The term “gig economy” has become a buzzphrase in recent years and is often equated with online platforms like Uber, Lyft, AirBnB, Upwork, Dolly, DoorDash, Instacart, and Rover and their legions of temporary, flexible workers. But the gig economy predates the creation of those platforms by almost a century and white-collar professionals – including engineers and tech workers – have long engaged in gig-style short-term, flexible work. While these skilled professionals are more commonly referred to as independent contractors, the basic concept of temporary, flexible, and independent work is the same.
Gig work was already accelerating when the COVID-19 pandemic hit, disrupting the gig economy and the workforce at large. Gig workers moved into the spotlight, providing essential services, such as grocery delivery. Meanwhile, white-collar workers discovered that it’s possible to do their jobs away from the office and outside of the traditional 9-5. That shift led to an improved work/life balance – which many were reluctant to give up once the pandemic ended. In the face of return-to-work mandates, some white-collar workers chose to jump ship, leaving full-time permanent positions to become independent contractors instead.
The gig economy is expected to grow exponentially within the next few years. Experts predict that there will be about 86.5 million contract workers in the United States by 2027, representing almost 51% of the total workforce. Many of those workers will be white-collar professionals.
The growth of this sector of the workforce represents an incredible opportunity for business. The engineering and technology sectors have historically struggled with extremely low unemployment rates. This trend shows no sign of slowing and, indeed, will only intensify as more people shift to contract work. Companies will have no option but to hire contractors. As companies gear up for this fundamental change, they must consider whether it is in their best interest to hire those contractors directly or work with a reputable recruitment firm to do so.
The Benefits Of Hiring Contract Workers
Employers in the engineering and technology sectors have long struggled to fill open roles. In addition to historically low unemployment in the STEM fields, the situation is exacerbated by:
- Baby boomers exiting the workforce;
- Stalling population growth;
- Insufficient numbers of American students pursuing STEM-related studies;
- An extensive backlog of visa applications created by the isolationist policies of the Trump administration and the restrictions necessitated by the COVID-19 pandemic;
- Rapidly changing and emerging technologies (such as AI and machine learning), requiring that professionals acquire new skills and knowledge; and,
- An increasing reliance on technology in all sectors of the economy, including e-commerce, finance, health, and education.
Many of these issues are projected to intensify over time and, combined with the general shift toward contract work, a perfect storm is brewing for employers in the engineering and tech sectors.
Some employers have been hesitant to shift toward hiring contractors, believing the constant cycle of hiring workers for short-term projects will strain their HR departments. Further, they may question whether contract workers will develop loyalty to the company and become invested in its success. But while business has little choice but to adapt to this change, there are actually several benefits to hiring contract professionals.
Hiring full-time permanent staff incurs several significant expenses beyond the new hire’s salary. While some of those costs can be estimated in advance, others are fluid or hidden. Some of those costs include:
- Hiring and onboarding expenditures, including administrative costs incurred while processing the hire’s paperwork and costs associated with orientation;
- Overhead costs and expenses related to the employee’s productivity space including equipment, furniture, office supplies, software licenses, parking, and professional development opportunities;
- Contributions to benefits packages, sick leave, and holiday time;
- Lost productivity time from other team members as they assist in training and integrating the new hire into the team;
- Paying full-time permanent employees their full salaries during downturns and/or between projects; and
- Costs associated with turnover, when the new hire eventually leaves.
While hiring contractors will also incur costs beyond their salaries, those expenditures are more predictable and a budget can be established in advance for the term of the worker’s contract.
Access To Specialized Expertise And Skills
It may be tempting to think that contractors are those who have been passed over for traditional employment and are making do with whatever piecemeal projects that they can find. This is a fallacy. Contractors must be highly skilled and perform their work to exceptional standards since they rely on referrals and word of mouth to land consistent work. Additionally, their technical expertise is often specialized and, as they choose to focus on projects that match their specific expertise and interests, they further hone their skills, without the distraction of unrelated daily tasks.
As well, contract workers often have highly developed soft skills, enabling them to effectively manage their workloads independently while also communicating and collaborating effectively with their teams and moving frequently between projects and workplaces. Employees with strong soft skills are an asset to any business.
Perhaps one of the biggest lessons of the COVID-19 pandemic was the importance of flexibility in business and the ability to adapt quickly to change. Hiring contractors allows companies to quickly scale their workforce up or down to deal with fluctuations in project requirements.
Meeting DEI Objectives
Workers who have been historically marginalized in the workforce – including BIPOC workers, women, people with disabilities, veterans, immigrants, and those who have been previously incarcerated – may find contract assignments easier to navigate than traditional office environments. In an excellent blog piece, Nic Girvan points out that many marginalized groups “remain at risk of workplace bias, stereotyping, hypervisibility and tokenism,” which can make the job site uncomfortable and/or tense for them. Since many contractors work remotely, these difficulties are minimized.
As well, employees who may struggle with traditional 9-5 strictures (such as women with child- and/or eldercare responsibilities and people with disabilities), are likely to embrace the flexibility that contract work offers.
By tapping into the diverse pool of contract professionals, companies will likely be able to fast track their compliance with their DEI initiatives.
Introducing Innovation And Fresh Perspectives
Contractors, with their specialized expertise and experience working for different employers and teams, will likely bring fresh perspectives and innovative ideas to the table. This diversity of thought can contribute to increased problem-solving and creativity.
Clearly, there are several benefits to hiring contract workers. However, every company and position has unique needs that should be considered when deciding whether to hire a contractor versus a permanent employee. There will always be some situations where it makes better business sense to hire a permanent employee.
Direct Hire Or Recruitment Firm?
If you’ve decided to hire a contract worker, the next step is figuring out whether to hire that person directly or with the assistance of a recruitment firm. There is no one-size-fits-all answer to this question. There are several factors to consider, particularly if you are just beginning to work with contractors and have no experience creating contracts or managing contracted staff.
Access To A Diverse Talent Pool
Recruitment agencies have the edge when it comes to quickly accessing a diverse talent pool. Few employers, even those who have worked extensively with contract workers in the past, would be able to source, vet, and hire suitable contractors as quickly as an agency. It’s not just the number of contract workers that agencies have access to but the diversity of skills and knowledge that those workers bring to the table, ensuring that there is a perfect contractor match for your project.
If time is of the essence in finding a contractor, your best option is to work with an agency.
At first glance, hiring contractors directly may seem more cost effective than using a recruitment agency. A major consideration is their pay rate since it is often lower (and may be further negotiable) than contractors who are referred by an agency. As well, you won’t have to contribute to a contractor’s health insurance or other benefits, 401(k) match, or vacation pay.
Further, agencies charge fees to source contract workers and manage the administrative duties associated with hiring those workers, including drawing up contracts, handling payroll and benefits contributions, withholding payroll and income taxes as required, and providing HR support. But therein lies an important consideration: if an agency isn’t taking care of those tasks, your company will need to. The number of hires required for multiple short-term contracts, and the specialized knowledge needed to manage their payroll and taxes, will increase the workload of your HR department. This is one of those costs that are difficult to estimate and budget for. A benefit of using a recruitment agency is that those expenses will be known upfront.
Risk And Compliance Issues
The legalities around hiring contractors are different from hiring permanent employees. First, of course, a contract needs to be created and agreed upon. Contracts identify expectations for both the contractor and the employer, including details around:
- The scope of work, including specific tasks and deadlines;
- The period of performance, with a deadline for total completion;
- Payments, including amounts and scheduled payment dates; and
- Termination clauses.
Additionally, employers need to ensure compliance with appropriate tax laws, labor laws and regulations, workers’ compensation and insurance laws, employment discrimination laws, and local regulations and jurisdiction.
The law is complex and, if a company has never hired a contractor before, it can be difficult for their HR department to get up to speed quickly. Additionally, ensuring ongoing compliance may require considerable time and effort.
Agencies that specialize in placing contract workers will already be up-to-date on applicable employment laws and will have established processes to ensure compliance and mitigate risk.
Supervision And Quality Control
Although independent contractors are typically hard workers who are committed to completing exceptional work, they still require direction and oversight in terms of quality control. Since they often work remotely and with a work day that is structured differently from permanent staff, due to their commitment to a single project, they may need to be supervised one-on-one to ensure quality control. This may get complicated and time-consuming if you have several contractors on board, particularly if they are assigned to different projects.
When you hire a contractor through an agency, the agency usually monitors the contractor’s work to ensure that established standards for consistent, high-quality work are met. If the contractor is engaged by other companies and has multiple projects on the go, the agency will ensure that your project is appropriately prioritized so that deadlines are met.
Should you require changes to an existing contract, it will likely be easier to negotiate those changes with a contractor that you hired directly. When an agency is involved, multiple people may need to approve all changes, if changes are even allowed. Any changes or add-ons may carry a significant expense. This may be a concern if you are unable to establish or maintain a firm schedule for your project (for example, the resignation of a key team member or supply chain issues would likely affect the project’s expected duration).
In conclusion, the shrinking talent pool in the engineering and tech sectors must be addressed if companies are to survive. Tapping into the pool of contract professionals is the best way to address this issue. However, there are no black-and-white guidelines to help companies determine if they should hire those contractors directly or work with a recruitment agency to do so. Several factors should be considered each time that decision needs to be made.