In recent years, media headlines have made some very bold statements. “5 Reasons Why Long-Term Employment Is Dead,” “The Full-Time Job Is Dead,” and “Welcome to the Gig Economy” are just some of the declarations.
Further, projections have been made that much more than 40% of the workforce will be freelance or contract workers by 2020. Are these projections accurate? Are we moving toward a world where full-time, traditional employees will be in the minority? Well, yes and no. Especially when it comes to labor market data, making surface-level conclusions is often a mistake.
When making projections about the size of the freelance or contract workforce, sources are often sourcing the broadest definition of the contingent workforce, which includes the following: agency temps, direct-hire temps, on-call workers, day laborers, independent contractors, self-employed workers, and standard part-time workers.
Clearly, this broad definition of contingent workers includes quite a spectrum of skill levels, career opportunities, and economic affluence. Additionally, the most accurate contingent workforce data is conducted by the U.S. Department of Labor in cooperation with the U.S. Census Bureau. The Contingent Workforce Supplement, the culmination of the collaboration between these organizations, has not been published since 2005. All the data and projections in recent years are from other and less comprehensive data sources and projections using the 2005 Contingent Workforce Supplement.
We know two things – the contract/contingent workforce is growing, and full-time jobs are not going away. Directionally, the traditional workforce is proportionately shrinking, and the contract workforce is proportionately growing.
Rather than getting too far bogged down in the numbers and risk missing the forest for the trees, the remainder of this post will look at what is driving the increase of contract workers within the engineering and technical fields, why this movement is important, and the opportunities and liabilities for both employees and employers.
First, let’s get the financial benefit discussion out of the way, as this is a pretty easy discussion to have. Contract employees allow companies to reduce payroll. Because contract workers are either 1099 workers (truly independent) or, in many cases, W-2 employees of a staffing/recruiting company, the employer enjoys a reduction in HR costs, benefits administration costs, and payroll taxes. Additionally, employers minimize the costs of terminating underperforming employees and other liability risks associated with traditional employees.
While hiring contract employers offers many financial benefits for employers, there are risks and costs associated with this decision. Most notably, these include costs associated with training and the loss of intellectual capability/capital that can come with a more fluid employee base.
For employees, the downsides of contract work are fairly obvious. Often, there are no or limited benefits, and the stability that full-time employment is perceived to offer is missing. However, the financial upsides of contract scenarios for skilled engineering and technical professionals are meaningful. Contract and independent employees often pay a lower effective tax rate, and hourly rates are often higher than comparable full-time employment.
While finances are important drivers on both the employer and employee sides of the equation, let us look at some market forces that are perhaps a bit more interesting: globalization, managing the pace of change, skills acquisition/management, and generational drivers.
While the discussion of globalization can be a somewhat sensitive conversation, we all know that it is a reality. Many positions are no longer limited to a physical location, allowing the recruitment of contract workers from around the globe. A global workforce, especially when it comes to skilled or high-skilled positions, often presents challenges. Therefore, re-shoring and globalization are simultaneously existing trends.
Managing the Pace of Change and Innovation
The pace of innovation and change is not only high, but the pace is and will continue to accelerate. Along with rapid change comes more market turbulence and instability. The skill sets and knowledge base within an organization need to be able to change rapidly. Driven by the need for flexibility, highly skilled, specialized contact workers are being employed by more companies.
Highly skilled, specialized contract workers allow companies to immediately meet new demands or capitalize on new opportunities without the investment in professionals who may or may not be needed for the long term. In addition, contract workers often bring new ideas from outside of a given company or industry furthering these workers’ role in advancing innovation for the employing company.
High-skilled, specialized engineering and technical professionals working on a contract basis are typically expensive. However, the flexibility afforded to organizations often makes the considerably higher hourly rates worthwhile.
Skills Acquisition and Management>
Although many professionals stay in the same contract position for years, more engineering and technical professionals are finding benefit in the ability to work for different organizations and in different positions facilitating ongoing skill development – ultimately increasing their value within the market. Given the pace of change within the market, a lack of new skills can be deadly to both an individual’s engineering career and to a company.
Generational Drivers: Baby Boomers & Millennials
On one end of the workforce are retiring Baby Boomers. Although 10,000 Baby Boomers reach retirement age every day, many are not retiring at a traditional retirement age both for financial reasons and their desire for mental and professional stimulation. Regardless, the fact remains that Boomers, along with their decades of experience, are leaving the workforce.
The rapid exodus of Baby Boomer professionals has become a large challenge for many companies; however, most companies do not have a solid plan to address the problem. Within Fortune 1000 companies, 62% believe that retirements will result in skilled labor shortages. Despite this stated concern, only 19-37% of companies are formalizing plans to address the challenge.
This said, more and more companies are turning to contract employment arrangements to keep Baby Boomers and their expertise in place at least part-time. In fact, according to a 2015 CareerBuilder survey, 54% of workers 60 years and older will return to workforce on a part-time or full-time basis. For Boomers unable or unready to completely leave the workforce, contract positions are very attractive.
On the other end of the generational spectrum and causing just as much change in the workforce as they move through stages of life are Millennials – a generation even larger in number than the Baby Boom generation.
Unlike Baby Boomers, who tended to work for a given employer for many years (10.4 years on average), many Millennials entered the workforce in the thick of the Great Recession. The unemployment rate for Millennials upon graduation was extremely high, and they became immediately used to a lot of turbulence and having to work more than one job to make ends meet.
Due to the turbulence they encountered when they entered the workforce, many Millennials are reluctant to put all of their eggs in one “employer basket.” They also value employment flexibility, and many long for purpose within their careers rather than solely being driven by finances.
The enormous Millennial generation who came of age at a time when freelancing and contract work was a necessity now have this mindset imprinted within their professional personas, and most are unlikely to stay on a traditional career path or with one employer for long. Rather than fighting this trend and incurring the high costs of rapid Millennial turnover, many companies are embracing the trend by hiring them as contract workers.
Although it is unclear what portion of the workforce will be contract employees, what is clear is that there is solid movement in this direction. Companies employing engineering and technical professionals will be well served to give strategic thought as to how to integrate a contract workforce into an overall talent and skills acquisition plan. 180 Engineering is helping leading companies create and staff their contact workforces and is greatly enjoying this journey. We would love to know what you think about the trends in contract employment, including what you are seeing within your company or industry.
“In the Future, Employees Won’t Exist,” TechCrunch, June 2015
“5 Reasons Why Long-Term Employment Is Dead (And Never Coming Back),” Forbes, March 2014
“Contingent Workforce: Size, Characteristics, Earnings, and Benefits,” U.S. Government Accountability Office, April 2015
“Contingent Workers,” United States Department of Labor
“Laborforce Characteristics,” Bureau of Labor Statistics
“Shocker: 40% of Workers Now Have ‘Contingent’ Jobs, Says U.S. Government,” Forbes, May 2015
“As Boomers Retire, Companies Prepare Millennials for Leadership Roles,” Bloomberg, January 2016
2015 CareerBuilder Workforce Survey