The Booming Freelance Market
Even before the 2020 coronavirus pandemic changed the face of work, companies in the US and around the world were steadily increasing the number of contract workers used to fulfill business needs previously handled by traditional full-time (or part-time) employees. In 2019, more than 57 million Americans worked as freelancers, as part of the 1.1 billion freelancers around the world. Experts predict 52% of working American adults will have worked (or be working) within the gig economy within the next half-decade.
In the US (again, pre-pandemic), the Bureau of Labor expected the gig economy workforce to increase to 43% of the total workforce by the end of 2020, though this number has surely grown due to health/safety concerns and the severely-depressed economy. With the high number of people who lost their jobs due to the pandemic, this percentage is likely to jump even higher than experts have predicted (since no one could have predicted this!).
An Exploitative Model
Although freelancing jobs provide the number one component sought by most of those who choose this type of work - work-life balance - many companies who hire freelancers are taking advantage of this workforce segment by failing to provide them with equitable work situations or pay them adequate wages, by not offering benefits or tax assistance, and by not providing job stability. The traditional freelancing model allows and encourages this type of exploitation, and thus it is the predominant method for employing many contract workers in today's world.
Since this is detrimental to freelance workers, we challenge the business world to replace this exploitative model with a liberation-focused model that is beneficial for both the companies hiring the workers, and the workers themselves.
Improving the Freelancing Model
With more workers moving into the freelance market and more businesses utilizing this workforce segment, changes to the exploitative model currently in place need to occur. Organizations seeking to be successful and sustainable in the future world of work need to be at the forefront of these changes if they are to remain competitive in the coming years.
We'll explore the issues and provide actionable recommendations to employ in changing this model to one that is more sustainable and fair for everyone.
ISSUE: Gig Platforms Often Exploit Freelancers
The growth of gig economy platforms, like Upwork and Fiverr, has allowed freelancers to find contracts more easily, and has helped companies connect more quickly to the right freelancers to meet their needs.
While that's true, it's also true that many of these sites pit freelancers against each other; often these workers have to toil for multiple hours on tasks for extremely low pay (sometimes lower than $5 per-task). From those meager earnings, they still have to pay fees to the platform, and they are taxed at a higher rate than wage employees - leaving them with $3.25 for hours' worth of work.
On platforms like these, even seasoned contractors struggle to earn a fair or living wage for work, despite the decent average per-hour wages reported for all freelancers within the overall market.
RECOMMENDATION: Use Equitable Methods for Hiring Freelancers
The exploitative conditions to which these platforms subject their workforce need to be re-configured toward a liberating and equitable model, whether by their own accord or via government intervention. Companies looking to hire freelancers should use hiring methods that demonstrate equity toward the freelancers, and that do not feed into the exploitative model.
If hiring through gig platforms is the company's preferred method, then researching which platforms pay gig workers equitable wages without charging them high fees should be a priority before hiring any new contractors. Increasing the revenue and market share of equity-based platforms will go a long way in steering the gig economy model in the right direction.
Or, companies can use networking platforms, like LinkedIn, or professional head hunters that charge a one-time fee, rather than utilizing gig platforms to hire contractors. This allows organizations to identify the right freelancers to meet their needs quickly and inexpensively (if done through secondary research organizations, like Madame Curiosity). For contractors, it provides the opportunity to be hired directly and offered a fair wage - without having to compete with hundreds of others for the same contracts and without reducing their earnings on unnecessary fees.
ISSUE: Freelancers Typically Work More & Earn Less than Employees
Before the pandemic sent so many workers to the work-from-home arena, approximately 43% of Americans relied on freelancing work to make ends meet. Of these, 57% typically worked more than a standard 40-hour work week. While a quarter of freelancers are working gig economy jobs to supplement the incomes from regular jobs, 44% of freelancers report gig work as their only source of income. Many full-time freelancers work multiple, simultaneous gigs (for different companies) to earn a full-time wage.
On average, freelancers tend to make about 58% less than full-time employees. Many companies pay freelancers significantly lower rates than they pay regular employees, even though these companies save money by hiring them as contractors.
These low wages (often for maximum effort on the contractor's part) can be attributed to the exploitative practices built into the current freelancing model. Using freelancers allows companies to skirt employment and discrimination laws without penalty. This means they can pay inequitable wages, discriminate at will, and require contractors to work under untenable conditions - and get away with it.
Since most gig work is done on a 1099-basis, the contractor is also responsible for the entire federal tax bill, which could equal thousands of dollars each year.
RECOMMENDATION: Earn Loyalty by Paying Freelancers Slightly Higher-than-Average Wages
Experts calculate that companies spend 20% - 30% less when hiring a freelancer than they would for a full-time employee for the same work. Additional savings for the company comes from not having to pay for office space or supply costs for remote employees (which most freelancers are), or to cover payroll taxes.
Companies choosing to hire freelancers should consider these factors when calculating the hourly wage or price-per-project for a contractor, and offer freelancers a slightly higher-than-average industry wage, especially when they know the workers to be high quality. The conscientious company will still pay less than it would to a full-time employee, but will benefit by reducing the potential for high turnover among unsatisfied contractors, and will uphold its commitment to paying a fair and living wage to all its workers.
ISSUE: Freelancers Are Often Forced to Become Debt-Collectors
An astonishing 59% of freelancers report living paycheck-to-paycheck, so when a company doesn't pay on time, or holds payment for two to three months (common on some contracts), it can force the contractor into a difficult position.
A survey of New York-based freelancers noted that a whopping 50% of them reported having problems collecting their earnings from employers, with a third never getting paid for completed work. Taking the time to make collection calls, send emails asking for payments, or re-send invoices multiple times - all takes away from the freelancer's time for working or being with family. Even worse, not getting paid for work can send a freelancer swiftly into a financial spiral.
RECOMMENDATION: Provide Prompt Payment for Freelance Services
Companies hiring freelancers should evaluate their current payment structures for this type of work, and adjust (as needed) to one that is fair to the contractors. It's best to make it standard practice to pay for contract work as soon as services are provided (within one week), or at most, within 30 days.
It sounds like a simple thing - quick payment for services rendered, but that's not always the case in the freelancing world. Pro Tip: Do NOT force your workers to beg for their money!
ISSUE: Freelancers Rarely Get Benefits
Over half of employers (54%) offering contract work do not provide benefits of any kind; not a single gig platform offer them. That means no medical insurance, no eye care or dental coverage, no paid sick or vacation days, not even free coffee and doughnuts in the breakroom.
Contractors must pay for their own insurance - which can get very costly - or go without coverage. They must balance work days with unpaid time off to ensure they earn enough to support their families, and rarely get to spend social time with colleagues.
RECOMMENDATION: Provide Long-Term or Full-Time Freelancers with Limited Benefits
Smaller companies should offer what is feasible within their budgets. Larger organizations can offer simplified benefits plans to freelancers working on long-term or full-time contracts. This starts by hiring them on a W-2 basis, rather than 1099, so federal taxes are covered for these contractors.
Notably, W-2-based contractors can be considered "employees," but only in a temporary and limited sense; the company pays the federal taxes for the contractor, and possibly offers limited benefits (without company-subsidized offerings) - but that ends when the contract comes to a close. It's a recommended best practice for organizations wishing to change the narrative toward a more equitable freelancing model.
Offering the chance to join company insurance plans - at a reduced cost - is one of the most popular and highly sought after benefits an organization could offer a contractor. Other popular benefits include flexible work hours, which provides workers with more life-work balance and increases their productivity, as well as small monetary bonuses for turning deliverables in well ahead of deadlines.
ISSUE: Freelancers Have Low Job Security
Freelancing does not offer much in the way of job security; most contracts allow a company to terminate the agreement without notice or cause. This means the contractor has to network constantly and build long-term corporate relationships, all while knowing that any one of these may end abruptly at any time.
Additionally, many freelance workplaces require freelancers to sign contracts that prohibit the contractor from working other similar gigs, which can sometimes significantly (and unfairly) limit the freelancer's options for work.
RECOMMENDATION: Offer Freelancers Stable Work with Fewer Restrictions
Providing job security to a freelancer may sound like an impossible feat, but have faith! It can be done.
Begin with a contract that does not inhibit the freelancer's ability to work at other jobs (even similar ones) at the same time or after the contract ends. This flexibility in the contract is less restrictive than typical freelancer contracts are, in that it will not reduce the contractor's options for earning adequate wages (and therefore reducing overall employment security). If a company is worried about the freelancer sharing proprietary information with competitors, longer-term NDAs can handle that with ease.
Other options include: giving freelancers longer-term contracts, or offering multiple-contract employment to the same contractor (for example, the promise of three separate month-long contracts within one year's time, if the first contract is executed successfully). One more option refers back to the previous recommendation of offering W-2-based work (over 1099), which demonstrates a longer-term commitment to the contractor - immediately increasing feelings of security!
TL;DR: Forward-thinking organizations do right by their freelancers!
Between 2014 and 2019, the share of Americans opting to freelance full-time grew from 17% to 28%, and these numbers are only expected to climb. Notably, just over half (51%) of freelancers do not intend ever to go back to a traditional job format.
With the expansive growth expected in the future of the freelancing market, and the growing preference of Americans to work contract jobs, forward-thinking companies wishing to stay ahead of the curve need to adapt toward a more sustainable and liberating model for all.
The above recommendations will get you started. If you'd like to know more - and get insights specifically related to your organization, reach out to Madame Curiosity's experts - and we'll be happy to put our team to work for you!
At Madame Curiosity, we are pioneers of ethical and fair business practices in the freelancing industry.
Our business model focuses on re-imagining and reshaping the exploitative freelancing model predominant in the industry today. Part of this includes offering a work environment in which our workers can achieve true life-work balance, because we believe that life should come before work - not the other way around!
Our experts complete their tasks during their choice of hours from the comfort of their home offices, while earning higher-than-average wages, and feeling secure and respected. No commutes, no office drama. Just time to focus on helping do-gooding organizations achieve greater reach, and time to focus on what's most important: family and community.