A recent article in the New York Times points to the growth of businesses like Uber that act as the intermediary of services between the provider and the customer. The “New Gig Economy” as the New York Times call it, is nothing more than the independent contractor or freelancer of decades past—with a tech twist.
One in three workers, or 53 million Americans, are now freelancing according to the comprehensive survey “Freelancing in America: A National Survey of the New Workforce.” This number is expected to increase to half of the workforce by the year 2020.
Technology today makes it possible for workers to shift from the traditional office workplace to remote locations, offering a flexibility unheard of 20 years ago.
Freelancing is a great solution for workers in search of control over their schedules or how much income they want to earn, but will this “New Gig Economy” offer Americans the job and financial security they search for?
As with all questions addressing the entire population, the answer is, it depends. Freelancers are a special breed requiring strong skills to compete in a virtual world, discipline to get the work done without any supervision and the marketing and networking skills necessary to promote and market themselves to make freelancing successful.
Historically, industries like the hospitality industry that have shifted from traditional employer-employee relationships to franchise-based business with outsourced staffing have not fared well. According to the Times “Gig Economy” article, the hospitality industry has suffered an increase in labor law violations with a decrease in wages in the last 15 years.
If there is a lesson from the hospitality industry, it’s that freelancing is not the ideal solution for all but is perfect for talent willing to sell themselves as a valuable commodity.
As the freelancing economy grows, businesses will adapt. For companies, workers will move from one of the company’s largest fixed costs to a variable cost that companies can adjust up and down as needed.
This may provide job growth but comes with many pitfalls. Once talent shifts from a fixed cost that must be planned for, to a variable cost, talent will have trouble finding job security as employers adjust their employee levels.
And while freelancers may find a per-project payment deal better compensation than a negotiated, hourly wage, there are several costs a freelancer has to absorb, which were once the expense of the company.
One of the biggest costs for a freelancer is the self-employment tax rate of 15 percent that covers unemployment and Medicare. Other expenses include income taxes, health insurance, retirement, home office expenses, business taxes, insurances and more. Freelancers used to earning $20 per hour in a traditional workplace as an employee would have to earn double that to cover their increased expenses, since the liability has passed from the employer to the independent contractor.
The most successful freelancers will work for several employers and diversify to absorb any changes in income. Maintaining and building multiple work relationships is almost a full-time job in itself.
But for those interested in working in the new gig economy, the rewards are great. Freelancers build their own niche based on their interests and talents, set their own hours and location, decide on how much they want to work and with proper planning, take control of their finances and future.