Independent Contracting: A Classic Example of Innovation and Disruption | DCR Workforce Blog

Independent Contracting: A Classic Example of Innovation and Disruption

Independent Contracting A Classic Example of Innovation and DisruptionWe all know that the way work is conducted is changing. There is a 26 percent increase in the number of remote jobs posted according to Forbes Magazine, reporting on a study that examined the job-posting histories of more than 30,000 companies last year. In other words, the option to work from home is becoming more widely accepted in the job market. Technology advances make it possible to get work accomplished partially or completely by remote workers, saving companies big bucks on their need for office space among other things.

The technologies that make remote work possible has also fueled the freelance economy (or the 1099 economy) of on-demand workers. Freelancers, or independent contractors, work at ‘gigs’, independent of anything but their contract. The economy currently has 53 million Americans (or 34% of the workforce) listed as independent contractors, with many Americans receiving a part of their income through freelance work. Office space for these workers could be anywhere; home, their neighborhood coffee shop, a hotel room in a tourist spot, a library, or even a beach. The only imperative seems to be wi-fi or other internet connection. The option to work-from-anyplace-connected seems to hold a great attraction for many workers today, who feel liberated, free to be more creative and empowered as individuals.

Independent contractors are the workforce of the demand economy. Entrepreneurial individuals have harnessed social media to offer new ways to deliver car services, legal services, healthcare, journalism, household repairs, shopping services, oil rig maintenance and IT programming. In fact, few industries have not been reshaped by the demand economy. In many cases, the online service has become so popular that it has spawned a successful new business or industry sector. Uber and similar companies have redefined the car service business. Homejoy has done the same to plumbers and electricians. Traditional companies, utilizing permanent employees to provide these services, are now forced to deal with these new sources of competition.

While the lure of being independent is strong, not everyone succeeds when they go into business for themselves. It helps to have an action plan when turning to freelance work or independent contracting. So, is there a formula for success that can be adopted by a person who decides to enter this economy and get established?

Let us look at the realities of work as an Independent Contractor.

  • An independent contractor can never be assured of a steady or regular income. Historically, many freelancers ultimately abandoned freelance positions for permanent employment when they found that they were unable to effectively divide their time between delivering on assignments and finding the next engagement. Most found that they were putting in extremely long work weeks – in excess of what they experienced as full-time permanent employees, and there was no compensation for the time spent on business development. Too often, freelancers found that the work-life balance they were seeking was more likely to come from permanent employment.
  • Being a freelancer can be expensive. In many cases, self-employed individuals are taxed at higher rates than those employed by someone else. They must pay all statutories, carry business insurance, independently seek health insurance (without the lower rates offered by employer contributions or negotiated group plans), and incur all costs associated with conducting the work.
  • There are no benefits. Independent contractors do not receive vacation pay, retirement contributions, or other benefits often available to those who are employed by others.
  • Freelancers must also be their own accountants. They must handle billing, receivables, payables, payroll, tax preparation, and government reporting. Many freelancers complain about time spent “chasing their money”.
  • While it is true that independent contractors are their own boss, they also have a new boss with every engagement. They usually do not have an opportunity to build up a relationship of trust with each individual who contracts their services, and many complain of being treated as second-class citizens.

While these realities make it clear that freelancing is not for all of us, innovation certainly has made many of the above challenges less of a burden.

  • The World Wide Web offers many platforms and B2B prospecting tools to enable the independent contractors to bid on jobs and find lucrative work assignments. Freelancers can market their capabilities online in ways that make them appear to be as large and established as major companies, and they can instantly reach much broader audiences. All of this can be done at very little expense.
  • In an earlier blog, we reported on business tools available to independent contractors at no cost. These tools can reduce the administrative burden of being self-employed.
  • The Affordable Care Act makes healthcare available to everyone. This removes a major impediment to freelancing.
  • Independent contracting offers the greatest opportunity for creative individuals with innovative ideas for offering new services or redefining how services are delivered. They are the engine behind the creation of small businesses. And, of course, the latest U.S. census tells us that the 28 million small businesses in America account for 54% of all U.S. sales!

The vast majority of us will be employed for a significant portion of our lifetimes. A report published earlier this year by the Bureau of Labor Statistics examined job patters of people born in the years 1957 to 1964. They found that, from age 18 to age 48, they held an average of 11.7 jobs. We expect that a similar analysis of younger workers will show an even greater frequency of job changes, and the rate will be further inflated by the growing number of individuals choosing independent contractor positions.   What remains to be seen is whether technological and regulatory advancements will be sufficient to increase the number of workers who pursue freelancing as a full-time career. Will we actually see a surge in workers who entirely reject “permanent employment”? Share your experiences with us, and share this blog with others. We want to know more about your perspectives on independent contracting.

The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.
Lalita is a people/project manager with extensive experience in operations, HCM and training and development across industries like banking, education, business consulting, BPO and information technology. She believes in a dynamic approach to life and learning as change is the only constant.