Is the True Independent Contractor a Vanishing Species?

by Anya Jennings on November 23, 2009

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Being a contractor used to be pretty straightforward: You agreed on an hourly wage or project price with a client, did the work, submitted an invoice, and got paid (hopefully on time).

But things are changing. The global nature of the workplace makes the job search increasingly competitive. Companies searching for contractors online often choose offshore workers who claim they can do the same job for a fraction of the price to save money. This has some obvious advantages on both sides. The employer has very limited responsibilities to the offshore worker, and it’s unlikely he will be sued, but if the quality of the work is inferior, he has little recourse. The offshore worker has little incentive to be conscientious about the work. His goal is to finish the job as fast as possible, even if he does not have a comprehensive grasp on the scope and intent of the project. Part of any IT job is to translate what the client thinks he wants into what he is actually trying to achieve; communication is key. So hiring offshore workers may be cheap, but the outcome can be unpredictable.

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The life of a freelance contractor has strong appeal to people who desire independence, variety and flexibility. Contractors working from home have the luxury of working whenever it suits them. I find myself most focused very early in the morning and often do my best work between 4 AM and noon…a schedule that would suit very few brick-and-mortar companies but works perfectly for me.

Tech workers who choose contracting give up job security and benefits, along with workplace socialization and accolades. They often remain anonymous in the company peoplescape…and many prefer it that way. In return, they can command higher pay and get tax breaks, variety, more autonomy, and less micro-management.

Clients give up direct management and get a more confident, experienced worker. They don’t have to pay expensive benefits, often don’t provide much support, and have no quasi-emotional attachment – when the job is complete, the contractor walks away clean.

At least that’s the way it’s supposed to work. It doesn’t always turn out so well. Abuses of the client-contractor relationship are becoming common. Businesses squeezed by the economy try to save money by treating employees who should be hourly as contractors to avoid paying benefits and overtime, and sometimes still pay no more than an average hourly wage, effectively cutting payroll expenses while hanging employees out to dry. Employees who don’t have the savvy or the opportunity to negotiate a better situation wind up with none of the positives of contracting and all of the negatives.

The other side of the coin is contractors who occasionally sue the client for employee benefits, with the IRS eagerly on their side to reclassify independents as employees, resulting in big fines for the business and traditional payroll taxes – eliminating business deductions – for the former contractor. For the IRS, hourly employees are a lot less complicated.

As a result of all these workplace pressures, independent contractors and client companies are increasingly turning to staffing agencies to find work and negotiate terms. In reality, the staffing agency serves both the client company and the contractor, vetting and verifying the contractor to ensure he can be classified as a contractor in the eyes of the IRS, negotiating and providing support and a sense of stability for the contractor. It’s more restrictive for the independent contractor, and usually a little less lucrative, because each party shares the expense of the staffing agency – the contractor earns a little less, the client pays a little more. If the worker can’t be verified as a true contractor, he becomes a W-2 employee for the staffing agency and then leases out at an hourly rate with a 20-25% fee attached per hour.

The upshot is that while there will always be a freelance market catering to small business and short-term contracts, the true independent contractor may be an endangered species in the big business world. I’d love to hear from you…how has your life as an independent contractor changed in the last few years, and where do you go from here?

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