Amid tech layoffs, contract work isn’t looking so bad.
Christine Ruiz left her 9-to-5 job last summer to do the same work as a contractor instead. In both places, she’s a compliance manager, the person who makes sure a company’s software doesn’t run afoul of any policies. But Ruiz wanted to pursue an advanced degree and believed that switching from regular employment to freelance would give her more flexibility. She, like many of the independent workers we spoke with, was also lucky enough to maintain health care coverage through her spouse.
“In years past, it maybe would have stressed me out a little bit more,” Ruiz said, “It’s worked out really well for me during this time period.”
Ruiz is one of many high-skill workers who has found reasons to leave traditional employment for independent work, which can include contract, freelance, and any other contingent or non-traditional employment arrangements. This type of work is generally considered less stable, and it lacks many of the benefits and protections that typical jobs have, like health care and unemployment insurance. That means it’s better suited to workers who have a financial or family cushion. But there’s also more flexibility in when and where people work, as well as a higher hourly wage. Many are interpreting this proposition as sufficiently worth the risk of going independent.
Companies like the idea, too. They’re increasingly incorporating the use of high-skilled, high-paid contractors — IT managers, software engineers, data analysts, accountants, nurses, lawyers, finance professionals — into their business plans, as a less expensive way to get talent with in-demand skill sets who typically have lots of options in a tight hiring market. Companies are often willing to pay these people more on an hourly basis in exchange for getting to hire them for short-term contracts.
“It’s a little bit chicken or the egg: Is it that the new workers, the millennials, the Gen Zs are preferring to have more freedom and better work-life balance, or is that really where the best opportunities are for their skill sets?” said Andrew Bartolini, founder and chief research officer at supply management research firm Ardent Partners.
Part of what’s leading more people to independent work is that regular employment doesn’t look so hot right now in certain industries. After a recent round of layoffs at the biggest, most profitable tech companies, including Amazon and Google, some workers are finding themselves unemployed and struggling to find the reasons why, when many of them were considered high-performers, at the top of their field. These once-hot tech companies are starting to behave a lot like the rest of stodgy corporate America, making cuts simply to appease investors. Meanwhile, traditional industries are calling workers, who had done their jobs from home during the pandemic, back to the office in what can seem like an arbitrary power play.
All of a sudden, contract work isn’t looking so bad.
Workers and employers both seem to think it’s a good deal
People who perform contract work increasingly consider it to be a stable alternative to traditional employment. Last year, 67 percent of contractors said they felt more secure working independently, up from 32 percent about a decade ago, according to data from MBO Partners, a contractor compliance company. The same study found that 76 percent of such workers are “very satisfied” with their decision to do independent work, and 64 percent said that decision was their choice, not because they couldn’t find a traditional job. A survey last year by freelance platform Upwork found that 73 percent of freelancers said the perception of freelancing as a career is becoming more positive, up from 68 percent in 2021.
“Contracting feels like a less stable form of employment, but I don’t know that contractors themselves feel that way,” said Liz Wilke, principal economist at HR platform Gusto, which measures when contractors work directly with their employers, rather than through a staffing firm. When it comes to weighing the pros and cons of contract versus traditional work, “Contractors are telling us that these trade-offs are by and large okay with them,” she said.
“Contracting feels like a less stable form of employment, but I don’t know that contractors themselves feel that way”
Flexibility in when and where they work was by far the top priority of these workers, according to a Gusto survey. (The Upwork survey found flexibility to be the second most common reason, after earning extra money.) And independent employees are using that flexibility to decide how much, and for how many companies, they want to work. The vast majority of those surveyed by Gusto, 73 percent, had multiple clients — a strategy that Wilke reads as an attempt at stability.
“It’s almost like diversifying your stock portfolio,” she said. “Instead of working for one company, I’m going to work for several because if one of them doesn’t have work, the other ones do.”
Employers like contracting these types of high-skill positions for a number of reasons, but the main one is that it’s cheaper than hiring people full time. Ardent estimates that on top of a traditional employee’s base salary, a company pays an additional 30 to 45 percent. The extra costs include things like unemployment insurance, health care, hiring costs, and severance if it doesn’t work out.
While hourly wages are often higher for independent workers, companies save because they don’t have to pay for everything else, according to Sean Middleton, chief revenue officer of high-skill freelancing platform Toptal.
“It’s less expensive, all-in,” he said.
Hiring people — and getting hired — on a contract basis is easier than it used to be thanks to the plethora of online marketplaces like Toptal, Upwork, Catalant, We Work Remotely, and Kunai. The rise of remote work also makes it feels less weird and less difficult to blend teams, since it’s less obvious that one person on a Zoom screen works directly for the company while another doesn’t.
“Technology has made it easier. Think of all the collaboration tools that exist today that didn’t even exist five years ago,” said Kate Duchene, CEO of the professional staffing firm RGP.
Businesses also have to move faster than they used to when it comes to identifying a need or delivering a product to market, according to Jim McCoy, SVP of enterprise solutions at staffing provider ManpowerGroup. That means they need a lot of expertise but they only need that expertise for a short time.
“Recently, it’s become easier to find people who want to do this,” McCoy said.
Contract work is not for everyone
To be clear, despite the growth in contract work, traditional employment still accounts for the vast majority of work arrangements in the US. However, the popularity of contract work has been growing for a while. Five years ago, one in 10 people paid through Gusto’s HR platform were contractors. Now, it’s one in five people. And the current economic downturn doesn’t seem to be slowing that trend.
Some 70 percent of organizations say they plan to increase their utilization of non-employee labor in the next six months, according to an Ardent Partners survey. An RGP survey of senior executives found that consulting and staffing professionals and independent contractors made up 38 percent of critical project teams in 2020. That’s expected to rise to nearly 50 percent by 2024.
All this might be less of a testament to contract work than an indictment of regular employment.
“These numbers wouldn’t be anywhere near as big as they were if traditional jobs didn’t suck,” said Steve King, partner at the future of work consulting firm Emergent Research. “If people were satisfied, engaged, and passionate about their work — and earning enough to live — these numbers would be much lower.”
As it moves up market to include higher-paid and higher-skilled jobs, contract work is also becoming more attractive. MBO Partners found that between 2011 and 2022, the number of independent workers making more than $100,000 a year had more than doubled to 4.4 million. Contingent work research firm SIA found that from 2019 to 2022, spending on professional staffing — which includes people who do IT, engineering, nursing, and accounting, among other jobs — rose 61 percent to $130 billion in the US. Meanwhile, spending on lower-paid commercial staffing, which includes industrial jobs as well as clerical services, rose just 13 percent.
“These numbers wouldn’t be anywhere near as big as they were if traditional jobs didn’t suck”
The rise of contract work brings with it many risks we mentioned earlier, like instability, having to get your own health care, and being without unemployment insurance when a contract job falls through.
In order to tolerate that risk, many of the people who choose such work have safety nets like savings, a spouse with insurance, or even another traditional job. Some are retired, while others are young.
“You of course will see more young people, who are unattached and don’t have families, being willing to do something like that,” Sandeep Sood, CEO of Kunai, which contracts tech workers to help build digital tools for companies.
There’s also a slippery slope between contracting jobs to domestic workers and outsourcing work overseas. If an employer thinks something can be done just as well by a third party, why not hire someone in another country where it can be done even more cheaply? In that case, what might seem like a boon to American workers in the short term might not be in the long run.
And while professional contract work can be beneficial to some, it can be abusive to others. Tech companies like Google and Meta, for instance, employ entire shadow workforces as contractors, who don’t have the same wages, benefits, or perks as their employee counterparts. They can also face terrible working conditions. Contractors at Google’s YouTube who do a lot of the drudge work for the video platform and make a decidedly un-Googley $19 an hour went on strike in February. Hired remotely, they say they’re being asked to come into the office in Texas, where a quarter of them don’t even live, as a way to bust their union.
For every remote job that gives contract workers flexibility, there’s also contract work in industries like hospitality and warehousing that doesn’t confer much in the way of benefits. Gig workers like Uber drivers and Instacart shoppers often end up making very little per hour. The amount the platforms take is constantly changing, and it has meant that gig workers over time take home less and less.
Emergent Research’s King said the goal for employees is to find contract work whose benefits greatly outweigh the costs.
“If you don’t have autonomy, control, and flexibility, you have the worst of both worlds,” he said.
Even in high-paid, flexible situations, contract work is not for everyone. Their ability to do this work is contingent on a number of other factors, like personal finances and risk tolerance, that enable them to make an ostensibly risky choice.
Kerry Anne Hoffman had been traditionally employed as a project manager for the past decade when she was laid off from her most recent job at a tech startup last month. She looked around at the landscape, pockmarked with other tech layoffs, and thought that perhaps it was time to try freelancing, since she thought companies might be hesitant to take on new employees.
“I always wondered if freelancing full time was a viable option in order to pay my bills, make me feel satisfied, make me feel challenged, but I never wanted to quit a job,” Hoffman told Recode. “Getting laid off felt like time to give it a try.”
Hoffman has health care through her spouse and savings from her previous job, so she felt safe to try contracting full time, which she sees as a way to be challenged and allow her the ability to work on lots of different projects with different clients — something she sees as very appealing. So she’s been leveraging her network on LinkedIn, reaching out to companies directly, and going through contract hiring platforms. Hoffman hopes to make 60 to 70 percent of her previous salary the first year, as she tries to establish herself and get repeat clients.
“I’m looking at this as this great opportunity to see how different work could potentially be,” Hoffman said.