Amid the still-high cost of living, more entrepreneurs are keeping their existing jobs when they start a new business. That’s one of the striking findings in Gusto’s 2024 New Business Formation Report, a survey of more than 1,300 business owners who started their companies in 2023.
The rate of new business owners working full-time or part-time for another employer while starting their company rose from 27 percent in 2022 to 44 percent in 2023. Side hustles are most common among the youngest group of entrepreneurs, Gusto reports, with 49 percent of workers between the ages of 25 and 34 starting their business as a side gig. They’re least common among those aged 55 and older, at 38 percent.
The numbers make sense. Side hustles give budding entrepreneurs the opportunity to learn and test the types of skill sets that are critical for small businesses but that they might not employ in their current jobs. They can dip their toes into financial management, negotiating, and marketing, validate an idea for a product or service, develop valuable connections, and determine if they have the stomach for entrepreneurship—all while holding onto the financial safety net provided by their day jobs.
At the same time that the rise of the side gig is cultivating entrepreneurship and new small businesses, it’s also having significant effects on traditional employment models. Here’s what employees and employers need to know to make the most of this dramatic shift in the workplace.
The current landscape for side hustlers
The idea of having more than one job at a time is nothing new, but historically, people were more likely to have multiple wage-type jobs for different employers—they weren’t launching their own small businesses.
The pandemic made a broad cross-section of workers much more aware of the possibilities for earning extra money to supplement their income or starting a new business that could one day lead to leaving their current day job. With spare time on their hands due to temporary business closures initially and then no commute time when work went remote, many people began for the first time to pursue additional sources of income.
A survey conducted in February 2024 found that more than half of Americans (54 percent) had adopted a side hustle to supplement the income from their part-time or full-time job in the previous 12 months. Men were more likely than women to have done so (59 percent versus 49 percent).
Gen Zers (generally, those born after 1996) were the most likely to tackle a side gig (71 percent), with Millennials (born 1981 – 1996) coming up fast behind them at 68 percent. Almost one-third of Baby Boomers (born 1946 – 1964) have taken on a side hustle, and Generation X (born 1965 – 1980) rang in at 48 percent.
Motivations can vary for side hustlers, although extra money is among the strongest drivers. People are also drawn by the flexibility, opportunity to monetize a passion, autonomy, variety, and low barriers to entry. The self-employed ecosystem (which includes the gig economy, the supplemental income sector, and the part-time economy) has opened the door to income streams as diverse as completing online surveys, dog walking, and reselling items through online marketplaces to freelance writing, graphic design, and podcasting. It allows people to slowly grow a new business, sometimes eliminating the need to find outside funding sources.
And there’s no underestimating the role that the widespread cost-effective access to digital tools has played in the jump in side hustles. Apps like Uber Eats, Lyft, Instacart, DoorDash, and Rover let people pick up extra cash whenever they have spare time. Platforms like Etsy, Amazon Marketplace, eBay, Shopify, TaskRabbit, Angi, Upwork, Patreon, and Airbnb are just a few of the many that help side hustlers make money online while working from home or in conjunction with brick-and-mortar businesses.
Ecommerce has become an especially robust option for side hustlers. Online shops are typically far less costly than brick-and-mortar stores, with no rent or mortgage, maintenance, property taxes, or property insurance. They can reach prospective customers around the world, who can shop at any time of the day.
Whether e-commerce or another type of new business, side hustlers have a wealth of online resources to turn to. Social media and digital marketing let anyone devise effective strategies to reach niche audiences and stay front-of-mind. For example, anyone with a smartphone or tablet and an internet connection can make videos to post on TikTok or the YouTube channel.
Search engine optimization (SEO) tools help businesses develop their website content in ways that can improve their ranking in search engine results pages (SERP) without paying for sponsored links. Virtual assistants can handle routine tasks, freeing up side hustlers to focus on more important matters. Affiliate marketing offers a way to outsource some of the marketing burdens and leverage the reach and reputation of others.
Now artificial intelligence (AI) is poised to turbocharge the potential for side hustlers. Investment bank Morgan Stanley estimates that income from “multi-earning” could pass $1.4 trillion globally, with generative AI like ChatGPT adding $300 billion of that, by 2030. It predicts that side hustlers who use generative AI tools to enhance productivity or efficiency will make $8.50 per hour, or 21 percent, more than those who don’t embrace the technology.
The impact of side hustles on traditional employment
The spread of side gigs has prompted a fundamental shift in how many people regard employment and career paths. Long-term employment with a single business while climbing the proverbial ladder isn’t necessarily seen as the prize to strive for these days. It’s become common for employees to hop around for project-based experience and not rely on employers for advancement opportunities. The resulting fragmented workforce can result in problems with company culture, collaboration, and communication.
As flexibility and autonomy have become top priorities for workers, loyalty and long-term commitments on both sides of the employer-employee relationship have eroded. Employers, for example, are taking advantage of the increased availability of independent contractors to scale their workforce as needed rather than hiring full-time workers.
On the other hand, employees with side gigs are less dependent on their employers for their day jobs and have less to lose if that employment ends. They’ll still have an income stream or streams, after all.
Some side hustlers may even compete directly with their employers by cutting out the go-between and offering their skill sets directly to clients. The ability of individuals to take such a route has also produced greater employment opportunities for those who have historically run into barriers to traditional employment (such as individuals who have health issues, live in undeveloped or remote areas, or are victims of discrimination).
Overcoming the challenges of the side hustle
Although many people are benefiting from the evolving employment playing field, it’s important to acknowledge that side hustles do come with some downsides. But they’re frequently offset or at least reduced by keeping the day job.
For example, juggling two or more jobs isn’t easy. Side hustlers can find it difficult to manage their personal and professional time and commitments. Unlike a traditional job, though, side hustles often are scalable. You can cut back if necessary—for a day, a week, or longer. While your income will probably drop off, you’ll still have the wages from your day job.
Inconsistency is another potential problem. You may not be able to get work on a dependable basis, so your income will fluctuate. Again, though, you have a stable income from your other job.
A day job can also make up for the lack of employee benefits with side hustles and early-stage new businesses. Employer-provided health insurance, retirement contributions, and paid time off are big perks that many new entrepreneurs don’t otherwise receive.
That said, side gig workers don’t enjoy the same protections that federal and state laws extend to full-fledged employees. For example, independent contractors usually aren’t eligible for workers’ compensation coverage, unemployment benefits, or union membership. They also aren’t covered by federal and state anti-discrimination laws or occupational safety and health laws.
Further, individuals using side hustles as a stepping stone to entrepreneurship will quickly learn how hard it is to stand out in a crowd. Social media and digital marketing are democratizing tools—but only if you truly understand how to use them. They aren’t necessarily intuitive, and it can take time to learn how to properly use them to grow a business.
In addition, the high number of side hustlers can translate to stiff competition. Side hustlers should choose their gigs wisely. Many first-time side hustlers are looking for something more interesting than their day jobs, but success often comes from working in an arena where you already have expertise or at least knowledge.
Agility and resilience are vital, too. Not every side hustle will work out as hoped, but lessons learned can pay off in a different gig or business down the road. A stable day job can subsidize ongoing exploration until the right opportunity comes along.
Once such an opportunity is identified, it’s time to exercise some financial caution. Side hustlers shouldn’t ditch their day jobs for full-time entrepreneurship until they’re on solid financial ground. Ideally, they should have a healthy emergency savings account, little to no debt, some type of health insurance arrangement, and a steady retirement savings plan.
They should also bear in mind that, depending on the entity type chosen for the new business, they might have to contribute to their state’s workers’ compensation and unemployment systems, as well as pay payroll taxes and quarterly estimated taxes. All of these put a strain on a new business’s cash flow.
Those are only some of the compliance burdens that weigh on small businesses. They also may be required to file state and local paperwork, obtain insurance, and abide by zoning and homeowner association rules for home-based businesses. Professional help from CPAs, tax advisers, and attorneys is advisable (and also another expense, albeit generally deductible).
Note: Side hustlers who rely on payment apps or online marketplaces should know that these platforms may report the payments they process for them to the IRS on Form 1099-K. According to the IRS, for 2024, payment processors must report payments of more than $5,000 for the sale of goods and services during the tax year. Eventually, the sales threshold is expected to drop to $600.
Achieving the right balance in the business climate
How can business environments both support existing employers and help incubate emerging entrepreneurs and small businesses through side hustles without undermining one or the other?
For starters, governments must get serious about protecting the rights of gig workers, who are falling through the cracks in the existing legal system. They’re generally not covered by minimum wage and overtime laws, the National Labor Relations Act, and other federal and state employment laws.
It’s proven tricky for policymakers to find the right balance. Consider for example, the new rules from the U.S. Department of Labor for determining whether a worker is an employee or an independent contractor for purposes of the federal Fair Labor Standards Act. The rules took effect on March 11, 2024.
For some employers, contractors are preferable to regular employees. They typically carry a lower price tag compared to employees, as employers don’t have to pay payroll taxes for them or provide employee benefits. Plus, employers don’t have to supervise them or provide the tools to do the work.
The new rules are seemingly intended to protect employees from being misclassified as independent contractors and, as a result, losing out on the various legal protections and benefits afforded to employees. They’ve run into criticism, though, that contends they actually hurt workers with side hustles who don’t want to be treated as employees. The critics claim that the rules make businesses less likely to hire independent contractors because they don’t want to inadvertently violate the rules and incur costly penalties and litigation.
Employers must step up, too, especially as younger generations make up more and more of the workforce. Gen Z is projected to represent 30 percent of the U.S. labor market by 2030. The 2023 EY Gen Z Segmentation Study reinforces that this generation isn’t “an all-eggs-in-one-basket kind of crowd.” Rather they appreciate “the varied experience, catlike tech reflexes, and time management skills many young adults now bring to the table.” Their top priority is enjoying their work—a notion foreign to earlier generations—with making money running a close second.
EY found that Gen Z is moving toward employers and opportunities that determine value based on an individual’s productivity and impact, not hours. Moreover, this perspective is shared across generations post-pandemic, with major implications for workforce models. Employers must move past the rigid system that rewards workers largely based on hours worked and visibility instead of the value contributed.
One way to do that is to reconsider workplace policies on side hustles. Employers are increasingly implementing such policies, but they can be far too sweeping, particularly when the side gig is pursued solely during an employee’s spare time away from the employer. It’s generally not legal—or good for morale—to prohibit other jobs that don’t involve conflicts of interest, the use of company resources, or the disclosure of confidential or proprietary information.
Now, if an employee is working for a competitor or poaching clients, an employer is well within its rights to ban the work. Such impermissible conflicts should be spelled out so employees understand what is and isn’t allowed. Some experts recommend explicitly specifying the organizations for which their employees can’t work and that side hustles can’t interfere with the performance of their job.
In the long run, research suggests, the psychological empowerment employees derive from their side hustles enriches their full-time work performance. In fact, The Wall Street Journal has reported that the uplift in mood from side gigs has a statistically stronger positive effect on employee performance than the negative effect of being distracted. So employers that implement total bans could be hurting themselves in the process.
Learn More About Entrepreneurship Trends
The recognition of side hustles serving as a gateway to new business formation is among multiple notable trends in entrepreneurship. Check out the full Gusto report in our blog post.
