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To freelance or not to freelance?

|Feb 18|magazine15 min read

In an eye-opening 2010 study about the trends and forces likely to shape the business landscape over the next decade, software giant Intuit predicted a growing movement toward a contingent workforce.

Contingent workers, according to Intuit, include freelancers, independent contractors, temps, part-time workers, and other specialists. Contingent workers don't have full-time employment status and generally are retained on a temporary basis.

Contingent workforce to grow

Based on its survey of businesses across the country, Intuit estimated that 20 to 35 percent of the US workforce was contingent in 2010 but said that a whopping 80 percent of large corporations planned to sharply increase their use of a flexible workforce over the coming decade. Intuit predicted that by 2020 contingent workers will make up more than 40 percent of the US workforce.

The use of freelancers is nothing new, of course, but it's a movement that clearly accelerated in the wake of the Great Recession, the disastrous economic slump that followed the financial crisis of 2007-2008.

Wholesale recession-related layoffs

Businesses hard hit by the recession were forced to lay off large numbers of their full-time staffers in order to weather the economic impact of the worst economic downturn since the Great Depression.

Afraid to commit to rehiring full-time workers against a backdrop of feeble recovery, many firms filled out holes in their staffing by contracting with freelancers who could help get the job done but didn't qualify for the benefits usually provided to full-time employees.

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Cost savings

Perhaps the most attractive feature of using freelancers is the cost savings most businesses can realize by doing so.

Although many companies pay their freelancers somewhat more per hour than full-time employees, they can avoid a number of other expenses and bookkeeping hassles that are required to retain full-time workers.

As previously mentioned, independent contractors don't receive benefits, which can be extremely costly to employers.

Businesses using freelancers also need not worry about paying workers comp insurance, state unemployment compensation insurance, or the employer's share of Medicare and Social Security taxes. Because many freelancers work off-site as telecommuters, employers can avoid expenses associated with providing office space and equipment.

Flexibility is a big plus

Among the other benefits associated with using freelancers, added flexibility is clearly one of the most attractive features.

A company can bring in a freelancer for a specific project with the understanding that the relationship will terminate with the successful completion of that project. This eliminates all the trauma, hassle, and expense that are associated with the firing or laying off of regular employees.

Generally speaking, freelancers act as independent contractors and thus forgo many of the rights that are normally provided to regular employees under state and federal law.

Freelancers have no right to receive overtime pay, state or federally mandated minimum wage, nor do they have the right to form a union.

Although independent contractors are protected by law from racial discrimination, they cannot sue for employment discrimination on the basis of gender, national origin, or religion. And they are not entitled to time off because of sickness in the family or the birth of a child.

What about the downside?

So much for the pros of hiring freelancers.

As pointed out in an article for Nolo.com by attorney Stephen Fishman, there are some disadvantages that ought to be considered before going the freelancer route.

Companies using freelancers generally have less direct control over how the workers complete a project for which they've been retained. The very nature of freelancing affords these independent contractors a degree of autonomy that is not enjoyed by a company's regular employees.

Because they are usually hired for the term of a specific project, freelancers come and go, which in and of itself can be somewhat disruptive.

Freelancers' levels of expertise and competence vary, which can result in a somewhat uneven work product over the long haul. And again, because of the temporary nature of their work arrangements, freelancers rarely develop any sense of loyalty to the companies who hire them on a temporary basis.

Intellectual property concerns

The copyright to a creative work -- article, book, or photograph, for example -- produced by a full-time employee in most circumstances automatically belongs to the worker's employer.

Intellectual property developed by a freelancer usually belongs to the freelancer unless a specific agreement transferring copyright ownership is negotiated. Employers using freelancers to produce such products should protect themselves by drawing up a contract governing the conveyance of copyright to the employer in such cases.

Unlike regular employees who are covered by workers' comp for on-the-job injuries they may sustain, freelancers are not covered. Thus, they may sue your company for injuries sustained during the performance of the work they do for you.

Each company must decide for itself whether using freelancers makes sense, given the business's unique goals and needs.

For their part, workers who decide to offer their services as independent contractors need to recognize that in so doing they'll be giving up much of the safety net that is afforded a company's regular employees.

This makes it especially important for them to spend time learning about the basics of financial management for freelancers.

 

About the author

Don Amerman is a freelance author who writes extensively about a wide array of business and personal finance topics.