As the nation recovered from the 2008 economic crash, major changes took place in the American work culture. Millions of people left the U.S. labor force during this time, while many others took a more entrepreneurial route, creating jobs for themselves as independent contractors.
This so-called gig economy gained tremendous traction thanks in large part to Silicon Valley tech start-ups that capitalized on emerging online freelance directories for developer work. This model proved to be very cost-effective, allowing companies to break down projects into bite-sized tasks that could be easily assigned to a company-outsider to complete at a fixed rate.
There are certainly many attractive aspects to hiring independent contractors versus employees. For example, when a company hires an employee on a permanent or temporary basis, it becomes responsible for ensuring that taxes are deducted and paid for the employee. Whereas, independent contractors are self-employed and thus responsible for all taxes themselves.
Now that it’s estimated that more than one-third of American workers qualify as freelance or contingent, it’s crucial that recruiters gain a better understanding of the best use cases for hiring these independent contractors, as well as the potential hurdles.
Workplace processes and their supporting technologies change at such a rapid pace, it can be hard to adapt accordingly. When it comes to workforce planning, this is even more of a challenge because it makes it nearly impossible to project which roles your organization may need over the next few years. So, if you didn’t budget for hiring an additional IT administrator full-time, for instance, having an independent contractor temporarily fill in the gap would help.
iCIMS recently surveyed tech hiring professionals and found that 74 percent have increased their hiring of freelance or contingent tech workers in the past two years. Some of their top reasons? They believe that contingent workers’ salaries and benefits are more affordable, they have more diverse work experience, their schedules are more flexible, and they’re generally easier to hire than full time workers.
That isn’t to say that hiring independent contractors doesn’t come with potential pitfalls, however. Hiring professionals are on the hook to maintain compliance in all aspects of employment. And increasingly, regulations are being put into place to better distinguish between different types of workers and to establish what they are exactly owed from employers.
Earlier this year, a California Supreme Court decision made it much more difficult for companies to classify workers as independent contractors rather than employees. Now, businesses based in the state, including the concentration of Silicon Valley tech organizations that have been greatly benefiting from contingent labor up until now, must follow appropriate minimum-wage and overtime laws. Paying compensation and unemployment insurance and payroll taxes can become a big damper on their bottom lines.
As rulings like this become more common, it’s important to understand which roles are considered traditional employment versus contingent. Essentially, a worker is considered an employee if he or she performs a job that is part of the “usual course” of the company’s business. If a clothing retailer hires an electrician to install a new lighting fixture, the electrician would not be reasonably considered an employee of the retailer. However, if a seamstress is creating garments at home using materials provided by the retailer to be sold in their stores, the seamstress would likely be considered an employee.
The key is whether the independent contractor is truly working independently, completely outside the control or direction of the company. What does your business need from this person? What you offer them in return should match. Meaning, if you want high-quality people who are committed to your business’ long-term success, you should be prepared to compensate them fairly, with the appropriate employee benefits.