The object of the tug of war game is to pull the opposing team over to your side. An ancient game — still played today — it keeps children engaged.
We are now beginning to see quite a different tug of war play out in our ecosystem as some enterprise buyers set requirements and preferences for engaging talent while the talent itself pulls in a different direction. Needless to say, enterprise buyers stand to lose much more than a child’s game if they don’t let talent have their way.
Who’s an IC?
Who is choosing to become an IC? It cuts across generations. Baby boomers continue to work beyond retirement age, leveraging their vast experience but working on their own terms. Younger generations are also keen on working as ICs. Millennials and Gen Z talent are embracing a more entrepreneurial mindset. These individuals also view work and opportunity differently than older generations do; they love flexibility, new challenges and the opportunity to learn on a regular basis. It’s from these younger generations may also have more than one job at a time, which is a huge change from previous generations. The days of workers staying in a role or with a company for decades is a thing of the past.
SIA’s Lexicon defines independent contractor as: A self-employed individual performing services for a company under a contract for services. The individual may provide their services as a freelance self-employed person (1099 in the US) or through the intermediary of a single-person corporate entity (in the UK, a limited company known as a “personal service company” or “PSC”; in the US, an LLC, corporation, or S corporation).
On one end of the rope you have an increasing number of workers who want to be independent contractors. According to MBO Partners’ 2020 State of Independence report, there are more than 38 million professionals in the US who are earning money in some way as independent contractors, 70% of whom are making the concerted effort to become ICs as their sole source of income. And many of them are turning to cloud and on-demand platforms to connect with work.
For example, Toptal, a platform that vets highly skilled white-collar independent contractor workers, has seen applicants on its platform increase to 750,000 in 2020 from 10,000 in 2013.
On the other end of the rope are enterprise companies that are often opposed to the use of ICs and/or talent platforms due to compliance concerns. “Sourcing of solutions within today’s enterprise buyers is a result of compliance-driven metrics versus looking for the best solution to deliver talent,” says Chris Paden, SIA’s director of contingent workforce strategies and research.
Many enterprise buyers prohibit the use of ICs; they are deemed to be riskier as these individuals are typically responsible for paying their own taxes and obtaining their own insurance. In the truest sense, a compliant IC has an opportunity for profit and loss, has a legal entity and is not reliant on a single source of income. Some estimates put unpaid taxes from ICs in the multi-billions of dollars. As a result, many local and state governments working to collect unpaid taxes will look into the classification of such workers. When these government departments come calling to collect unpaid taxes, they typically will focus on which entity as the deepest pockets — which is usually the buyer organization. The prospects of audit hassles, paperwork trails, dealing with state and federal agencies and paying out large sums of money make buyers nervous. Thus, these buyers struggle to engage these highly qualified and unique talents with a high level of confidence.
So what does this all mean? Large enterprise buyers may find themselves missing out on the most skilled and dynamic workforce because of outdated views on ICs and their own internal policies and procedures that constrict the utilization of this talent. The tug of war is just beginning. And more than likely, the talent will win and pull buyers over to their side, forcing them to engage the best and the brightest.
Change is happening quickly; those organizations who figure out how to change their company’s policies and procedures to support these highly skilled workers will no doubt begin to create a competitive advantage.