Over the last 20 years, U.S. companies and governments have migrated away from a rigid labor model made up of full and part time employees to a more flexible one by hiring temporary and contract workers. So when the last economic recession hit hard in October 2008, the US recovered better than other countries because a more flexible workforce allowed companies to efficiently scale back their operations, recuperate, and position themselves for a rebound.
A flexible workforce for today’s global marketplace is what is needed to meet ever-increasing diverse and unpredictable market demands. Compared with permanent staff, contract labor offers some explicit advantages:
- Flexibility to respond to ebbs and flows in resource needs
- Access to expertise not currently available in-house
- Time savings if contracted talent is secured and the hiring process is facilitated through a third party
- Cost savings resulting from
1) increases in staff productivity since current permanent resources can stay focused on current responsibilities, and
2) not paying for increasingly expensive benefits like healthcare insurance and retirement.
Understandably, hourly rates for contingent workers must be a lot higher than those for permanent workers in order to compensate for tax liabilities, the lack of benefits and to attract suitable and competent workers. The hourly wage of contingent workforce should be in the order of 1:3 ratio. In other words, a contingent workforce should not be viewed as a cost saving measure but as a way to remain nimble enough to ride the financial upheavals so frequent in this era of disruptive technologies.
Generational changes and cultural diversity are creating a new workforce that values personal freedom and a strong work/life balance. The modern contingent labor pool does not only consist of workers who have no other choice than to contract but increasingly of highly educated and skilled independent-minded individuals who contract by choice. These workers have family life, exploring the world and helping others in need as work/life priorities instead of the all too familiar job security, stability and seniority.
A 2014 independent study commissioned by the Freelancers Union and the Elance-oDesk, found 34% of the U.S. workforce (53 million people) working as freelancers. The survey defined “freelancers” as individuals who have engaged in supplemental, temporary, or project -or contract- based work in the past 12 months. These freelances can be categorized as follows:
40% or 21.M Independent Contractors. These “traditional” freelancers don’t have an employer and instead do freelance, temporary, or supplemental work on a project-to-project basis.
27% or 14.3M Moonlighters. Professionals with a primary, traditional job who also moonlight doing freelance work. For example, a corporate employed web developer who also does projects for non-profits in the evening.
18% or 9.3M Diversified Workers. People with multiple sources of income from a mix of traditional employers and freelance work. For example, someone who works the front desk at a dentist’s office 20 hours a week and fills out the rest of his income driving for Uber and doing freelance writing.
10% or 5.5M Temporary Workers. Individuals with a single employer, client, job, or contract project where their employment status is temporary. For example, a business strategy consultant working for one startup client on a contract basis for a months-long project.
5% or 2.8M Freelance Business Owners. Business owners with between one and five employees who consider themselves both a freelancer and a business owner. For example, a social marketing guru who hires a team of other social marketers to build a small agency, but still identifies as a freelancer.