In the last decade, the definition of work has been fundamentally altered. Instead of traditional 9-5 jobs, many Americans have opted for what has become colloquially known as the gig economy. Fueled by technology—particularly smartphones—gig economy workers function more as freelance workers-for-hire. These gig workers and independent contractors often work for a variety of employers, sometimes in a variety of industries.
This blog post will examine how the traditional employment model, which began approximately 75 years ago after the end of World War II, has been challenged by the rise of independent contractors. But to truly understand the changes, we first must define the terms.
What Makes a Worker an Independent Contractor?
The short, and unsatisfying answer is “it depends.” Different states have their own tests and rules determining independent contractor status. But recently, the Department of Labor proposed a rule addressing how to determine whether a worker is an employee or independent contractor under the Fair Labor Standards Act. Some of the key factors include:
- The permanency of the relationship
- The alleged contractor’s opportunities for profit and loss
- The amount of the alleged contractor’s investment in facilities and equipment
Other states have more restrictive classification guidelines for independent contractors. For example, California has something known as the ABC Test to determine employment status. Ultimately, each state has different rules for independent contractors, and it is part of your responsibility as an independent contractor to stay up-to-date with the rules and regulations of your state. You can get a quick look at your state’s status here.
What About Freelancers?
With the line between independent contractors and traditional employees so hazy in the eyes of the law from state to state, it’s no surprise that there is a lot of confusion. The term “freelancer” adds a new wrinkle, further complicating the issue. As far as the IRS is concerned, there is no difference between an independent contractor and a freelancer when it comes to jobs. But in the actual workplace, the picture is a bit murkier. Sometimes independent contractors and freelancers are defined slightly different. Factors that go into this can include (but are not limited to):
- Number of clients. Freelancers are more likely to work on different jobs for multiple clients all at once. Whereas independent contractors tend to work one project at a time.
- Scope of work. Independent contractors typically have a narrowly defined scope of work and time horizon in which it will get done. On the other hand, freelancers can be more fluid, taking on jobs as needed.
- Location of work. Freelancers traditionally work on their own, from home, a rented office space, or even a coffee shop with good Wi-Fi. Conversely, independent contractors can often be found on-site at the company’s location. A perfect example of this would be our SFS independent merchandising contractors, who visit various retail clients to help enhance the retail experience.
What Is Speeding Up the Workplace Transformation?
The number one factor contributing to the rise of the independent contractor is, of course, the Internet. It allows many workers to perform work for clients thousands of miles away, from anywhere in the world. This workplace without boundaries gives independent contractors more flexibility and self-determination. They can choose when they work, and what they want to do. But at the same time, the gig economy also helps employers. Obviously, it helps reduce costs in office space, benefits, sick time, vacation pay and unemployment insurance. But it also can raise the bar in terms of finding quality talent.
In the past, employees were limited. They could only hire people within a relatively short commute of their office. The gig economy and independent contracting has changed all that. Now for example, if a mobile app developer located at the Jersey shore needs to find programmers with experience in, say, augmented reality shopping app design, they’re not limited to the confines of the Garden State. They can hire talent from anywhere. Naturally, companies have grown to help make this possible. Sites like Upwork, GoLance, and traditional staffing firms can help companies find and recruit the right people for the right jobs at the right time. It’s a leaner, more strategic approach to the traditional job search, that enables companies with unique needs to find unique talent to fit.
Misconceptions About the Gig Economy and Independent Contractors
To use a cliché from the tech world, the gig economy is a true “disruptor.” And that means that as it upends the way many of us work, misconceptions about it can spread like wildfire. Here are a few predictions, analysis and stereotypes that have turned out to be incorrect.
1. The gig economy is primarily millennials
Not true. According to the Bureau of Labor Statistics, the makeup of the gig workforce closely mirrors that of the overall workforce.
2. The gig economy is going to end traditional employment
Doomsayers try to stoke fears with attention-grabbing headlines like this. The New York Times even went as far as publishing an op-ed entitled The Gig Economy Is Coming For Your Job. But in truth, traditional employment isn’t going anywhere. What may be on the rise is the amount of workers taking gig economy jobs on the side—the infamous “side hustle.”
3. Technology is the sole driver of the gig economy
While smartphone adoption is clearly a major contributing factor, another important driver (although decidedly less glamorous to write about) is labor policy. As the Washington Post put it, “Beginning in the 1970s, corporations shifted their focus away from production and toward stock prices. Employees came to be seen as a cost to be cut rather than a source of profit. The use of temp agencies, introduced in the 1950, exploded in this era. With technology no more advanced than spreadsheets and land-line telephones, reliance on temp agencies continued into the 21st century, laying the foundations for today’s gig economy.”
Looking Forward: The Future of the Independent Contractor
Though it means big changes for how we think about work, the rise of independent contractors and the gig economy means more freedom and flexibility. However, for workers who prize security and benefits, a career as an independent contractor might not be right for you. Going forward, we may expect to see more support for independent contractors, in the way of increased sick pay, vacation time and other benefits of the traditional workplace. We can also expect new startups to provide further innovation, helping to connect independent contractors to companies looking for their skill sets.
What do you see in the future for independent contractors? Let us know…we want to hear from you.