SmartRecruiters Hiring Success Journal

Lances for Hire: Are Companies Prepared for the Self-Employed Workforce?

Workers are quitting their jobs en masse to pursue the spoils of freelancing, but managing this fluid workforce is proving difficult for companies rooted in traditional employee relationship management.

It had been a disheartening failure to capture Jerusalem, and on the way home from the calamitous Third Crusade, King Richard I was captured and imprisoned by Austrian forces in December, 1192. Thousands of knights and men-at-arms loyal to the Norman king returned to England leaderless, or put another way, jobless.

In the peaceful years that followed, Europe was overrun with thousands of trained soldiers who lacked practical skills outside of combat. In order to earn a living wage, many soldiers of fortune pledged their allegiance to any wealthy patrons willing to hire them for battle. As a result, mercenaries became common war fodder for nobles and feudal lords during the Middle Ages, essential to the Crusades and other military campaigns up to the 14th century. In the early 19th century, in his novel, Ivanhoe, Sir Walter Scott collectively defined them as “free lances”.

Step into any coffee shop or coworking space today and see modern “freelancers” in their natural habitat. Today, the term includes all self-employed, patron-seeking workers, and while they wield wifi and laptops instead of swords and shields, they represent a steadily growing section of the American workforce in our post-manufacturing economy.

In 2015, Elance-oDesk relaunched under the name Upwork and rolled out a freelance talent platform that grew to become the world’s largest online marketplace for contract workers. The company estimates that 57.3 million Americans currently freelance—that’s 36 percent of the US workforce—and projects this growth to reach over 50 percent by 2027. Today’s independents are more agile than ever, and the promise of entrepreneurship, project-based work, and home offices draws new converts as fast as companies are reassessing strategies to accommodate them.

But for those who dream of quitting their desk jobs and adopting the lives of digital nomads, the reality is that, while companies are hiring more on contract, many lack processes and infrastructure to support these new workforces. Without proper relationship management in place, abuse will continue to rise, forcing many freelancers to push back against inept management, acting as their own enforcers and debt collectors.

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Early this year, the Bureau of Labor Statistics reported the number of open jobs outstripped unemployment totals, a state of affairs that was encouraged, according to Upwork, by 63 percent of independent professionals going freelance in the last two years—as a choice, not a necessity.

For many companies, this shift represents major strategic challenges for recruiting. As more workers swap their cubicles for home offices—coupled with the widening skill gap across multiple industries—companies with openings are experiencing a talent shortage. In 2017 Upwork reported that 39 percent of hiring managers felt hiring had gotten harder over the previous year because of this shift.

“Everybody is chasing the same talent,” says Upwork CEO Stephane Kasriel. “But hiring is time-consuming—you conduct multiple rounds of interviews, meanwhile candidates interview with multiple companies.”

It takes an average of 31 days to fill an open job in the US, with some reports claiming numbers as high as 42, up from 23 days in 2006 and about 15 days in 2009.

“Hiring is also incredibly expensive,” continues Kasriel, citing a study from SHRM that prices the average cost-per-hire for companies at $4,129.

With costs per hire that steep—and the demand for knowledge workers at an all-time high—talent platforms like Upwork, FlexJobs, Guru, Hired, and Hubstaff Talent work well to connect freelancers and agencies with clients who need skilled workers, regardless of where they live.

Upwork’s success hinges on the platform’s all-inclusive talent pool, which includes anyone with an internet connection. Freelancers can create an account and bid for projects within minutes, providing its customers with a nearly limitless global workforce. This business model feels apt given the independent spirit of freelance work, and offers Upwork an advantage in the project-based economy, where more organizations are considering contract workers over location-dependent ones.

“Twenty cities in the US account for over 50% of America’s GDP,” says Kasriel. “These are the places where the cost of living is rising fast, traffic and pollution are issues, and it’s difficult for people who don’t make high wages to live in these places.”

According to Kasriel, our traditional perceptions of work “all stemmed from this idea that work had to be a place,” emphasizing the idea that location-dependant work was an industrial era construct. One need look no further than the mass migrations to tech hubs like Silicon Valley to see this concept in action.

“We are at a point today where a lot of people are being left behind,” says Kasriel. “We aren’t considering the people who are highly skilled, want to work really hard, and just happen to be living a couple hundred miles away.”

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“Freelancing can mean sacrifices, especially if you live on your own,” says Adam McNeill, a freelance web designer, developer, and communications strategist based between Toronto and London, Ontario, Canada. “There’s no safety net, but it’s exciting as hell.”

McNeill pivoted into full-time freelance work in 2016 after a personal injury hindered his mobility. When he asked his managers about working remotely until he healed, his employer dismissed his request, claiming there was no company policy for remote work. Frustrated by the miles of red tape, McNeill shouldered his lance and tendered his resignation. Nearly three years on, he is confident in his decision.

“Working from my home office, not having to commute, setting my own hours—the advantages of freelancing quickly outweigh the drawbacks and liabilities,” he says. “Plus, the ways these benefits affect your emotional wellbeing are impossible to overlook.”

Most self-employed workers report a better work-life balance, better health, and higher incomes than their office-worker counterparts, with a vast majority (97 percent) of current independent professionals electing to stay self-employed rather than return to traditional work.

With conferencing software and shared asset management platforms taking the traditional workspace into the cloud, “relationships with clients can be ongoing,” says McNeill. “This has opened up a new world of possibilities for freelancers at all levels. For many verticals, freelancing could even become the norm.”

Upwork highlights that 48 percent of hiring managers are already hiring freelancers, up 43 percent from last year, and the number of hiring managers willing to consider freelance workers is almost unanimous at 90 percent. The reason for this, according to Kasriel, is that 9 out of 10 hiring managers claim to be more satisfied with the skills of freelancers than those of their most recent full-time hire.

Freelancers are much more likely to have better, more updated skills because, “you have to market yourself constantly,” says Kasriel, “whereas full-time employees are less likely to reskill themselves between jobs.”

For many businesses, extending talent pools to include freelancers allows for greater talent diversity, reduces company spending, and boosts productivity on a project basis.

However, in order for a company to work successfully with its freelancers, the decision must be unanimous, where hiring teams and executives align to lay the groundwork for successful freelance-client relationships.

The Upwork model makes finding great talent convenient, but many organizations are neither aware of, nor sensitive to, the stiff competition and fierce undercutting that occurs on these platforms. Unfortunately for most freelancers, budgets often associated with posted jobs are unrealistic, “I routinely see jobs for 1500-word blog posts that are offering a flat $5 fee,” says McNeill.

A pittance for your average mercenary, but the problem, according to McNeill, it that “fresh grads will gravitate to those gigs ‘for the exposure’, but they’re lowering the bar for everyone else.” When speaking at local colleges, McNeill warns the next generation of workers about these practices. “One of the values I try to impart to them is not to pander to this crap,” he says. “If you don’t value your own tradecraft, how can you expect anybody else to?”

Many of the professional services offered by most online talent platforms can, in an increasing number of circumstances, be completed by anyone, regardless of location, which often pits workers from North America and Europe against technical and creative contractors in developing countries over pricing wars.

Allowing customers to purchase a service at the lowest cost often results in workers undercutting one another in an “arms” race to the bottom price. As one Upwork user noted, not only does this “drive the perceived costs down for the buyers, but also dramatically drives the quality of the work down as well because the freelancers don’t have the time to pay attention to the details, the budget not allowing it.”

Meanwhile, the companies managing these talent platforms are raking in huge profits. Upwork generates $1.5 billion in gross sales a year, works with over 100k SMB clients, and boasts that 28 percent of its clients are on the Fortune 500 list. To date, the company has completed over $4 billion in work via its platform. In just last week Upwork generated $187 million through its IPO, its shares rising 40 percent above their prior value in the weeks before trading.

Seasoned freelancers are no stranger to the pricing wars fought on these online platforms, but for contractors like McNeill, issues of relationship management are the greatest pain points. “Organizations build their businesses on the near-religious belief that it’s all about trust,” he says, “but when they deal with freelancers they forget that trust and accountability also matter in these relationships.”

McNeill cites examples when he or other freelancers suspended websites and withheld services when clients delayed payment for months without justification. “These were not knee-jerk reactions,” he says. “I’m talking about pulling the plug after 8 months of being told that your check is in the mail. It happens all the time, and with big brands—no freelancer wants to work this way.”

When it comes to getting paid, a recent survey from Bill.com found that 54 of freelancers feel it takes too long. “Most corporations have payment terms of 45 days or even 60, which is brutal when you’re self-employed,” said Liz Steblay, founder and CEO of the Professional Independent Consultants of America (PICA). “To add insult to injury,” she continued, “it’s surprising how many clients still pay by hard-copy check, which can easily add another week to the payment process.”

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Even with trends suggesting that the freelance workforce is growing, are companies really willing to embrace freelancers and entrepreneurs, or are they merely paying lip service to the idea without understanding the full extent of what managing a freelance workforce requires?

For as much as companies strive to continually improve candidate and employee experience—offering benefits packages, further skills training, and hosting team-building events—is the same consideration given to freelancers?

Sort of. Traditionally, businesses saved money hiring freelancers because they were not obligated to provide medical benefits or paid vacation time as part of compensation, but more corporations are realizing they need to make their work environments more appealing to top-quality free agents with perks like retirement savings, health insurance, tax assistance, and workers compensation coverage.

Reticence from companies to hire remote workforces likely stems, in part, from expectations that these benefits packages will become standard offerings to freelancers, which often position companies in murky legal waters. Certain benefits could mean companies must classify its contract workforce as employees, which can result in additional tax and wage requirements for businesses.

But as Millennials continue to become the largest workforce demographic, they are driving change in the workplace by seeking an updated dynamic for how they bring their employers value, and on terms that facilitate the unpredictable demands of a hyper-pressure world.

So what exactly does the future of freelancing look like? Kasriel argues that workforces will soon resemble movie crews, where “teams are self-assembled and everything is project-based. Movies are an industry where flexibility, agility, and specialization are increasing to meet the demands of the labor market.”

The film industry has a long and well-established history, with unions like the International Alliance of Theatrical Stage Employees (IATSE) tracing its lineage back to 1893, only a few decades after Sir Walter Scott’s first mention of the freelance crusader mercenaries of old. Likening the freelance economy to the movie industry sounds like hopeful conjecture, particularly when workers and organizations require more education on sustainable and responsible freelance practices.

“We should be teaching kids how to do this,” says McNeill. “I would really love to see more of a curriculum revelation. I don’t think we’re teaching the future workforce in a way that will prepare and support them for what will likely become an inevitable stage of their careers and lives.”

At the same time, companies need guidance in developing solid foundations for freelance talent management before they start hiring contract workers. This means establishing more efficient communication channels, prompt and fair payment methods, and contingency plans or systems to navigate conflicts and challenges.

Until businesses and contract workers can realize a more mutually beneficial work relationship, it’s likely that most freelancers, despite experiencing greater autonomy and reaping better opportunities than ever before, will continue to trek through the industry like battle-weary soldiers without leadership.

“The traditional way of doing things has engendered a false sense of authority in organizations, says McNeill. “Many managers have had it easy with employees who never push back and are happy to take their employers’ money, confident that warm bodies in chairs do productive employees make. This attitude doesn’t work for freelancers.”

Scott Wardell

Scott Wardell