Companies that provide platforms for the on-demand economy make money by taking a transaction fee from every job a freelancer gets on their platform. And because the workers utilizing their platforms are considered contractors, they are not required to provide certain benefits, like health care.
While this business model has proved very profitable for companies in the space, it's simply not sustainable in its current state, said Court Cunningham, CEO and founder of Yodle, which provides online marketing services for small businesses.
"It's not clear under the current economics if this is a good deal for the independent owner—and I think it's probably not, which means the economics are going to have to change," he said. "And that means these businesses are not as profitable as they think they are, because they are going to get squeezed out on the share that they can take."
Most recently, Uber and Lyft have come under fire by workers for blurring the line between contractor and employee.
The companies are being sued by workers that allege they are being wrongly classified as independent contractors so that the companies don't have to reimburse them for expenses like gas and insurance.
Read MoreUber, Lyft rebuffed in bids to deem drivers independent contractors
McGrath said that as the landscape of employment evolves, society may need to make a decision about how it classifies employment, because it's not as black and white as it once was.
"I don't think our legal system has quite caught up with reality yet," McGrath said.
"If you look at the way all of our human capital systems are designed. Education, health insurance to retirement insurance, either you are employed or you are not. And there's this grey area in between which is what a lot of people are finding themselves in," she said.
Yet, despite the growing pains in the space, these on-demand platforms are offering freelancers many benefits. And technology is playing a big role in the growth of this employment shift.