How hiring freelancers can be part of a healthy HR strategy

The use of freelancing, contract employment, gig work or contingent labor has been on the rise over the last several years. Companies are finding alternatives to the full-time employee for solving their skill- or outcome-based needs, while people are finding this form of work to be an answer to their desire for flexibility, or even purpose.

McKinsey researchers estimate that 36 percent of the U.S. labor force identified as independent workers in 2022, up from 27 percent in 2016, which it called a “seismic shift.” The World Bank estimates the number of self-employed workers globally to be 1.57 billion people, approximately 47 percent of the global workforce. This figure was trending down globally until 2020 when it started to rise.

The pool of U.S. independent workers is as diverse as the nation itself; the McKinsey report states that at least half of independent workers earn under $25,000 annually, while about a third report annual earnings over $150,000. This population includes graphic designers, software engineers and fractional executives, but it also includes people with full-time jobs working a side hustle and people working for ride-share or delivery platforms.

In the corporate realm, a lot of this growth has been sped up by pandemic-driven lockdowns and the increased acceptance of remote work, according to executives at staffing services and freelance-platform providers, who say that being in the same time zone or city used to be the most important factors when hiring freelancers.

That was before the great remote work experiment of 2020.

“The pandemic put us into something we didn’t expect,” said Mike Morris, founder of Torc, an AI-driven freelance platform for tech talent that was acquired by Randstad, one of the largest staffing firms in the world. “I think that really fast-forwarded the new thinking around talent.”

Morris added that members of the labor market have gained more power “in terms of determining how they want to work, where they want to work and what they want to work on.”

“Lots of leaders, myself included, understood that you don’t necessarily have to be in the same time zone or even the same country to work very effectively, with a lot of the digital tools and collaborative tools that we have today,” Dave Bottoms, vice president of product at Upwork, a global freelance platform, told Newsweek. “I think it has been a watershed shift in mentality that you’re not just hiring in your ZIP code.”

It’s not just a COVID effect, however. Employers are looking to freelancers for a variety of reasons, and not just for cost cutting, though that is also a major consideration.

“As the market went down, the contingent route was a less risky, more cost-effective way to manage your talent base,” Morris said. Randstad announced the acquisition of Torc in May, citing a desire to grow global access to digital talent.

An Expanded Talent Market

For a lot of people, the proliferation of remote work has been an opportunity to blend work and life in unique ways. Everyone from working parents to digital nomads are attracted to it, and even former CEOs and CFOs are joining the growing pool of fractional executives who provide supplementary leadership and project management experience to support major organizational transformations such as going public or merging with a new company.

The freelance talent market is also growing because companies are more open to hiring from outside of their home city or region. Today, they can even go outside of the country, making a much wider range of candidates available for hire.

Bottoms notes that fractional executives have been particularly popular in marketing and finance, and that the popular categories for freelancers in general include social media, web and application development, customer support, sales, and AI skills including engineers but also things like prompt writing, dataset management and data labeling.

“COVID happened and remote work became the norm. It really was a boon to the discovery that there is great talent not just across these categories but across other markets around the world,” Bottoms said. “You can find great software developers outside the U.S. You can find fractional CFOs that have done work for Fortune 500 companies. You can find skills that are emerging.”

Data from Upwork and many others suggests younger generations are more interested in self-employment. A recent survey by Intuit found that 66 percent of those aged 18 to 35 have started or plan to start a side hustle, with nearly 49 percent saying they’re attracted to being their own boss and 42 percent saying they’re driven by pursuing their passions.

“Traditional, full-time, onsite, exclusive employment with one employer is diminishing as an overall percentage of employment in general, and that trend is stronger among younger workers,” Bruce Tulgan, founder and CEO of Rainmaker Thinking, a management consulting firm, told SHRM in August.

Transaction Costs (and Hesitation) Have Dropped

One of the challenges of hiring people from other states, or other countries, is the need to be established as an employer in those municipalities, or at least aware of their employment laws. Employer-of-record services and outsourcing firms have been in this practice for decades, but in the new world of work, their usage has grown significantly.

“Freelancing in certain places in the world is very difficult to pull off long-term because it runs against regulations,” Mark Frein, COO of Oyster HR, a global hiring platform, said.

The other challenge is the process of finding people, vetting them and officially bringing them on with things like a contract, work expectations, a start date and acclimation to company culture and processes.

This is where artificial intelligence and machine learning are making a difference.

Bottoms shared that Upwork is helping both sides of its marketplace, employers and freelancers, through AI. The company has launched an AI agent called Uma and offers managed services to employers to help them write job requirements and manage expectations and responsibilities with freelancers.

For employers, Upwork is offering to guarantee project outcomes.

“Our project managers on the managed services side will be using Uma to build that project, manage the workflow for clients and deliver all the hiring, all the way to delivering the outcome,” Bottoms explained.

For freelancers, this new technology helps them bid for more projects and optimize their applications. Bottoms says the AI-generated proposals will be “based on our historical data of what proposals get selected by potential clients, what are the best practices and how can you build a good proposal really quickly and efficiently, so that freelancers can apply to more jobs.”

The Top and Bottom of This Market

Freelancing is not a perfect arrangement. For many, the benefits of full-time employment, such as security, and, in the United States, health insurance, go a long way. McKinsey’s research found that some independent workers would like to have a full-time job or aspire to a full-time job while freelancing and also enrolling in education or work-training programs.

For a lot of employers, contract workers are beneficial because they do not need to be paid benefits. This has come into focus in multiple court cases nationwide against ride-share and delivery platforms, which worker advocates say obscure the lines between contract and full-time work.

The practice of contract workers utilized to a large scale is also prominent in the tech industry, which has seen a spike in this practice, according to LinkedIn data from 2022. Reportedly, these contractors experience “second-class” status while working with and alongside full-time employees, who typically benefit from expansive perks.

“We’re paid less, we’re laid off when needed, and we often don’t have access to safe, transparent working conditions,” one contract worker said in a statement.

The increasing role of freelance work also brings into focus the philosophy behind full-time employment.

“Are we talking about an internal full-time team? Are we talking about a [central] services group? Are we talking about traditional staffing? The convergence of these three models is happening at the same time that we’re digitizing the space,” Morris, now an executive at Randstad, said. “We think more about how to find the right talent for this position and then whatever the right engagement model is.”

The Future

Morris notes that increasingly he’s working with HR leaders to refine their freelance strategy, whereas before he was working with tech, product and line-of-business leaders who were looking to bolster their ranks outside of their allotted full-time headcount.

Bottoms added that freelancing can be a way to work with people before bringing them in full time. “Hiring managers may hire multiple freelancers for projects and then want to convert the most productive freelancers into full-time employees.”

At the top of the market, people with highly valued skill sets such as AI or data science may be able to command higher pay than they would as full timers. Freelancing can also be a way to access this kind of talent without paying the high salaries that AI engineers command.

“Having access to a global talent pool really opens up lots and lots of options for how you can be creative in hiring for skills that may be hard to hire for,” Bottoms said.

Given the pathways available for an entrepreneur to hire new employees or grow their capacity, without investing in U.S. salaries or full-time employment, the new possibilities for startup growth and scale are endless.

“If a U.S. startup has the option of not just hiring in the Bay Area for its first 25 engineers, it opens not only where to hire, how fast to hire but also how expensive that load is going to be long-term,” Frein said. “I don’t think employment’s ending any time soon, but workers who have a high degree of negotiating power and flexibility, they’re going to be holding down multiple contractual gigs simultaneously, and more power to them.”

It might even lead to a company full of freelancers, or a one-person or highly streamlined company that makes the Fortune 500, a vision that Bottoms drives toward.

“Someday, there will be a solopreneur that creates a unicorn company, with never having hired a single full-time employee,” he said. “They can do the entire thing fractionally and scale their company. That’s the vision that I talk to our product team about.”