Back to Blog
The number of freelancers in the United States has been increasing since 2014, and experts predict it will continue to rise, but not out of necessity. According to the Freelancer’s Union, 63% of freelancers go independent by choice, and the majority of them intend to stay self-employed.
As more and more companies choose to only staff remote workers, it’s clear that the gig economy is here to stay. Instead of fighting it, organizations should embrace its benefits.
What are the Driving Forces of the Growing Gig Economy
From gig economy apps to websites like UpWork, some Americans are starting to prefer short-term contracts and freelance work over permanent jobs. The primary reason? Money.
According to a report by Adobe, 81% of workers are willing to do additional work outside of their primary job to generate more cash flow. But that isn’t the only reason employees prefer gig work. Americans list “pursuing a passion” as the primary reason for holding a second job.
Terms like “how to become a real estate agent,” “how to become an entrepreneur,” and “gig work near me” are being searched more than ever before. Employees state that financial freedom, work-life balance, and flexibility are big reasons why these terms are blowing up.
How Employers Benefit From the Gig Economy
While some employers believe that the gig economy subtracts from the talent pool, the opposite is true. Companies can benefit significantly from the gig economy in the following ways.
1. Reduced Tax Burden
Taxation in the U.S. is quite complex for both organizations and workers. Depending on how a worker is engaged and classified, a company may or may not be required to deduct certain taxes. It also varies by state in the U.S and by province in Canada.
Typically, freelancers are responsible for their own self-employment tax burden. While employers have to pay for the cost of labor and navigate how to file and send out 1099-NEC forms, it generally still works out cheaper to engage freelancers.
Partnering with an Employer of Record like CXC ensures all the correct taxes are paid by the employer and the gig worker. This is especially important when engaging remote workers offshore or foreign workers in other countries. Every country has different requirements and laws when it comes to engaging talent.
If you are unsure how to pay American workers overseas, how to pay foreign contractors in the US, how to source and hire employees in another country, or how to comply with US tax regulations while ensuring full compliance with local labor laws, read our breakdown of the most frequently asked questions about how to pay American workers overseas, foreign contractors in the US, source and hire employees in another country and comply with US tax regulations while ensuring full compliance with local labor laws.
2. Lower Labor Costs
Millions of companies worldwide are cutting labor costs by hiring independent workers. Since most contract workers are paid per project, not hourly, employers base compensation based on output. This also means employers don’t have to pay for things like insurance and vacations or overtime.
Hiring gig workers or independent contractors can also reduce time to hire, thereby reducing costs for the organization. Hiring gig workers offshore can also be a way to reduce labor costs. Some countries have lower contractor rates.
3. Reduced Healthcare Spending
Health insurance is a necessary expense for Americans, but employers that hire gig employees aren’t required to pay it. Traditionally Medicare and add-ons like dentistry, vision care, hospital rooms, mental health etc are also off the table. Some companies choose to use this money to invest back into their business.
There is growing interest and demand however, for companies to include benefits as part of their offering to contingent workers. At the same time, there are more startups offering portable benefits to gig workers that enables them to take their benefits with them as they move around to different companies.
4. 401(k) Contributions
Companies that offer matching 401(k) contributions to employees don’t have to do the same for gig workers. Reduced 401(k) spending can save an organization thousands per year, if hiring in the United States. However, freelancers are still able to save big time on taxes if they pay into their own retirement accounts. Be sure to check on each country’s local laws, as they can vary between countries. Non-compliance can very costly in terms of potential fines.
5. Unemployment Benefits
Businesses that staff employees have to pay for unemployment insurance, but that cost is waived when they hire gig workers. Whether an employer fires a gig worker without just cause or for misconduct, freelancers don’t receive unemployment insurance once their contract comes to an end.
CXC provides an extensive suite of benefits to contingent workers. Traditionally, the perceived risk and lack of centralized management of contingent workers have made care and benefits programs extremely difficult to introduce. However, CXC’s workforce management has enabled care and benefits programs to be introduced to contingent workers, including employee assistance, corporate discounts, training and maximizing their financial health and wellbeing.
6. Hire For Specialized Jobs
For most employers, it wouldn’t make sense for them to hire an employee for a job they’ll only perform once. For example, if a hospital needs someone to build a website, they should hire an agency or a freelancer. The gig economy opens more industries up to specialized projects.
If you consider expanding your global workforce, make sure you understand the advantages, disadvantages, risks and requirements of hiring foreign workers.
7. Sick Leave contingencies
In the past, organizations had to hire temporary full-time workers for employees who were on sick or maternity leave. However, these positions were often hard to fill because of their guaranteed end date. Now, employers can hire gig workers on short-term contracts.
8. Seasonal Employment
Like sick or maternity leave, finding reliable seasonal employees used to be a challenge. Traditionally, companies would turn to temp agencies to find help, but they charge their own set of fees. However, gig workers can now be sourced directly or via talent platforms and connect them directly to your organization.
9. Scaling Upwards
Scaling a business comes with a lot of upfront costs, especially when you have less than ten employees. Companies that couldn’t afford to hire full-time employees either had to eat the costs or take out loans. With gig workers, organizations can scale while managing their costs. This is particularly attractive to startups, who can scale their workforce as needed as they expand into new areas and change their business requirements.
10. Scaling Downwards
Sometimes business workforce requirements change or decrease based on a number of various reasons. Unfortunately, that means letting people go. Companies can turn to freelancers to manage their workload. The gig economy can actually help failing organizations get back on their feet at a faster rate.
11. Lower Space Costs
With fewer bodies in the office, companies can sell their large corporate offices and exchange them for smaller, more manageable spaces. When your company downsizes its square footage, your utility bills follow the same trend. You’ll also save money on furniture and other office items.
12. Larger Pool of Talent
In the gig economy, you no longer have to hire employees in the same city. You don’t even have to hire within the same state or country. There are plenty of talented freelancers from all over the world that could enrich your company with their expertise, skills, and cultural knowledge. More companies are turning to talent platforms to support their direct sourcing requirements. Relationships with contingent workers are fostered to create more loyalty and return engagement.
13. Easy Onboarding
Any company that experiences turnover knows how expensive the onboarding process can be at times. However, annual onboarding costs can be reduced when you hire freelancers through a third-party provider. Not only that, but hiring freelancers is the perfect way for companies to try out prospective employees.
CXC onboards gig workers compliantly and effectively giving them a positive contract commencement experience in your business.
The onboarding process is supported by CXC’s proprietary technology systems and backed by a rigorous compliance vetting process to ensure all information is captured, recorded and fully auditable, with complete accuracy.
Recognizing that the onboarding experience is critical to supporting new worker productivity, CXC delivers engaging new hire journeys, including personalized communication over mobile, email and video aligned to your HR strategy.
14. Keeps You Competitive
Remote work is on the rise. If you want to attract high-quality talent, you need to offer work-from-home opportunities and flexibility for your workers. Setting up a remote work infrastructure is worth the effort, and working with a third-party Employer of Record domestically in the U.S. and globally, will ensure your worker engagements are compliant and in alignment with in-country laws, wherever they are working.
Hiring a global payroll service provider lessens the burden of managing the complexities of international labor requirements. As a third party company, they specialize in dealing with all the global payroll processes involved such as keeping payroll records, paycheck delivery, taxes, and other payroll functions.
This also entails giving access to company and employee information and records. With a global payroll service provider, companies no longer need to hire an in-house payroll specialist and there is certainty that all salaries, taxes and other obligations are paid accurately and on time.
Furthermore, they will oversee the changing local compliance in other countries. Although the cost is much higher than buying a payroll software, the expertise and broad coverage that global payroll service providers bring to the table can greatly benefit the company.
ABOUT CXC
CXC is a global HR outsourcing organization with 30 years of experience in workforce management. Our innovative and cost-effective solutions help companies gain a competitive advantage by improving efficiency while reducing risks.
Contact CXC today to start enabling your future workforce.
