FIRE THEM ALL… THE RISE OF THE INDEPENDENT CONTRACTOR?
- Millennials want flexibility to travel, volunteer, and find their direction.
- Gen X wants more flexibility to take Gramma to a medical appointment, coach little league, and attend the school play.
- Boomers want more flexibility to spend time with the grandkids, golf, curl and dabble with retirement.
If flexibility is important to our entire workforce, is this license for business to move from a FTE workforce to an independent contract workforce?
Would this be a good thing?
PROS (THERE ARE MANY, A SAMPLING IS BELOW)
- Flexibility! While every independent contractor is different, generally a big “pro” is being able to control your schedule; with an eye on being reasonable and meeting the business’s operational needs.
- Taxes… for now, there are still some good tax advantages to earning income as a sole proprietor or independent contractor. Those tax advantages have been narrowing in recent years, and the small business tax changes on the horizon will narrow even further.
- The business may save money on benefits, insurance, RRSP, pension, severance, overtime and the expense of other employee perks.
- Independent contractors may have more ability to work from home, saving overhead and office expenses for the business.
- The business may have better ability to assign the best people to do the best work, and largely avoid the perceived need to work with under-achieving employees.
CONS (THERE ARE MANY, A SAMPLING IS BELOW)
- Provincial employment standards legislation is typically not applicable to independent contractors. The written contract governing the relationship is so important and needs to be well drafted – talk to a lawyer!
- Employer-sponsored benefits and insurance coverages are not usually extended to independent contractors, and if they are, there is often a minimum weekly hours of work requirement to be eligible.
- Independent contractor agreements do not typically include severance provisions, or an obligation for the business to renew the contract year over year – when the contract ends, that’s the end of the cash flow for the contractor.
- An independent contractor may need to incorporate (at least get a GST number) and may need more robust insurance coverages, such as CGL, auto and PE&O – all added expenses that a traditional employee need not incur.
- There is a real concern for the business regarding retention, succession planning, and creating and keeping institutional knowledge.
- It is hard to create culture with what might be a transient workforce that is not invested in your business success.
- The business may have increased concern over protection of confidential information and intellectual property, especially if the contractor is working with other, potentially competitive, organizations.
- Does it really save money? Usually an hourly rate of an independent contractor will include compensation for the loss of benefits, insurances, overtime, etc. and the business loses some oversight over time management of the contractor.
- Business needs to beware of creating a dependent contractor relationship… negating almost all benefit of engaging independent contractors.
There are pros and cons to an independent contractor workforce, which is likely the reason why most businesses have some, but not all, as part of their workforce; and it is unlikely that we’ll see a sea-change in the near future.
When I was contracting as legal counsel to a great business, the cons were three-fold:
- Uncertainty over workload and monthly billing - it is hard to manage the home and family budget.
- I never felt that I was truly part of the team. The business was as hesitant to invest in me as I was in it – we all knew it was a short-term engagement.
- It limited growth of my own business - I worked too much for one client leaving little time to invest in growth.
However, being a contractor while my kids were very young was a huge advantage – an investment in time for our family. Likewise, I had exposure to a wide variety of sophisticated and challenging legal work, arising out of many provinces and the US – experience that has greatly benefited my current practice.
All in all, being a contractor was a very good and educational experience, and one that I will think long and hard about repeating.
In short, I don’t believe that any employer is considering “firing them all” and hiring a contractor workforce. A healthy balance of FTE, PTE and independent contractors is likely the status quo.