The gig economy is a big economy. Ever-improving technology for communication and collaboration have sustained this flourishing market for over a decade, but under the wing of global pandemic, the demand for independent contractors has drastically compounded. In 2018, the number of US gig workers totaled about 43 million. Today, the number of gig workers has almost doubled; projecting nearly 80 million independent workers operating in 2023. (Mastercard, 2020)
With recent movements like The Big Quit, the US has seen an influx of independent workers, contractors, and freelancers into the market. Signs of recession have US employers seeking alternative ways to get important work done, without a traditional employee. As a result, businesses are reaching out to freelancers and contractors for help with administration, digital design, content writing, accounting, and social media management among other jobs.
But finding high-caliber contractors can be as tricky as finding long-term employees. To entice independent workers, employers are implementing a unique set of low-risk benefits and perks to supplement the traditional contract for 1099 workers. Doing so can have a positive impact on your company’s overall productivity, worker engagement, profits, and even save you on bulk benefits and premiums costs.
Contractors Vs Employees
Let’s get clear about who’s who and why. When you hire a worker, you’ll either classify them as an employee or a contractor. In either case, the IRS has guidelines and compliance for business owners to follow with regard to worker classification.
With employees, you typically have much more control over working style, performance, equipment, and payment. More control over an individual’s work style means more compliance for the business to follow. With contractors, freelancers, and gig workers, the business typically has less control over how and when the individual works. In this case, you forfeit a bit of control over work style, but you needn’t adhere to so many legal compliances.
When you hire a worker, the process will be different for a contractor than it will for an employee. The hiring process for contractors is usually quicker, requires less attention to onboarding, and less training. This is because your contractor is being hired to complete a specific task or project which often doesn’t require them to understand the entire business operation like it would for an employee.
Tax forms and tax reporting will be different, too. In most cases, a W-4 will be the form used for employees and taxes will be withheld each pay period. For contractors, a W-9 and a 1099 form will be used and no taxes withheld. In fact, the employer pays the contractor an agreed upon fee for services, and the contractor themselves is responsible for paying income tax.
Workers choose to be freelancers for a multitude of reasons. It allows individuals to have more control over how, when, and where they work. This flexibility is highly desirable, especially now, as COVID and The Great Resignation have prompted traditional workers to branch out on their own in search of freelance work. It also allows independent contractors more control over who they work for, and how they file taxes. With so many US workers eager for a healthy balance between work and life, 1099 employment sounds enticing.
Employers choose to hire independent contractors for a number of reasons, as well. Cost is perhaps the most significant factor. Employers may hire a freelancer for the job so they don’t have to expend funds on the traditional costs that come with employment, such as insurance, worker’s compensation, and unemployment benefits. Contractors are often hired, too, because a job is temporary or short-term, so hiring a traditional, full-time employee for a short time doesn’t make sense. Additionally, freelancers are often called in because the job at hand requires a specific set of highly specialized skills to complete one certain task. Employers look for a professional with this specific talent, rather than seeking an employee who must be well-versed in a number of skills and experiences.
Catch Bees with More Honey than Money
Your full-time employees are attracted to the benefits and perks you offer, so it should be no surprise that contract workers are, too. Just because a contract worker doesn’t traditionally receive benefits from a client company, it doesn’t mean the contractor doesn’t take into consideration the benefits your employees receive. The benefits package can say a lot about the company itself, its leadership and culture, and its employee retention. Many gig work contracts come with the prospect of full-time employment when the gig is complete, which is another reason contractors pay attention to the benefits you offer.
It’s not only about the competitive salary. Employees and freelancers alike consider perks and benefits as important or more important than the wage itself. HR-related data gathered in several 2022 surveys indicates that 66% of workers agree that benefits are the most critical factor when selecting employment and 61% of workers would take a lower salary if the position came with robust benefits. (Shteriova, 2022)
66% of workers care more about benefits than salary
With so much growth and development in the gig economy, employers should take heed on how to attract high caliber contractors to build long-term, solid, relationships with dependable professionals.
If you’re looking for top-performing contractors, it’s time to sweeten the pot. Savvy employers are making contract offers more tempting by establishing benefits and perks of which 1099 workers can take advantage.
Attract trustworthy and dependable contractors by offering a set of low-risk, low-cost benefits and perks as part of your standard 1099 contract. The perfect freelancer might take your contract over that of another client simply for the extras you provide. Here’s some of the most common benefits and perks being added to 1099 contracts in 2023:
A common way to offer educational resources to contractors is to enroll them in the same educational and enrichment programs your employees receive. This is often in the form of free or exclusive access to educational programs and learning materials, but it may also include reimbursement for certification courses, college classes, or even a fully paid degree. Your program may have the capacity for more enrollees, so see if you can offer this perk to your freelancers.
Holistic Wellness Packages
Many employee benefits plans include a wellness package that motivates employees to care for their whole selves and provides ways to make it easier to accomplish this. An attractive wellness plan might include options and resources for mental health, gym memberships, financial guidance, professional development, and so forth.
Consider the freelance talent you can attract with complimentary paid holidays. Of course not every position is able to offer a paid holiday off, but if there’s no interruption to business, it’s worth investigating. It may increase the overall cost of paying employees for holidays, but when you take into account the rapport you’ll build and the loyalty you’ll cultivate, the cost sounds worth it.
Most contractors expect that they’ll have to be self-equipped; clients will not necessarily be buying contractors laptops and tools to complete the job. However, if your job requires an uncommon tool or resource, it may be worthwhile to offer that to your contractors. Beyond that, though it may not be expected, a stipend to maintain equipment, internet, and work environment could look very attractive to contractors who aren’t used to that sort of perk.
Data from multiple studies, like that recently presented by SHRM, indicates that more than 60% of working Americans want on-demand access to earned wages. As a result, employers offer employees and contractors alike a perk known as On-Demand Pay, or Earned Wage Access, which is an electronic deposit of earned pay, on demand. This is a free service to implement within your HR, and adds no extra work to your payroll process.
Health and Retirement Options
At first this might sound like a hefty expense for contractors, but consider this: adding contractors to your benefits programs may increase the number of enrollees and qualify your business for discounts and premiums that were not available to you before. Casting a wider net may actually save you significantly over the long-term.
The Benefits of Benefits
When you offer benefits and perks to your contract-based employees, you’re cultivating a positive on-going experience with your freelancers. This allows you to maintain access to these professionals with a particular and refined set of skills. You can continue to make new work contracts with these individuals each quarter or year, knowing that you can trust and depend on these workers.
Because employee engagement, loyalty, productivity, and retention all see improvements when companies offer meaningful benefits, the same is boosted in your pool of contractors when you offer benefits. It’s just as important to develop these amicable working conditions with freelancers as it is with your traditional employees.
A growing number of companies are seeing the overall advantages to providing perks to contractors. Among these progressive employers, you’ll find Home Depot, Walmart, UPS, Macy’s, Starbucks, and Nike. These businesses offer 1099 perks like options for health insurance, retirement, and educational tuition. Chipotle, for example, offers an annual college assistance stipend of more than $5,000 to any worker, part-time, or full-time. (Birken, 2023)
For many of these companies, seasonal hiring is an important part of their HR resource pool, and offering these benefits means that workers return, year after year, for seasonal and part-time gig work. This translates to significant savings in recruitment, onboarding, and training. Not only that, but employers feel more confident that high-performing gig workers will continue to provide quality, dependable service. For employers, the risk is so much less.
Downsides and Slippery Slopes
The advantages of hiring staff as 1099 contract workers may have you thinking this is the way to go for your company, but you need to keep a few key concepts in mind. Foremost, just because you want to label a worker as a contractor, doesn’t mean the IRS agrees.
Even though you and your worker sign a contract that indicates contractor status, it doesn’t mean the IRS sees it this way. The IRS considers several factors in determining if a worker is truly an employee or a freelance gig worker. (Internal Revenue Service, 2023)
The IRS will evaluate how much control the employer has over the worker’s performance, including when, where, and how they work. If the worker decides when, where, and how to work, then the individual is more likely a contractor. If the employer has control over these aspects of performance, the worker is more likely an employee. If the employer has control over the equipment, tools, and resources that a worker uses, then that worker is more likely an employee than a contractor. The same is considered for how the worker is paid and terminated.
Essentially, the government will not allow for misclassified workers, so check with your HR and legal teams to ensure your company is following the laws and guidelines. In 2009, two companies in California lost a court judgment, costing $13M, for misclassifying workers in order to dodge taxes. (Greenhouse, 2010)
However, once you’re sure your workers are all classified properly, there’s no reason you shouldn’t consider offering benefits and perks for gig workers.
To B or not to B
Gig workers provide flexibility, a specialization of skills and passion for the work, bring diversity and perspective to the team, and they are generally self-motivated and industrious workers and problem solvers with healthy networks. You may even find your next full time employee or C-level leader in the pool of contractors you’ve cultivated. There are so many reasons to get the job done with the help of contract workers.
Now ask yourself if offering benefits and perks will be what attracts the perfect contractors.
“Rules of employment are changing, and the world is moving ever closer to a contractor-driven economy.” - Bruce Gilbert, Director of Benefits at Remote
You can build a well-balanced workforce of employees and contractors, but both types of workers are the same in at least one fundamental respect: they’re human. Humans naturally strive for fulfilling lifestyles and today’s workers want to find work opportunities that nurture other aspects of life besides income stream. The best way for companies to deliver that as part of a work opportunity is to offer a low-risk package of benefits and perks for contract workers.
This will cultivate a diverse and eclectic workforce with a variety of skills and networks that will enhance your business. Take advantage of the fast-growing pool of talented freelancers by attracting highly driven professionals with a set of worker benefits for contractors that shows you care about contractors as much as employees.