betterment of community interaction and organizational benefits.

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