Why Companies Use Contractors

A recent study by the U.S. Bureau of Labor Statistics and academic research by Lawrence Katz of Harvard University and the late Alan Krueger of Princeton University show that between 6.9% and 9.6% of all workers are independent contractors, or 10.5 to 15 million workers. Traditionally, independent contractors receive a commission per task they perform for clients, retain significant control over how and when they perform their tasks, and are not an integral part of the activities of the companies or people they work for. They can also be called freelancers. Traditional examples of independent contractors include plumbers, wedding photographers, and some lawyers and consultants. They manage their own business operations, enter into contracts with many different families or companies, negotiate consensual contractual terms, can do their job without their clients` control outside of those contracts and are not an integral part of their clients` business models. The history of labor in the United States has been defined for more than a century by disputes between workers, employers, and government over workers` rights to wages and benefits. As new technologies and business models develop in the future of work, these struggles will change and politics will have to keep pace. The federal government and other states should follow the example of the California Supreme Court and recognize the fundamental power imbalance between entrepreneurs and businesses. Strict rules on who can qualify as an independent contractor would restore the wages and benefits of low-ranking workers or give them real freedom to engage in entrepreneurial activity. One of the most common reasons our Fortune 1000 and early-stage customers cite why they hired a contract professional is to meet tight deadlines. When companies have urgent projects to complete, hiring a contractor makes sense for a variety of reasons. This issue letter examines how independent contractors are defined by law and understood by economists, and shows why it is rarely good for most workers to be forced to work as independent contractors due to lack of good wages, lack of basic benefits, and lack of independence from working hours.

They are known by different names: freelancers, contract workers, temporary workers, independent contractors or self-employed workers. There may be slight differences in the way they work, but they are essentially contractually obligated to hire. They make up more than 30 percent of the U.S. workforce. And it`s not just janitors, housekeepers and call center workers. „This practice has progressed up the skill ladder,“ brandeis author and professor David Weil told me in an interview at the end of February. Today, even many employees work for leading companies as entrepreneurs, not full-time. If your small business is like most, it has busy periods followed by less busy periods. Freelancers can save you from having to carry staff during slower periods. Trusted contractors also provide the extra hands sometimes needed to undertake projects that would normally be too difficult for regular employees to do in addition to their own responsibilities.

Recent data-driven research shows that low wages are a serious problem for most independent contractors. Financial economists Jackson, Looney and Ramnath have found that the universe of freelancers and independent entrepreneurs is divided between a very rich upper crust and a large number of workers who are not doing very well. On the one hand, the average person who is a partner in a business earned $243,000, while a worker in the gig economy earned only $37,000 on the other. (Tax data is usually the best source for income research. However, there are still problems with income under-registration, particularly among the self-employed, which can impact the results.) Independent entrepreneurs are a subset of people who are „self-employed,“ which includes independent contractors, small business owners, and part-time hobby or craft dealers. The terms have slightly different meanings for economists, tax specialists and lawyers, which are not relevant here. While the „freedom of workers“ remains the main justification invoked by companies and their allies for being called independent contractors, the real extent of the freedom available to workers is the subject of ongoing disputes. „Many tech companies have solved this problem by not really hiring the lowest-paid workers. They are under contract,“ Schmidt said. „We can treat them differently because we don`t really hire them. The person who cleans the bathroom is not exactly the same type of person.

What I find a little offensive, but that`s the way it`s done. Employers could also be better served by always hiring only qualified IT contractors who have gained skills, knowledge and experience working at different customer sites. But there are, of course, the benefits of employing permanent employees. There are just a few of the reasons why businesses of all sizes rely on temporary workers to meet their business needs. While it`s impossible to consistently expect and prepare for the unexpected, a close relationship with a contracted HR company can help companies ensure they have access to the necessary resources if one of these situations occurs. In short, like many companies that rely on low-wage independent contractors, Uber uses the status of an independent contract to deprive drivers of the salary they would be entitled to as traditional workers or even taxi drivers. Another benefit of hiring contractors to meet deadlines is that the hiring company can quickly increase its workforce without having to retain excess staff once the project is complete. This gives companies the ability to predict and control their costs while achieving their business goals. Then there is the dreaded word „effective.“ When dealing with a public company, it is important that they prove to their investors that they have maximum productivity with the smallest number of employees. Indeed, employees are considered the highest cost for any business and the greatest risk. Companies are tackling these costs by hiring long-term contractors. When hiring a professional, a contract personnel agency takes the risk, finances the performance of employees and reconciles all taxes. .