The Difference Between Freelancers And Traditional Employees Is Shrinking Fast. Here’s Why
by Dr Jon Younger
As well as writing my posts for Forbes, I spend a fair amount of my time these days giving webinars and zoom talks about the freelance economy.
One of the typical questions corporate clients ask is this: “How should I decide between hiring a freelancer or a permanent employee? How big of a performance difference is there?”
In just two decades, freelancing pioneers like Upwork, Toptal and others have conjured a new industry, a new career path for many categories of independent professionals, and a path to financial freedom for many in developing economies. 90% of big corporates say freelancers are a meaningful part of their work ecosystem. And, many of these companies are taking it further and evolving a more flexible, blended workforce, like Gazprom Neft, the energy and chemicals giant.
To the question posed above, my answer, as a former HR executive, is that the regular employee premium we pay in time, cost, and mindshare provides less and less worth it. The value gap between a top employee and a top freelancer or freelance team is shrinking. Freelance solutions are popping up in every industry, and most and more professions, because they offer a realistic and attractive alternative to traditional staffing.
1. Can you attract and fully utilize equivalent full-time talent?
If you are able to attract, afford, and fully utilize a top talent, a full-time hire may be the right solution. But, top talents, particularly in high demand areas like AI, ML, and robotics are widely sought after. If your brand is weak, your industry is struggling or uninteresting, your future is uncertain, or your projects aren’t cutting edge, you may not be able to attract a top full-time employee or keep them for long. And, it will take several months longer than the one to two weeks needed to contract with a top freelancer with the right background and experience. In many situations, a part-time freelancer or term interim is a better decision: more expertise part-time at lower overall cost may be the better move. One helpful data point: Upwork found that two thirds of independent professionals were busy through 2020, making as much or more than in 2019.
2. Are freelancers just people in between jobs?
It’s difficult to find consistent statistics on freelancers world-wide, or the distribution of full vs. part-time (“side giggers). In January 2020 I would have estimated 15-20 million full-time freelancers in the US, and a larger population doing side-gigs.
But Covid-19 turned the world upside down, and it will be some time before we can write the history of freelancing during and following the pandemic. There are certainly many freelancers who are looking for full-time work. But, according to research by Emergent Research, in the US at least, they are fewer than 20% of freelancers . Upwork surveys pointed out that 12% of the US workforce began freelancing in 2020 for the first time, that 48% have experienced it as both a full time and long-term career opportunity.
3. Is there a large productivity differential between full-time employees and freelancers?
A recent Inc article mentioned: “Research suggests that in an eight-hour day, the average regular employee is only productive for two hours and 53 minutes.
That's right—only three hours a day of productive work for 8.8 paid hours. By contrast, remote working employees (and freelancers) were consistently found to be more productive, the result of fewer distractions, remote work arrangements that save significant commuting time (and cost), and the benefit of flexible hours. An Upwork survey found a similar result.
4. Is there a large expertise differential?
Let’s take both aspects of this question. First, are freelancers less expert than equivalently credentialed full-time employees? And, how well do freelancers vs. non-freelancers keep their expertise strong and sharp?
On the first question, here’s a stat that may surprise: top consulting firms are among the largest customers of independent management consultants, maintain active alumni communities that augment their own consulting resources, and work closely with top independent consulting platforms. Top tech firms depend on freelancers to meet their specialized needs.
Top marketing agencies rely on boutique freelance shops and independents. M&A work increasingly relies on freelance finance specialist platforms and expert networks. And, as mentioned earlier, over 90% of enterprises are actively using and increasing their use of freelancers across specialties.
On the second question, how well freelancers vs. employees burnish their skills, freelancers are well ahead. As Upwork reported, 59% of freelancers have participated in skills training in the last 6 months vs. 36% of non-freelancers; these data are consistent with trends. In general, freelancers are more attentive to future-proofing their skills because they have to in order to attract quality work!
5. Is there a large engagement gap between freelancers and employees?
Gallup began tracking employee engagement in 2000. They wrote this year: “The percentage of engaged employees in 2020 — those who are highly involved in, enthusiastic about and committed to their work and workplace — dropped back to just slightly above the pre-coronavirus rate of 35% to 36% for the year.”
Take the number in: two thirds of employees are not engaged in their work or company.
What about freelancers? They can’t afford to be disengaged. Their ability to attract interesting, well paid, work depends on a reputation of active engagement in the project, and a determination to deliver a strong outcome so that they’ll win future work and build their reputation.
Not surprisingly, a recent IBM study found that “freelancers are generally more engaged than most employees - and have greater pride and satisfaction than high potential employees.” Moreover, IBM found that “Independent workers are very similar to "high-potential" employees – more so than to other employees.”
6. Is there a large cost differential?
Without question some freelancers are pricey, making thousands of dollars per day. But, overall, are freelancers more expensive than full-time employees?
They can be, but here is the difference. With freelancers, it’s up to the client organization to decide what, how long, where, when and how much: freelancing converts staffing from fixed to variable cost. One benefit: freelancers offer clients a more agility and experimental potential; the chance, to experiment and get it right before making significant staffing decisions.
7. Is there a large commitment or loyalty differential?
According to the IBM study mentioned earlier, “The only engagement item where independent workers did not score higher than regular employees was on commitment. Independent workers are more likely to think about finding another client, even when the arrangement with their current primary client is expected to be long-term.”
Good common sense for small business owners, which is what freelancers as solopreneurs really are. But to be fair, freelancers weren’t lower, just on par. And, let’s consider all the facts. The Bureau of Labor Statistics reports that the median tenure of workers ages 25 to 34 is merely 2 plus years. SHRM notes that high potential employees begin looking for better jobs and pay after just a year in position. Not surprising that high potential employees are thinking like freelancers.
8. Is there a satisfaction differential?
The answer is a strong no. We turn again to the IBM study: “When it came to job satisfaction, independent workers were just as satisfied with their jobs as high-potential employees and significantly more satisfied with their jobs than other employees.”
Other data turns in similar. Upwork found that 76% of full-time freelancers say they're satisfied with freelancing and more than two thirds of full-time freelancers were satisfied with their pay. Fifty seven percent say they do interesting work.
By contrast, a recent Microsoft study found that 46% of surveyed employees were planning to move locations, 41% were actively considering leaving the company, and 54% described themselves as overworked. As Microsoft VP Jared Spatoro points out, “Sixty one percent of leaders say they are thriving-that’s 23% higher than the average worker, so there’s a disconnect there.”
9. Is there a team or collaboration differential?
In the early years, freelancing was largely individual contracts although aggregators often pulled a team together to manage a large project. While freelancing often remains individualistic, we see more and more demand, particularly working with large corporates, for intact freelancing teams or experts able to work as part of a blended, flexible team or hybrid.
Freelancing platforms have met the team demand in a number of ways: by assessing and selecting freelance members based on “soft” skills like teamwork, by using their matching algorithms to build teams based on a mix of hard and soft skills, by making teamwork a selection feature, by organizing teams at the front end as Vicoland in Germany, or FreelancingTeams in the US does, by supplying intact teams for enterprise assignments as Toptal, Contra and others have done, by providing tools like Slack and Zoom to aid collaboration, and finally by offering training that helps freelancers build team and other related skills.
As Chandrika Pasricha, CEO of Flexing It, recently put it: “Enterprise clients have always been a focus and account for the majority of our revenues. Our Enterprise products give high-use clients greater functionality to access consultants at scale and match them to projects, supported by analytics and financial compliance.
Demand is growing rapidly for this and for curated freelance teams taking on larger assignments. Our freelancers are extremely open to working in teams.”
10. Finally, is there a cultural gulf between freelancers and employees that requires effort to overcome?
The choice of starting freelancing career – part-time or full-time, permanent or temporary – reflects the values of our time: values like autonomy, choice and flexibility, work life balance, and feeling a part of a productive professional community that values and strengthens what I do. Moreover, the arc of a career these days is quite different.
Whether the right number of people participating in the US freelance economy, full or part-time is 40 or 60 million, it’s a lot. It’s not difficult to imagine the full emergence of the hybrid career, where one transits between full-time freelancing and full-time regular employment based on time of life, family, and professional interests, and actively participates in side gigs in between.
As I wrote in a Forbes post some time ago, employees are quickly becoming “freelancer lite” in their expectations of the workplace.
A generation of employees wants what freelancers want: “greater autonomy, choice and flexibility, work life balance and feeling part of a productive professional community.”
Viva la revolution!
This article was originally published in Forbes.
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