Is 2023 the Year of the Contract Worker?
Recession fears and corporate belt-tightening have led to what seems like a daily barrage of layoffs. But while the shaky economy is taking a toll on full-time employees, it’s offering a silver lining to gig workers and contractors.
As employers seek to cut their labor costs and have the flexibility to staff up and down, demand for contingent workers is rising. Listings for contract jobs jumped 26% when comparing the stretch of May to November 2022 to the same period in 2021, according to LinkedIn’s Future of Recruiting report. The same report showed that full-time roles grew by just 6%. Companies across a wide variety of sectors, from technology to advertising, are leaning more heavily on freelancers.
Many employers consider hiring contract workers vs. permanent workers as a less expensive option that reduces their tax obligations and benefits costs and increases flexibility.
“If you’re a recruiting leader in 2023,” says Stephen Lochhead, senior VP of global talent acquisition at Expedia Group, “and you don’t have a decent mix of contingent talent, you’ll be more risk-exposed to whatever the future brings — good and bad. You need some elasticity so you can flex up or down as needed.”
In addition to looking for more independent contractors to fill open jobs at their organizations, recruiting teams are also increasingly outsourcing their own work. According to the Future of Recruiting report, nearly one quarter of corporate recruiting pros predict their companies will invest more in staffing agencies and executive recruiters.
“Demand for contingent staffing has been quite high,” says Marc-Etienne Julien, chief talent officer at Randstad Global, a human resources consulting firm. “Coming out of the COVID crisis, employers learned a good lesson about the value of flexibility.”
“Quiet hiring” opens more doors to short-term workers with sought-after skills
Rising demand for gig workers and contractors comes at a time when employers are confronting a dilemma: While the economy is forcing them to cut costs, they’re still facing skills gaps. As a result, more companies are engaging in “quiet hiring,” meaning they’re filling open positions by redeploying existing employees or by tapping contractors with in-demand skills.
Tech companies are turning more frequently to freelance software developers, coders, and other high-skilled tech workers, The Wall Street Journal reported. IT services company Capgemini, for instance, is offering a more flexible employment framework that includes hiring gig workers who take on short-term projects, says Jennifer Paylor, vice president and head of global talent innovation and skills transformation at Capgemini.
Employers aren’t just hiring contingent workers as a response to tightening budgets, they’re also reacting to shifting worker preferences. Even before the current economic slump, gig work was on the rise with more than one-third of U.S. workers in a McKinsey survey identifying themselves as independent workers. Globally, the gig economy is expected to grow to $873 billion in 2028, up from $355 billion in 2021.
Many people prefer to be independent contractors. They’re reluctant to tie their fortunes to one company, and they appreciate the flexibility that contract work affords. “Employees are saying, ‘Why do I want to be beholden to one employer where the risk is all on my side?’” says Sophie Wade, founder of Flexcel Network, a future-of-work consultancy.
To compete for the best candidates, companies are finding they must widen their search to include independent contractors.
“Often,” says Stephen from Expedia, “a hiring manager is knee-jerked into thinking that when someone leaves, they need to hire a permanent replacement. For some hard-to-fill roles, there might be a really different way of thinking about this. Organizations that have their doors open to both contingent and permanent workers will make the most of the opportunities out there in the market.”
Jennifer from Capgemini notes that contingent workers can bring a wide breadth of experience. “They have a diverse context that can help them make different types of judgments,” she says. “I find that very useful for these times of rapid change. I think that’s a benefit.”
The challenges of short-term work
But as companies hire more contract workers, they’ll have to weigh potential drawbacks too. Employers may, for instance, have security concerns that will entail having to carefully consider how much access to data they offer temporary employees. There may also be concerns about a contractor’s loyalty and commitment to getting the job done.
Contractors, in turn, can sometimes feel like they’re treated as second-class citizens because they often cannot partake in company events and enjoy the same benefits as their full-time colleagues.
“This,” notes the Harvard Business Review, “can undermine team performance and create tension and resentment.” A simple solution, however, is to give gig workers some of the perks afforded to employees. “If the team is co-located at a company site,” suggests HBR, “give contractors access to cafeterias, gyms, and employee parking lots if possible. The marginal cost of providing these benefits is minimal and is more than made up for in team development.”
Although blurring the distinctions between contractors and employees can help with team morale, there are also legal ramifications to take into consideration.
“The problem,” writes Sterling Miller, CEO and senior counsel at Hilgers Graben PLLC in an article for Thomson Reuters, “is that employers can come to over rely on independent contractors and, over time, begin to treat them as employees. When this happens, big problems arise for the company despite any good intentions on their part or on the part of the contractor.”
The bottom line: Treat your contractors well, but if they’re integrated in your teams like an employee and doing all the work of an employee without benefits and other securities, it’s likely time to have a conversation about changing their role or their work status.
Final thoughts
As you look to contain costs in an uncertain economy, you might be considering adding independent contractors to your workforce. Stephen encourages employers to keep an open mind: “Don’t be constrained in your thinking,” he says. “Ask yourself three big questions: What is the work? Where can it happen? What’s the best talent for this?”
