What you need to know about the freelance economy

Small Business Guides

6 min read

As a business owner, you have access to a fast-growing, highly-skilled economy of freelancers. Here's what you need to know about this new workforce of America and how it can benefit your business.

Freelancers – an army of unconventional workers

Technology has changed the way people work, especially in the past decade. Today there are more freelancers than ever working in the United States.

Freelancers or independent contractors can be defined as people who have engaged in supplemental, temporary, project-based or contract-based work. There are approximately 53 million of them in the US, which is about 34% of the workforce. Together they add about $715 billion to the US economy.

But who are they? There are five main categories of freelancer:

  • Independent contractors
    Most freelancers are also called independent contractors. They don't have traditional, full-time jobs. Instead, they do freelance or temporary work on a project-to-project basis.
  • Moonlighters
    Moonlighters have the best of both worlds. They have a traditional, full-time job but also do freelance work on the side.
  • Diversified workers
    Diversified workers earn their income from multiple income streams, including part-time employment and freelance projects.
  • Temporary workers
    A temporary worker is someone who is working on a single project, or for a single client, at any given time. However, this position is only temporary and they'll move on to another project or client afterward.
  • Freelance business owners
    A freelance business owner is someone who is a freelancer and a small business owner at the same time. They might work under their own name or their business name.

In this guide we'll take a look at why so many people find freelancing attractive – and how your business can benefit from using freelancers.

Some of the above information in this guide is drawn from "America: A National Survey of the New Workforce" by the Freelancers Union.

What's the appeal of freelancing?

To understand how freelancers can benefit your business, it helps to understand why people become freelancers in the first place. Some of the reasons include:

  • Income
    Multiple projects and lower overheads mean freelancers can make more money. 77% of freelancers said they make the same or more money than they did when they were employees.
  • Flexibility
    The nine-to-five doesn't suit everyone. Freelancing means being able to take time off whenever you need to and making up that lost time at night or on weekends.
  • Work-life balance
    Offices aren't always healthy spaces to be in. Freelancers can often choose their own working location – and they don't have to commute.
  • Freedom
    Freelancers can decide who they work for and who they don't. They decide which projects to take on and how much time they want to work for. This is particularly beneficial for creative work.

Now is one of the best possible times to be a freelance worker, because the internet increasingly provides everything required. An online presence, low-cost marketing, cloud applications like accounting software, social networking for potential clients – all of these things make freelancing easier.

Why should you hire freelancers?

Freelancing doesn't suit everyone. With an unpredictable and variable income, no job security, and little in the way of health insurance and other benefits, it takes a particular type of person to be a freelancer.

And that's why it makes sense for small businesses to use the freelance economy. The type of person who can be a successful freelancer must be hard working, organized, experienced, intelligent and highly skilled. Otherwise they won't succeed.

Most important of all, they must willing to be judged on the quality of their work, not just the amount of time they spend sitting in an office. This is exactly the type of worker you need to hire for some types of project.

Although their hourly or daily rates might be higher than you would pay your employees, you'll save money in other ways. There's usually no need to provide any employee benefits, healthcare, insurance or perks. In fact, in most cases you won't even need to supply a desk, chair or computer.

Use quality accounting software to check the math before you make your hiring decision – in many cases a freelancer will save you money.

What type of work can freelancers do?

Freelancers are usually ex-employees who have decided to go their own way, so the short answer is: they can do anything employees can do. However, it's sensible to only hire freelancers for specific types of work:

  • For one-off projects
    It makes no sense to hire a new employee for a single project, if you know you'll only have to lay them off when it's finished. Paying a freelancer to do the work is much more practical.
  • For highly-skilled, short-term work
    Training staff members in new skills can be an expensive business. Sometimes it's better to bring in the skills you need from time to time – for example if you only need them for a few weeks each year.
  • For creative work
    Freelancers are often found in creative industries such as the media, design, writing, production and audiovisual sectors. This type of work suits freelancing, because there is a defined brief or specification and an end product.
  • For commission-based work
    Freelancers are used to being paid for the work they produce. They are likely to have the skills required to meet goals quickly and efficiently, which means they may be willing to work on a commission-only basis.
  • Not for customer-facing work
    Although there are exceptions, you wouldn't usually hire freelancers to serve customers in your stores on a regular basis, or work in your manufacturing workshops. That kind of work is economically better suited to employees.

In summary, if the work is skilled and involves clear goals to be achieved in a short time-frame, hiring freelancers could work out best for your business.

Five ways to hire the right freelancers

Depending on your type of business, you don't have to hire someone local – you could hire someone from the other side of the world.

But sometimes it can be hard to find an experienced, highly-skilled freelancer. Once you've decided that you want to hire a freelancer for a project, what's the best way to go about it?

  1. Ask for referrals
    You already have your own network of business colleagues, friends, suppliers and peers. Ask them if they'd recommend any freelancers for the work you have in mind.
  2. Use freelancer hiring sites
    There are plenty of websites matching freelancers to the people who want to hire them, such as Elance and oDesk. These can be useful places to start.
  3. Use social media
    Contact potential freelancers through social media sites, especially business-oriented ones like LinkedIn. Be aware that it's easy for people to disguise their experience and knowledge online, so don't take everything you read at face value.
  4. Check references
    Ask all potential freelancers to provide you with references from companies they've worked for previously – and make sure you check them. This will cut down the number of potential candidates.
  5. Test their skills
    If you're planning to hire freelancers for a major project, there's no harm in asking them to carry out a related test before you make your decision. Be prepared to pay them for their time though – especially if you use their work afterwards.

If you take your time and do your research, you'll have a much better chance of finding the right freelancer for your project.

Make the most of the freelance economy

Nearly 77% of freelancers say their best days are still ahead of them in the freelancer job market. The growth of connected technology and cloud-computing applications has helped freelancers reach a bigger audience than ever before.

As a business owner this is great news. It means you have a bigger pool of talent to choose from than ever before – and you only have to pay them for the work they do.

There might be a higher rate of personnel turnover when hiring freelancers compared to conventional employees. But the tradeoff is access to a nimble and innovative group of workers who are flexible, highly skilled and cost effective.