It seems like everywhere you turn there’s another statistic being quoted about the fast growth and expansion of the gig economy. More and more people are turning to freelance and gig-focused work as either their primary source of income or a secondary source of income separate from their primary employment.
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What does this mean for employers? There are actually a lot of reasons employers can benefit from this employment trend. One of the biggest benefits for employers is the ability to utilize independent contractors as part of their labor force. Let’s take a look at why employers are keen to do so.
Why Employers Are Turning to Independent Contractors
Here are several of the reasons employers are utilizing independent contractors:
- It’s a way to cover short-term projects without having to hire and fire full-time employees.
- Independent contractors typically do not require as much training since they are hired for work that matches their expertise.
- Utilizing independent contractors allows fast ramp-up times when production needs to increase quickly.
- It also allows existing employees to focus on their primary tasks without being pulled away to miscellaneous project work outside their skill set.
- Using freelancers can give employers access to talent and technology that may not be available in-house, especially when specialized expertise and/or software (or equipment) may be needed.
- While some independent contractors may have a higher hourly wage than regular employees, they typically are not given benefits, which may decrease an employer’s overall labor costs for the work.
- Hiring can be easier and faster for independent contractors, who are often available via freelance networks or agencies.
- Utilizing independent contractors often has less administrative burden since the employer is not required to withhold income taxes, lessening the payroll burden.
- If your worksite has limited space (or you simply want to save on operating costs), utilizing independent contractors can be a way to get work done off-site with fewer company resources required.
Things for Employers to be Aware of When Utilizing Independent Contractors
While the above list clearly outlines many of the benefits of utilizing independent contractors, employers do need to be sure to understand what this entails. Here are a few considerations:
- Misclassification. It’s critical for employers to ensure that they’re not misclassifying someone as an independent contractor who really should be an employee. Misclassification can lead to penalties or lawsuits. Be sure to be very clear what you’re looking for, and consult legal counsel to keep abreast of legal issues and to get advice on how to ensure that the independent contractor classification is correct and nothing is being done to jeopardize it.
- Loss of control. If you’re working with independent contractors, there will be less control over the hours worked and how the work is completed.
- Legal liability. Employers are still liable to ensure all legal needs are met—even when hiring contractors for a specific compliance issue. This means that if something is outsourced to a freelancer or other company, it’s still the employer’s responsibility to meet any compliance or other legal issues.
- Paperwork. Just because you’re not withholding payroll taxes for a freelancer doesn’t mean there’s no paperwork. Independent contractors typically must be furnished with a 1099, which also gets sent to the IRS.
- Contractual obligations. With bigger freelance projects, the employer may still have a legally binding contractual agreement and must abide by its terms. This means there may be less flexibility in terminating the agreement without penalties.
Ways for Employers to Utilize the Gig Economy
If you’ve been following all of the benefits and things to consider when utilizing independent contractors and you’re ready to get started, how can you make the leap? There are a few easy ways for employers to take part in the gig economy:
- Hire independent contractors (individuals, paid directly) for project work.
- Allow employees to have “moonlighting” gigs (which indirectly helps the employer by taking pressure off of employees who may want more hours that are unavailable at the primary employer).
- Use the services of a temporary staffing agency or project-based consulting firm to bring in short-term workers.
- Utilize an agency to hire workers on a contract basis initially before hiring full-time.
- Hire seasonal help, which is often staffed by individuals who are participating in the gig economy in some capacity.
What other ways has the gig economy impacted your business?