Over the last decade the gig economy has transformed the way we work and do business in America. Access to remote work has changed the definition of work and workplace dramatically. More and more people are working from home or off-site, and more and more people are working as consultants or contractors. A recent study shows that 53 million Americans – a whopping 34 percent of the workforce – are now freelancing, be it as their main or supplemental income. This population contributes $715 billion each year to the economy through their freelance work.
If this seems like a lot, the gig economy is just expected to grow. By 2020, 40 percent of the U.S. workforce is expected to be independent contractors. So why the growth in freelance work? During the Great Recession, many employers began slashing costs by cutting back on benefits. Additionally, advances in technology continue to facilitate flexible and remote work. And there’s been a steady increase of platforms that match freelance talent with employers, like Upwork, Fiverr, Behance and TaskRabbit.
The rise of freelance nation has largely been a win-win from both sides of the desk. Employers experience financial savings with independent contractors, and lower their risk. Workers use freelancing to tide them over between jobs, to add to income, and some (like me) are in it for the flexibility. It’s hard to underestimate the power of perks like the ability to work around family and schedules, travel, and of course, not having to wear shoes to work.
By the same token, both employers and workers may not want to go the freelance route. From the employer’s point of view, they may prefer the implied commitment that goes along with a full-time employee. Workers may prefer the stability of a full-time job, or find benefits like health insurance and a retirement fund desirable or necessary.
So is hiring an independent contractor the right choice for your firm? Let’s explore the pros and cons.
Even at a higher hourly rate, expect to save 20 to 30 percent annually with a freelancer when you factor in not having to pay for benefits, like health insurance and retirement, as well as Medicare and Social Security. If your worker is remote, you also reduce the need for office space and lower your office supply costs.
Because freelancers are not employees, employers’ risk is reduced. Freelancers have no right to collect unemployment insurance, almost never have a right to workers’ compensation benefits, nor do they generally have the right to sue for harassment or discrimination. If they’re not working out, they’re also easier to terminate and replace. This is particularly helpful in states with laws that create exceptions to employment-at-will.
With the meteoric rise in talent-pairing platforms, you can find even the most unique worker to meet your needs. There are platforms to hire IT pros, academics, writers, designers, marketers, accountants, lawyers, sales staff, business consultants and more. Once you find the talent you need and you agree to terms, they start working ASAP.
Freelancers run their own business, which thrives on repeat work and repeat customers. They strive to turn in their best work, every time, to maintain the relationship. While staff members’ performance may have peaks and valleys, freelancers know the contract is always subject to renewal.
Many companies cite legislative measures to keep their headcount low. For the Affordable Care Act, having 50 or more full-time employees requires compliance; for EEOC only 15. Using freelancers who are not considered employees can help get work done, without adding to headcount. But beware: Just calling someone as an independent contractor doesn’t make them one according to the IRS.
Companies look to freelancers to find talent outside their geographical limits. Expansion or an understanding of new markets can be made with a finite budget outlay. Using an freelancer may open the door to growth while minimizing risk if things don’t work out.
An independent contractors’ job is to develop their business. You need to make sure they’re available on your schedule, not theirs. They may be great when they’re accessible, but be prepared with a Plan B if they’re not. Many companies recruit a team of freelancers, so they always have backup.
If you’re looking to develop clientele, a freelancer might not be the best choice. In-house employees are aware of everything that’s going on in the company, and can leverage that knowledge to your advantage when building relationships with clients. Freelancers don’t have that access.
What amount of time will you need to invest in training? If there is a long lead time for them to get up and running, using that investment on a full-time employee might be a better option. And if the position requires oversight, hire an employee. A freelancer might choose to perform the work outside of normal business hours, when you’re not able to monitor their progress.
While a freelancer wants to keep you as a client, your company’s individual success is not their priority. A full-time employee is likely to feel a higher level of commitment to your organization, and therefore more motivated to add to the bottom line.
The amount of control you hold over a worker defines whether they can legally be classified freelancer or employee. You’ll need to be prepared to defend your choice to classify a worker as a freelancer in the event of an audit from the IRS or the Department of Labor. Both agencies are scrambling to play catch-up with this new working model. In 2014, employers had to pay $79 million in back wages to more than 100,000 workers who were determined to be employees, not independent contractors.
There is no specific litmus test to make sure you’re hiring right and not running the risk of being cited for misclassification, but there are some general guidelines to follow. As a rule, an independent contractor controls their business. They determine who, what, when, where, and how the work is performed, and set pricing. If you’re still in doubt, the IRS has a 20-point checklist to help you determine which employment status is appropriate for your worker.
The gig economy is irreversibly changing the landscape of the workplace. Hiring an independent contractor isn’t the right call for all positions, but a freelancer is the perfect solution for short-term projects, one-off tasks, infrequent work or work that needn’t be performed 9 to 5 or onsite. As long as you categorize correctly, there are more ways than ever to find the right mix of in-house and freelance talent to grow your company.