Freelancers Reshape Labor Market, Nature of Work

By Steve Bates Feb 19, 2015
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Freelance employees working as project-based, independent contractors have grown to make up about 14 percent of the U.S. workforce, marking what some industry executives call a significant shift in how work is done.

The U.S. government does not track freelance workers, also known as “solopreneurs” or gig workers. However, private-sector surveys estimate their number at between 18 million and 21 million—not counting other categories of contingent labor, such as moonlighters, temporary workers and people with a mix of income streams. By all estimates, freelance employment dwarfs staffing firm employment, which consisted of about 5 million Americans in 2014. The total U.S. workforce stood at about 140 million at the end of 2014.

Fueled by technology, the recession, and many Americans’ desire to have more control over what they do and how they do it, freelancing and other nontraditional employment now constitutes about one-third of the U.S. workforce and could exceed 50 percent within a decade, according to Gene Zaino, president and CEO of MBO Partners, a Herndon, Va.-based firm that provides business services and health and retirement benefits to freelancers.

“It’s not even a trend. It’s how people are working,” said Zoe Harte, head of HR for Elance-oDesk, a Mountain View, Calif.-based online portal that connects freelancers with employers.

As employers seek to become more agile and less hierarchical, they are discovering the benefits of outsourcing projects that don’t involve sensitive intellectual property or require extensive oversight. Additionally, they have their pick of highly skilled people who are accustomed to completing tasks quickly.

Use of freelancers is rising rapidly in many other countries, including Britain, China, India, Pakistan and the Philippines. And some U.S.-based companies fill a majority of their freelance jobs with people living overseas.

This phenomenon is part of a trend that sees the country moving away from the way Americans did work in the 1950s and 1960s, when most people expected a lifetime job and a solid package of benefits.

“The social contract between the employer and the employee is wearing down,” said Zaino. These days, traditional employees are often overworked. They have been impacted by job offshoring, layoffs and company mergers. Their engagement levels are dangerously low. But they also have more choices.

Beyond Millennials

Though Millennials in particular value nontraditional work arrangements, surveys show that freelancers are well represented across the age spectrum. Workers with young families supplement regular jobs with freelance work, and people seeking to transition toward retirement can do so by working on freelance projects. Increased options for health care and retirement benefits—including firms popping up to service freelancers’ needs in these areas—make freelancing a little less scary. Surveys show that most freelancers choose this style of work rather than have it forced upon them, that many earn income that is comparable to what traditional office jobs pay, and that most find it more satisfying than working for a single company.

“We’ve been freed from being cubicle drones so that we can pursue our passions,” said Billy Cripe, chief marketing officer of Minneapolis-based Field Nation, another online service linking freelancers with projects. “We’re going to see more and more of this.”

Not everyone is convinced that the increase in freelance work represents a landmark change in how work gets done. “It’s growing. Will it continue? Who knows?” said Carl E. Van Horn, professor and director of the John J. Heldrich Center for Workforce Development at Rutgers University in New Jersey. He said that a significant portion of the workforce wants—and probably always will want—the security of a full-time job and a steady paycheck from a single employer. And: “People want to work at a place.”

Van Horn noted that “any time a new technology is integrated into the way the economy functions, we don’t know how it will settle out. We do know that [the increase in freelancers] is important.”

Another major question is how the federal government will treat freelancing. Many U.S. businesses have been fined for misclassifying workers as independent contractors when the nature of their work relationship—such as how closely they are supervised—dictates that they should be treated as regular employees. Wages, benefits and payroll deductions are at stake.

Jeff Wald, co-founder and president of Work Market, an online platform that helps employers find and manage freelancers, said that while most HR professionals are aware of the dangers of misclassifying employees as independent contractors, some line managers are not. He said that software offered by companies like his helps employers prevent such misclassification by forcing everyone in an organization to use the same system to get work done. “You do it in a way that allows you to set it and forget it, so that everyone knows: ‘This is how we’re engaging with freelancers,’ ” said Wald. He and others in the industry have said the government will be forced to address issues with the freelance workforce in the near future.

Employers Take Notice

Employers are taking greater notice of the trend. “In the last five years, I’ve seen a tremendous increase in acknowledgement by employers that this is an important part of the workforce,” said Zaino.

Mike Scanlin, founder and CEO of Long Beach, Calif.-based Born To Sell, which offers an online software tool for investors, is among business owners who use freelancers extensively. “I love it,” he stated. “I wouldn’t do business any other way.”

Scanlin said he has learned some lessons about using freelancers—almost none of whom he meets in person or talks to over the phone. One such lesson involved three Romanian programmers he screened online and put on contracts. They did great work for several months, and then they disappeared for about six weeks.

He kept e-mailing: “Where are you guys?” Eventually, he replaced the three. Suddenly, they showed up asking for more work. Scanlin said they informed him that “Nobody works in August” in Romania.

Scanlin advises employers planning to use freelancers to focus on communication, to expect local cultural issues around project management and to be cognizant of time zones when working with geographically dispersed people. “It’s not a 9-to-5 job.”

Freelancers are typically responsible for their own education and training. Verifying the credentials of freelancers is an issue for employers, but industry executives point out that contracting out relatively small projects limits risk, and that in some fields such as software development, employers can view freelancers’ performance ratings online. “For a big or important project, you’re going to do your due diligence,” said Zaino.

Industry officials note that freelancers typically get most of their work through word of mouth.

It’s not yet clear how the rise of freelancers will impact the staffing industry, in which temps typically are employees of the staffing firms that place them in jobs. “It’s a gray area now,” said Cripe. He and others in the industry said that some companies that serve freelancers have partnerships with staffing firms and that many of their efforts are complementary.

In addition, there are limits to the freelance labor market. “There is always going to be a need for full-time people to run your core operation,” said Mynul Khan, founder and CEO of Field Nation. “But there are always going to be things that come up on an on-demand basis.”

However, the growth of freelance employment also demonstrates that “what you know and what you bring is more important that where you live,” said Elance-oDesk’s Harte. “It’s making the world a little bit smaller.”

Steve Bates is a freelance journalist in the Washington, D.C., area and a former writer and editor for SHRM.

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