Payoffs and Pitfalls of Working with Independent Contractors

By Lin Grensing-Pophal November 10, 2017
Payoffs and Pitfalls of Working with Independent Contractors

Short-term talent is in high demand, and the ability to attract, hire and engage gig workers will be critical to companies' success.

More than 55 million Americans work as independent contractors, according to the nonprofit Freelancers Union, a figure that has grown by 2 million over the last two years. Gig work can be an opportunity to polish skills in a particular area, noted Neil Shastri, leader of global insights and innovation at Aon Hewitt in New York City. For other workers, it's a chance to break out of a strict 9-to-5 existence and gain more control over their schedule.

For employers, the ability to connect with highly skilled and, perhaps, scarce employees is very attractive, as is the ability to recruit across the country or world for freelancers who can work from home. About two-thirds of the employers responding to Randstad Sourceright's 2017 Talent Trends Report, hailing from more than 60 countries, indicated that they would be using more contingent workers over the next year.

"Contractors often bring specialized skillsets to their roles as contingent workers which can be shared with their permanent employee counterparts," said David S. Patterson, president/senior practice leader with The Kineta Group Inc., in Tampa, Fla. "It's that in-demand knowledge that employers most seek these days. It is this sort of collaboration between the contingent and noncontingent workforces which will be the difference-maker for companies wanting to increase their relevancy in this global economy."

[SHRM members-only presentation: Contingent Workers Training]

Gig workers also afford employers the ability to hire specific staff for limited projects without incurring a long-term liability.

Peter Yang's experience is a case in point. Yang is co-founder of ResumeGo, a resume-writing service in the New York City area and has hired "a tremendous number of freelancers at our business." He points to two main benefits—the ability to "test out" freelancers with small projects and the ability to scale based on client volume.

"Because the number of clients we have fluctuates so much, it would be hard to hire just the right number of employees not only so that we have enough staff members during the busy times, but also so that no one is devoid of work during slower periods," he said. "Working with freelancers who get compensated on a per-job basis allows us to adjust to workloads that change over time."

Element of Risk

Relying on a contingent workforce invites some risk. Most notable is the government's scrutiny of such relationships to ensure that these workers are truly contractors and not employees whose pay would be subject to various withholding taxes. Uber paid millions of dollars in settlements of class-action lawsuits from drivers who argued that they should be classified as employees and entitled to employee benefits.

"In most cases, the issue of classification is difficult, as these workers tend to fall somewhat in the middle," said Melissa Boyce, a legal editor with XpertHR. "Any determination … may depend on the terms of the arrangement, contract and benefits provided, if any. The issue of classification is also important as it will affect whether the gig worker is protected under [federal employment laws] and other state and local laws."

True independent contractors may not have the same access to information and resources as traditional employees. They have less job security. And they generally don't have access to benefits as other workers do.

There's also the risk of gig workers feeling neglected. One of the challenges for employers is engaging contract workers to help avoid the isolation that many feel, Shastri said. He pointed to Aon's 2016 Radford Technology Talent Pulse survey, which showed a marked difference between full-time and contingent employees' perspectives of the effectiveness of recognition programs, for instance.

Lin Grensing-Pophal is a freelance writer in Chippewa Falls, Wis.

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