Should you contract or go full-time? That’s a question a lot of American workers are asking right now, because, let’s face it, job seekers have options. Historically low unemployment has shifted the balance of power toward the skilled worker, who has more choices when searching for work because there are more jobs to choose from.
More employers are turning to contracting as a way to staff up during fluctuating markets or to help with large one-time projects. Employers that are trying to figure out if contracting is better than hiring full-time will need to know the types of legal options available beyond full- or part-time employment. What are the benefits of having contract workers on the team?
Employees wondering if contract work is right for them should carefully consider their personal work and financial requirements. What are the ins and outs of contracting over full-time employment?
Is contracting right for you?
Employment Outlook 2019: Prevalence of Contract Work
Employers today are scrambling to find workers. Today, there are more than six million unfilled jobs in virtually any employment category. This has created a kind of employment arms race, where employers are battling over new hires. This environment necessitates new approaches to finding and hiring talent. That’s why many employers are partnering with staffing firms that offer a variety of flexible contract arrangements to attract a broader pool of candidates.
The pace of business has changed. Workers want more flexibility while employers need on-demand experts to respond to market shifts.
Today, there are a variety of work and employment arrangements beyond full-time that are legally available to both the employee and employer. That’s generally a good thing—employers and employees have more choices. Frequently, both seem to be choosing contract engagements over full-time work.
An NPR/Marist poll shows that a contract worker holds one in five American jobs. The same poll shows the majority of these freelancers select this lifestyle on purpose. Only around 34% of contract workers would like to upgrade to a full-time job.
Obviously, there are both constraints and benefits to traditional models of work. Contracting is a different approach with its own set of challenges and perks. Alternative work arrangements can include:
- Freelance: A type of 1099-contract worker that offers their services for money with no real expectation of full-time hiring down the road, a freelancer is an entrepreneur who may work smaller side gigs in addition to their day job or they may take on the freelance lifestyle as a full-time way to support their family. Either way, these professional contract workers are responsible for running a business with deadlines, billing, and product deliverables. Many times, freelancers work out of their homes, or in the case of Uber drivers, out of their cars.
- Contract work: Contractors operate under a set time and labor contract. This contract can be generated between the worker and either an employer or a talent agency that serves as a go-between. The benefit of working with a talent agency is that you are their W-2 employee. That means you’re employed by the agency and working for one of their clients. Typically, you accrue paid time off, health benefits, and taxes taken out of your paycheck.
- On-call: On-call workers are called upon when the employer needs them. On-call workers typically are paid a waiting or bench fee that holds their availability until the employer needs them. The on-call worker must drop everything when the employer pulls the trigger on the next assignment.
- Temp work: Temp agency workers are employed by the staffing or temp agency on an hourly basis. They frequently do not accrue sick or annual leave, unlike a contract worker. Temp agency workers are often blue-collar or entry-level office workers.
Staffing agencies reported unprecedented demand for their services in 2018, and these firms employed more than three million temp and contractor workers per week last year. National Public Radio reports that 94% of all the net jobs gained from 2005 to 2015 were “these sorts of impermanent jobs.” There is a growing voice among economists that says temp and contract workers will outnumber full-time employees in the coming years.
In some ways, this makes sense: the old days of working 35 years and receiving a pension at a company are gone and likely not coming back. NPR states that the “fundamental social contract between employers and workers” has changed. But who does this change benefit?
HR Dive says, “The number of temporary and independent workers continues to rise in the U.S. as more job seekers crave flexibility.” While this is one clear benefit geared for the worker, what other pros and cons exist for employers and their workers in the new gig economy?
For Employers: Benefits and Drawbacks of Contract Employees
It’s a new world of contracting for employers who can still find workers even when their company is in the throes of a hiring freeze. Hiring contract, freelance, and temp workers is the new normal for employers that want to take advantage of the gig economy. For the employer, the advantages are high. Independent workers are on-demand so you pay for them when you need them. While you may pay more upfront, businesses save by skipping benefits.
On the flip side, the labor market is tight and finding these on-demand workers is problematic unless you partner with a staffing agency.
Here are some additional benefits and drawbacks for companies seeking temporary help.
Five Benefits of Contract Work for Employers
- Skip Insurance
Employers do not have the added hassle of paying benefits to the contract employee. Typically, these temporary arrangements do not include health insurance, maternity leave, or personal time off. However, when employers go through staffing agencies like Artisan Talent, those benefits are offered by the agency. The plus of offering benefits through your staffing partner is that contract employment becomes a much more attractive package, drawing better candidates with top job skills.
- Save Money
Labor is a huge bottom-line drag. The costs of benefits alone are skyrocketing. The Society for Human Resource Management (SHRM) says employers with full-time workers can expect to pay nearly $15,000 per employee for healthcare this year. Businessweek says employers can save up to 30% on these costs per independent contractor they hire.
- Staff Up or Down Faster
Employers have more flexibility depending on market changes, projects, or any other issues that cause staffing fluctuations. Eliminating contractors over full-time employees can be less disruptive to existing teams.
- Try It Before You Buy It
These on-demand work arrangements allow companies to test the market for potential new hires without making the commitment to full-time employees. This is beneficial both from a labor perspective but also if you’re struggling to bring in enough business to make it financially feasible to keep staffing at consistent levels.
- Fill Temporary Labor Gaps
Staffing up with a contract worker is perfect when an important staff member goes on maternity leave, sabbaticals, or even vacation. This allows employers to keep staffing levels consistent, something that is particularly important to small businesses whose resources are often stretched thin.
Five Drawbacks of Contract Work for Employers
- Less Control
The important word for employers to understand in these contractual arrangements is “independent.” Independent contractors, just like employers, can walk away if the fit isn’t perfect. Freelancers and contractors have a certain level of autonomy compared to full-time workers that could frustrate employers that are intent on micromanaging the deliverables.
- It’s a Revolving Door
Before transitioning to the contractor model, consider how these employees may affect your culture as well as your corporate deliverables. If you use contractors for a series of short-term projects, how much strain will it place on your existing teams to get people up to speed that will be gone soon?
- You Can’t Really Fire at Will
Many states have loose at-will laws that allow employers more freedom to fire employees for all kinds of reasons. But the independent contractor is governed by a contract that may put stipulations on your abilities to fire at will.
- You’re Still Liable
If an independent contractor is injured on the job, you’re still liable, according to NOLO. Full-time employees are covered by workers compensation insurance; if the employee is injured, the insurance pays, but the employee gives up the right to sue you for damages. Not so in the case of independent contractors—they can sue and collect damages from your company.
- Increase the Risk of Audits
NOLO suggests that the Internal Revenue Service (IRS) wants more workers classified as full-time for the tax benefits it brings. They also suggest that hiring too many contract workers means you open the door to an audit.
For Employees: Pros and Cons of Choosing Contract Work
The first thing to understand about contracting is that the employer pays these workers differently. It could be by the hour or by project, retainer, or a flat fee. There are different tax ramifications than for full-time workers. Unless a staffing agency handles things, the employee is responsible for paying federal and state tax. Contract workers also must handle covering their own insurance, as well as saving for retirement.
Deciding whether to take on a contract role is a personal decision based on your circumstances. Contract roles bring different salaries and benefits, and the expectations employers have, along with the vibe at work, will also likely vary from full-time employment.
Five Pros of Employee Contract Work
- Freedom to Job-Jump
Bored with your job? Contractors have the freedom to try new things. It’s a great way for the more experienced employee to modernize their job skills. It’s also perfect for a younger worker who wants as many experiences as possible while they’re trying to figure out their career path. One possible benefit of contract work is that it’s the only acceptable reason to have a series of one-year job titles on your resume. Contracting gives you the freedom to job-jump with less chance of being judged poorly for it.
- Mo’ Money, Mo’ Money
Contractors make more money. That means, while you may not have benefits or perks, you are awash in the green stuff. Typically, the take-home paycheck of a contractor can be twice (or more than twice) the paycheck of a full-time worker in a similar position. While that isn’t always the case, the more in-demand positions, like UX Designer or App Developer, usually pay more with a contract arrangement.
- Skip Office Politics
Having an unhealthy work environment due to office politics is something a lot of us hate. Contracting offers the perspective of detachment. Simply put, you’re there to do a job, not engage in drama.
- Work-Life Balance
If you’re a freelancer, you typically have the option of working from home. This could help you eliminate a long commute and get more of your free time back. Contractors can spend more time in a job they love, instead of being stuck in something that just pays the bills.
- Learn New Skills and Try Out New Experiences
Working in the same job for a long period of time is typically not the best way to hone your skills. In contrast, independent contracting can maximize your experiences, exposing you to a variety of new skills and job settings.
Five Cons of Contract Work for Employees
- No Healthcare
Unless you work through a staffing agency, like Artisan Talent, there are typically no medical benefits for contract workers. If you get sick, there is no health insurance safety net to draw upon. While this may seem fine when you’re young, the truth is that medical debt is a huge problem in the United States. Even a routine medical procedure can cost thousands of dollars. If you are paying for that procedure out of pocket, it is relatively easy to slip into serious debt.
- No Perks
Ditto on perks, meaning there is typically no paid time off for contract workers. That means if you don’t work, you don’t get paid. While you still may end up at happy hour with the team, you won’t be able to take the next day off to nurse a hangover if you want to be paid for your work.
There are also no 401(k) retirement benefits. If you’ve been contracting for a few years and haven’t set aside money for the inevitability of aging, you’ll regret it later.
One perk that most workers don’t even think about is that full-time workers have one-half of their Social Security and Medicare paid for by their employers. Independent contractors are 100% responsible for these fees.
However, contracting with a staffing agency can soften your landing whether into the hospital or retirement. Many larger companies, like Artisan Talent, offer benefits to their contract employees.
- No Advancement
Contractors are temporary workers, brought in when companies need a little extra expertise to get the job done. Typically, these roles have little room for advancement. Unless the position is specifically temp to hire, the contractor stays primarily in the same role with the company. Ironically, some contractors have been in the same position for years when contracts were extended repeatedly. We’ve seen companies with contractors that have been on board longer than the majority of full-time employees in a department!
- Harder to Acclimate into the Culture
Contractors can sometimes feel marginalized by full-time employees into a kind of “separate but equal” worker pool. That may make it harder to feel like you are part of a team involved in a mission-driven organization. However, it should be noted that this isn’t always true; many companies do a nice job managing their contract workers.
- Less Job Security
While the job market is hot right now, as sure as the sun will rise tomorrow, we can bet that an economic tank is probably on the way. During down times the first workers to go are usually anyone that isn’t full-time. However, this isn’t always true; frequently contract workers cost less than full-time employees when you figure in benefits like health insurance and paid time off, so employers might be apt to keep you on board.
Which Is Better: Contracting or Full-Time?
Both employers and employees can benefit from the contracting lifestyle. No matter your situation, it might benefit you to have a conversation with the talent team at Artisan Talent. Employers will receive confidential information on job market trends in the areas where they’re seeking help. Employees can kick around the concept of contracting to determine what’s right for them.