The rise of the contractor

With unemployment at a 50-year low, many organizations are open to new working practices - welcome to the contracting era

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Contracting is increasing. Employers in developed economies face acute labor shortages and cannot hire enough staff. At the same time, the shift to remote work has opened up fresh possibilities regarding workforce development and management.

These changes are driving organizations to rethink traditional employment practices. The most forward-thinking are reducing their dependency on a full-time salaried workforce and are turning more and more to on-demand professionals who can fill skills shortages on a project basis.

A 2021 survey by HR software company Ceridian found more than half of executives planned to increase the size of their team over 12 months, with 35% taping contractors to support their expansion. As the “gig economy” booms, 62% of these executives said freelancers would replace a substantial number of full-time staff within five years.

The most forward-thinking are reducing their dependency on a full-time salaried workforce, and are turning more and more to on-demand professionals who can fill skills shortages on a project basis.

The findings chime with Specialist Staffing Group's polling: more than 60% of 4,960 respondents to our How the STEM world work research carry out some form of contract work, reflecting an increasingly flexible workforce.

“This style of work is on the rise as employers become output rather than input-focused: paying out for a project or task completion rather than having people commit to regular hours,” says Andrew Burke, Dean of Trinity Business School in Dublin, who ran the Centre for Research on Self-Employment between 2014-2020.

Covid-19’s lasting impact

A powerful driver of the shift to self-employment has been the Covid-19 pandemic, says Burke. “One big thing that held companies back from using more freelancers was the fact that they worked off-site; there was a feeling we can’t control them or keep oversight of what they are doing. Then Covid came along and forced all their workers into that situation. Integrating freelancers is much easier if everyone is working from home.”

Jamie Woodcock, a senior lecturer at the Open University and author of The Gig Economy, agrees. “The pandemic has been a moment for many people to reassess what they want from their working lives. Many want the greater freedom, autonomy and control that comes with contract work. There’s been a big spike in people working in non-traditional ways, and this began before the pandemic, in the aftermath of the 2008 financial crisis.”

At the same time, the greater use of contract workers could help employers reduce the impact of unfilled permanent roles. In the STEM industry, there’s an estimated shortfall of over 173,000 workers in the UK alone, according to the Institution of Engineering and Technology. And in the US, STEM occupations are projected to grow two times faster than all other occupations over the next decade, according to the U.S. Bureau of Labor Statistics.

For employers, the benefits of hiring a contractor are manifold – including the ability to recruit hard-to-find specialists for specific roles or one-off projects. Contracting also shortens the time to hire and the cost of labor over the long term.

"Many want the greater freedom, autonomy and control that comes with contract work. There’s been a big spike in people working in non-traditional ways, and this began before the pandemic, in the aftermath of the 2008 financial crisis.”

Often, Burke says, freelancers are brought in to spearhead risky corporate bets. “If you are launching a new venture, contractors are great at de-risking growth; companies will use them until the new business becomes sustainable. So freelancers are actually creating new jobs.”

It’s “a myth” that contractors are competing with full-time employees, he adds; often, both groups work in harmony. “We found that if 11% or more of a company’s workforce is made up of contractors, then they grow faster and they hire more employees than competitors relying solely on full-time labor.”

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A cultural fit

The challenge for companies is ensuring cultural fit between temporary and permanent hires. “What’s critical is that the full-time employees don’t feel threatened, and the freelancers don’t feel like second-class citizens,” says Burke.

However, his research shows that highly-skilled independent workers (that is, engineers and coders, for example) enjoy much higher levels of work satisfaction than full-time, salaried staff. A big part of the appeal is the sheer variety of projects and opportunity to learn new skills across a range of roles, in addition to the flexibility to manage a better work/life balance.

Moreover, skilled freelancers “consistently earn more than equivalent employees”, Burke points out. “For employers who want to compete in the labor markets, you need to match up some of these benefits,” he says.

A big part of the appeal is the sheer variety of projects and opportunity to learn new skills across a range of roles, in addition to the flexibility to manage a better work/life balance.

One risk is running afoul of newly emerging regulations surrounding gig work. Therefore, some companies are looking to mitigate the possibility of employment litigation by outsourcing the employment of contractors to recruitment agencies, which take on much of the legal and administrative burden, such as ensuring tax compliance.

With Specialist Staffing Group’s Employed Contractor Model (ECM), for example, freelancers are directly employed by the agency and are effectively working on secondment. This removes the complexity and compliance burden of taking on a contractor for clients.

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But Woodcock warns that companies cannot view contracting as merely a cost-cutting exercise. “It’s a different kind of employer-employee relationship,” he says. “You will have to work hard to maintain a good organizational culture; companies aren’t just a collection of individuals working on tasks. You need to bring them together to really make contracting work.”

Even as pandemic restrictions around the world are lifted, it’s clear that the growth of contracting is set to continue. This shift can benefit businesses if they approach it in the right way.

Discover more insights for our How the STEM world works research

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