What the Part-Time Economy Means for Employers

What is the part-time economy?

The part-time economy is a labor market where independent contractors, freelancers and part-time workers dominate hiring trends. Today’s employment trends point to a part-time economy in full force. 

Statistics vary and are hard to nail down since there can be less reporting of contract work than other types. However, Statista reports 70.4 million freelancers in the United States in 2022 and projects there will be 86.5 million by 2027 — comprising more than half the workforce. Additionally, there were nearly 24 million occasional contract workers in 2021 who freelanced in addition to holding other jobs.

What to consider when hiring freelancers, contractors and part-time workers

You may consider freelancers or contractors if you’re just starting a business and need talent on a limited budget or if you have an established company and are wary of hiring full-time and part-time employees. 

Here’s what employers should keep in mind when participating in the part-time economy.

1. It’s essential to classify workers correctly. 

Contract workers and employees have key differences and must be classified correctly: 

• Employees: Employees are on a business’s payroll and receive financial compensation and employee benefits, including health insurance. They must follow an organization’s guidelines. 
• Contractors: Contractors are independent workers with autonomy and flexibility; they’re often hired for specific projects. They receive agreed-upon compensation for their services, but the company doesn’t withhold taxes. Freelancers and contractors pay their own taxes, including federal income tax and self-employment taxes. They’re also responsible for their own benefits, such as health insurance.

Businesses must classify workers properly. Misclassifying a contract worker can cost you money and get you in hot water with the IRS, resulting in back taxes, fines, penalties and legal disputes. When contractors meet classification guidelines, they’ll fill out an IRS W9 form and you’ll send them a 1099 for tax season.

2. Employers must understand the definition of “part-time.”

“Full-time” is generally thought of as a five-day, 40-hour workweek. “Part-time” is a little murkier. Part-time position listings can include various compensation rates, time frames and schedules. For example, a company may offer a flat per-project fee or hourly pay over a defined period —

sometimes operating on a traditional full-time schedule. This can be confusing for businesses, contractors and employees when it comes to considerations like healthcare requirements for full-time workers.

The Affordable Care Act defines a full-time employee as someone who works at least 30 hours weekly, so employees working fewer than 30 hours would technically be part-time. It’s essential to check local, state and federal regulations regarding your employees’ status to comply with health insurance and other regulations. 

Regardless of your staffing needs, be clear and upfront about your expectations in job listings. If the position you must fill is an open-ended job for 29 hours or less per week, call it a part-time job. Otherwise, supplement with more specific language, such as “temporary” or “contract.”

3. Contract-to-hire situations are increasing.

Businesses may be able to get the best of both worlds with contract-to-hire situations. For example, say a company is unsure whether hiring a permanent, full-time staff member is the right move. They could start someone as a temporary or freelance worker and move them to a full-time position if everything works out and both parties feel good about a more permanent situation. 

Contract-to-hire scenarios are a low-risk way to find out if a candidate is a good fit for the position and company culture. If you expect staffing needs to increase in the future, consider hiring long-term contractors with the potential to transition to full-time status. 

Pros and cons of hiring contract and freelance workers

If you’re unsure about bringing contractors and freelancers into the fold, consider the following advantages and drawbacks. 

Pros of hiring contractors and freelancers

Pros of hiring contractors and freelancers include:

• You’ll get talented individuals: Most freelancers are talented specialists in their areas. When you need specific expertise for a single project or a limited set of projects, you don’t necessarily want to add to long-term staff. You’ll enjoy the benefits of high-quality work without the expense of hiring a full-time employee.
• Freelancers and contractors can be affordable: A freelancer’s hourly rate may seem much higher than the salary you’d pay an employee. However, consider the actual costs of hiring staff, including taxes, health benefits, vacation and sick days, office space, equipment, onboarding and training. Freelancers and contractors may save you money. 
• Freelancers and contractors bring flexibility: Contractors and freelancers have the flexibility to offer hourly or package rates. They can be available for short- or longer-term projects, work on their own or meet with your team and can often fill a sudden gap. 
• Freelancers and contractors bring a fresh perspective: An outside perspective can be valuable. Someone not tied to a project’s direction and not part of day-to-day operations can sometimes spot weaknesses, attack a problem in a novel way or generate new concepts that staff might miss. 
• Geography is not a barrier to contractors and freelancers: Many projects can be completed remotely, allowing employers to draw from a broad talent pool not bound by geography. 

Cons of hiring contractors and freelancers

Cons of hiring contractors and freelancers include:

• Contractors and freelancers may bring risks: If you’re hiring a contractor you don’t know, ask for references. Most freelance workers are honest and have plenty of incentive to finish their work with the highest quality. However, with no perspective on this person, you may be taking a risk. Ensure that both parties understand expectations. If you’re hiring on an hourly vs. project basis, ask whether they can do what you need within a specified budget. Even this presents risks: A less-honorable contract worker could bill you for the entire budget, whether they used the allotted time or not.
• Contractors and freelancers may not be as loyal as employees: Your staff may feel more loyalty toward your company than someone working on a short-term project. Loyalty may grow if you work with a freelancer multiple times, but there’s no guarantee. 
• You have less control over contractors and freelancers: While freelancers must be self-starters and able to work autonomously, you have no control over what they do or when they do it — other than imposing deadlines. You’re their client, not their manager. 

Tips for hiring contract and freelance workers

If you’re ready to start working with contractors and freelancers, consider the following best practices: 

• Find the right contractor or freelancer: Ask for referrals from others in your industry to find reputable contractors. Freelancers find jobs on various platforms, including LinkedIn, Indeed and other websites for professionals, so consider advertising on these platforms. 
• Get administrative details in order: Once you find a contractor or freelancer, ask for and call their references to ensure they’re a good fit. Outline a budget for the project and create a detailed contract before beginning. As mentioned earlier, it’s crucial to classify a contract worker correctly. Obtain their completed W9 form and send them a 1099 during tax season to comply with the law and IRS requirements.
• Define and set expectations and project parameters: It’s critical to define — first in your mind and then in writing — precisely what you want from a freelancer or contractor. Include as much detail as possible. For example, a website developer must know the tone you’re seeking and must access the images and graphics you want to use. They must also know what links and content you want included. Apply this level of detail to writers, graphic designers, marketing specialists and anyone else you want to hire on contract. These professionals don’t necessarily understand your company’s goals or perspectives, so you must impart this information with as much precision and description as possible. Defining and setting the job’s details reduces the risk of an inadequate outcome. Having this information in writing also means you’re protected against being charged for work you don’t want.
• Agree to and set payment terms: An upfront payment agreement is a top priority. Consider sending a detailed project outline and ask for a quote. You can also offer a per-project, set amount. When the work is complete, ask the contractor for an invoice; check the invoice as you would for any other product and pay it by a date you agreed on in advance. 
• Solidify the relationship: If you like the contractor’s work, consider following up with a note of thanks. If appropriate, express your interest in using their services in the future. Your contractor relationship may be a valuable benefit in the future. 

Positioning yourself in the new economic reality

One upside to the growing part-time and gig-worker economy is that more highly skilled and talented people want to work part-time or on contract. The pandemic prompted millions of workers to reevaluate their relationships with their jobs — and found them lacking. 

Businesses have an enormous talent pool to tap into. It’s a good time to make use of that availability and to decide where these workers could fit into your organization.

Nicole Fallon contributed to the reporting and writing for this article.