Nobody knows how many Americans are actually participating in the gig economy; estimates range widely from 4% to 40% of the workforce. What we do know is that some people have managed to successfully transform their former side gigs into full-time work, while others continue working full-time jobs to support themselves and use side hustles as extra income streams to pay the bills and grow their savings. But, is your side hustle costing you money?
The problem with side hustles is that they can complicate your income and tax situation much more than simply being a full-time regular employee elsewhere could. There’s nothing wrong with wanting an extra income stream besides your job, but it’s important to accurately assess whether the time, effort and money you invest into your side hustle is actually worth it. If you’re not careful, your side gig may actually be costing you money without you realizing it.
For instance, independent contractors (which is the employment classification most side gig workers fall into) are responsible for the entire 15% of their FICA taxes (not just the 7.5% you pay as a regular employee elsewhere).
Research has also found gender differences in side gig pay: men earn an average of $14.23 per hour from their side hustles while women make an average of $9.46 per hour. This could be due to differences in the types of side hustles men and women get involved in, but it’s nevertheless an interesting phenomenon to consider.
Of course, don’t quit your side job just yet – let’s explore what costs you may be unintentionally racking up over time.
Little-Known Costs of the Most Popular Side Gigs
If you drive for a rideshare service, then there’s a decent likelihood that you could be making less than the federal minimum wage ($7.25/hour) after expenses and taxes are factored in. The median wage for Uber drivers nationwide is $14.73 (including tips, excluding taxes and other expenses).
Meanwhile, other research has shown the conservative cost estimate for vehicle operation expenses (gas, wear and tear, routine maintenance, auto insurance, etc.) hovers around $5 per hour, which means half of the Uber drivers in the U.S. are making less than $10 per hour before taxes are factored in, too.
Obviously the hourly income and expenses vary based on location (e.g., NYC drivers make much more per hour but also pay more for gas and auto insurance), but if you’re driving for a rideshare service because you value income more than flexibility, then you may want to reconsider this gig and seek employment elsewhere.
Then there’s Airbnb and other hosting-centric platforms for owners of RVs, mini cabins, tiny houses, and other accommodations they’re willing to rent out to guests. While some people have managed to turn their Airbnb hosting activity into a full-time income, others are losing money through a variety of means including laundry and utility expenses, property damage from guests, platform service fees, and high upfront costs for investing in and renovating properties designated for Airbnb guests (which gets even more complicated when local/state laws restrict short-term rental activity and/or implement new taxes on hosts).
What about pet sitting? While some pet sitters, dog walkers, and other animal caretakers seem to be making a few thousand dollars per month (on a full-time basis), what you’re not hearing about are the hours of unpaid work (e.g., promoting themselves, driving several miles to/from pet owners’ homes, tracking income/expenses, meet and greets with potential clients, etc.) and hidden expenses they have to cover, including gas, extra homeowners’ insurance coverage (especially for in-home pet boarding services), paper towels, potty pads, bowls, leashes, poop bags, and more.
Platforms like Rover and Wag! also take a cut from sitters’ fees – typically ranging from 15-20% – so that $30/hour dog walking service results in roughly $24/hour after fees, $18/hour after expenses, and $10/hour after everything including taxes are factored in.
Many other side hustle websites take cuts of the workers’ income too:
- Fiverr takes 20% of your orders on their platform
- Upwork takes 20% from the first $500 you bill a client and 10% for additional billings with the same client (up to $10,000; after this point, Upwork takes 5% for lifetime billings with the same client)
- Freelancer.com takes 10% or $5 (plus 10% for hourly projects)
- Etsy charges sellers 5% fees for sales made on their platform
- eBay’s seller fees vary widely but you generally have to pay $0.35 per listing (first 50 placed monthly are free) and 10-12% “final value fees” for most items sold on the auction website
- Renting your land
Selling and Recruiting for MLMs
One of the least successful side gig opportunities involves selling products through a multi-level marketing company. According to the U.S. Federal Trade Commission: “Most people who join legitimate MLMs make little or no money. Some of them lose money. People who become involved in an illegal pyramid scheme may not realize they’ve joined a fraudulent venture, and typically lose everything they invest. Some also end up deeply in debt.”
Additional research has shown 73% of people who get involved in network marketing (another word for MLM) end up making no money or lose money. As many as 20 million Americans currently or have previously tried selling and/or recruiting for an MLM company, so this failure rate is pretty massive. The same research from the AARP also found that of the 25% of MLM workers who managed to make a profit, 53% made less than $5,000.
Despite the luxurious lifestyles depicted by MLM sellers on social media – typically showing off “company paid for” cars, ritzy vacations in exotic locales, and promises of community and financial freedom for those brave enough to “tune out the haters” and join the organization – the fact of the matter is you likely won’t make much if any money with an MLM as your side gig.
The Cost of Advertising
It’s no secret that online advertising can rack up hefty bills if you’re not totally across your methods. Social media advertising may be your most profitable path, but make sure you seek advice from an ads manager, who will be able to point out the ins and outs of your advertising settings.
Luckily, it’s very cheap and cost-effective to make online ads with beautiful designs and easy to adapt templates, as long as you seek out the right software. Professional-looking graphic design tools have never been more accessible, so you should certainly use this to your advantage when creating your first online advertisement. When you combine excellent copy with a sleek design, your advert will stand out and attract the right clients into your business.
Is Your Side Hustle Worth It?
If you enjoy making money on the side and understand what expenses and taxes are involved, then your side hustle is probably worth it to you. It really comes down to personal preferences and if you’re in it for something other than money – some rideshare drivers and Airbnb hosts do it to meet new people, for instance – then there’s no reason to give up your side gig as long as you’re not losing money from it.
However, if you’re hustling on the side because you want more money to support your financial needs and goals, then there may be much better options out there (especially in light of new legislation impacting gig economies in states like New York and California). Dedicate some time to thoroughly assessing your income and expenses to see if the pros of your side hustle outweigh the cons.
