In my last letter, I broke down the emergence of the popularity of gig work, in this issue, we’ll focus on the relatively older phenomenon of freelancing and private contracting and their role in the future of work.
The popularity of freelancing and private contracting has exploded - this is more popular among skilled workers who can sell their services to businesses just like an employee but with no ongoing agreement. They are only paid when there is work to be done.
Private contracts are usually an agreed upon price for an agreed upon outcome like $10,000 to build a company website, but they can also be billed hourly.
According to a report by the management consulting firm Oliver Wyman, healthcare workers have been one of the fastest growing groups of workers ditching typical permanent roles in favour of working as private contractors.
On-call nurses, doctors and hospital support staff already work on predictable hours so they don't sacrifice much by working as contractors instead of a direct employee.
According to that same report, some nurses have elected to work in the temporary staffing market so they can take on fewer hours as mental health has become a top priority for workers in the industry.
Private contractors in all industries are usually paid more for their time than permanent employees because the business only pays for the hours of services they actually need, which means most of the time their total out of pocket will be lower.
With mass layoffs dominating the new cycle, people are also finding out the hard way that if they work in an at-will employment state, their 9 to-5 doesn't give them much security anyway.
So, workers at all skill levels are seeing they can make more and businesses are realizing they can cut down on expenses by doing away with the rigid 9 to-5 workday.
This is the second reason it's slowly becoming a relic of corporate history.
The death of the 9 to 5 is not going to be a good deal for everybody.
For now, businesses are going to be the biggest winners out of this shift even if they have to pay their contractors and gig workers slightly more per hour.
The first loss is benefits.
If you work as a private contractor, you are becoming your own boss which means that even though you are making more money, there is overhead that you become responsible for - benefits like paid time off, training, retirement plans, accounting and health insurance are going to come out of your pocket.
Health insurance through a regular employer is normally far more affordable than private options for gig workers.
This can be especially tough because health insurance premiums for people who ride motorized scooters through late night traffic to deliver food to people's homes is simply unaffordable on the income of a delivery driver.
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Even if you are doing highly skilled contracting, if you don't manage these expenses carefully, you will end up with less in your pocket than if you just stuck with a regular permanent position, and your loss is their gain.
According to a survey conducted by Forbes, small and medium enterprises were hiring more contract workers because it simplified their accounting and reduced the ever-increasing expenses of human resource management.
It's not just small companies either.
According to CNBC, contract workers have outnumbered direct employees at Google and other large tech companies since 2018 and the ratio became even more skewed during Covid.
Google already has large human resources and accounting departments so they are pursuing contract work for two other reasons.
The first is that the most talented engineers have realized that they can make more money working off one-off projects for lots of companies than they could by being a full-time employee with just one company.
The demand for talent during the good times meant that these companies just had to pay what these top engineers were asking.
Some highly specialized engineers could build up to $10,000 an hour for their work to these companies.
Even for a company as rich as Google, it was better to pay them only for the hours they really needed them instead of paying them millions of dollars a year as a permanent salary for the odd project where their skills would be needed.
The second reason is that during bad times like right now, getting rid of contractors doesn't count as layoffs, so companies can easily cut expenses without technically laying off any staff.
Big layoffs signal to investors and other employees that the business is in bad shape and that they would be better off investing their money or building a career somewhere else.
There are three groups that are really going to benefit from the death of the 9 to 5 but their gain is all at the expense of one big group that statistically you are a part of.
The regular workers - entry-level workers who can get gig work are not paid well but they weren't paid well in minimum wage jobs either, they have just gained some flexibility to work when they want.
High skilled workers who can move to contract roles can make a lot of money by working for the highest bidding company, they only lost the idea of job security that never really existed for them anyway.
Companies are also taking full advantage of the death of the 9 to 5 by cutting down on their biggest expense centre.
The losers are regular workers right in the middle who are in roles that can't be “gigified” but aren't in demand enough to be contracted out.
The fixed expenses of operating as a contractor, health insurance, business licensing, accounting and everything else means it's only worth it for people earning well over the average wage.
If you are earning $60,000 as a permanent employee you would have to charge $80,000 a year as a contractor to break even and not many businesses are going to pay that $20,000 premium for a standard
Most contractors now work through middleman staffing companies.
For contractors working through these middlemen, it can combine all of the problems of permanent employment with none of the benefits of being a private contractor.
But that’s for another letter, hope you enjoyed learning about perhaps the biggest trend in the corporate world today!