The topic of this meeting was to evaluate the pros and cons of freelance vs. full-time staff as organizations grow. Reading included:
- HBR: Is Freelancing Right For You? by Ariana Green
- HBR: The Rise of the Supertemp by Jody Greenstone Miller and Matt Miller
- HBR: What Unpaid Internships Say About Your Company by Ross Perlin
- Slate: Two Cheers for Unpaid Internships by Matthew Yglesias
- Panodaily: Ask Any Entrepreneur: The Freelance Economy is a Sucker’s Game by Sarah Lacy
- Forbes: Temps: 3 Reasons to Hire Them Now by Kevin Kruse
- Fast Company: Free Agent Nation by Dan Pink
The first HBR blog article summarized the benefits of freelance staff and the benefits of full-time staff quite succinctly from the point of view of an employee which is helpful for us employers to reflect on the point of view of our employees. Freelance staff tend to value flexibility of their time over consistency of regular paychecks and benefits provided by full-time employment. Full-time employees tend to bring more loyalty and can put their heart into work products as they feel included in the success of the business. Freelance employees allow employers to respond to peaks and lulls of workload on a month-to-month or even week-to-week timeframe by contracting to deliver discreet components of work whereas full-time employees respond more to the timeframe of year-to-year workload trends.
The following model was proposed as a way to conceptualize different types of full-time and freelance employees. The full-time employees within the center of the diagram represent the core business service delivery staff. Though they may themselves have differentiating and specialized roles, they tend to be generally involved in many projects and dedicated solely to the mission of the business (in their professional lives). Freelance staff which still fall within the sphere of the business can be categorized to the left as staff who provide capacity to deliver higher volumes of work which the employer does not feel confident are long-term levels of workload. On the right side, some freelancers provide specialized capabilities which may only be required for a single project and which the employer does not feel the business has a long-term, full-time demand.
Employees move between the inner circle and the outer circle based on high confidence projections of long-term workload. If there appears to be full-time workload, employers should consider the benefits of bringing an employee into the core of the business if the employee is willing to commit to the firm. If revenues are on a downward trend, employers may move an employee to part-time to reduce payroll costs to be in-line with revenues. One model for gauging a threshold or a justification for bringing a freelancestaff from part-time to full-time staff was: Did you have the revenue over the past 3 months to justify hiring someone; and do you have a confident forecast for the upcoming 3 months to justify hiring someone. During the time a freelance staff is in the outer circle can be a good time to gauge their ability to fit into the culture of the organization and a more full picture of their skills and abilities which cannot be understood through an interview alone.
One article suggested the best employers ‘hire slow and fire fast’ as a way to constantly improve the quality of staff in an organization. A ‘network of professionals’ model whereby an individual engages freelancers exclusively was also suggested as how some individuals have developed a higher degree of delivery capacity without hiring any full-time staff or having any of the HR department requirements.
From a regulatory perspective, freelance workers may require us, as employers, to respond to Department of Labor audits to prove employees are correctly designated as freelance contract workers. The burden of proof is on employers, not employees, to prove employee has other sources of income and does not deserve full-time employee status. This can include responding to a 17 point letter from the NY State Department of Labor.
When a business has an HR department which regularly accommodates requirements of hiring full-time staff, the on-boarding costs, benefits costs and tax costs of hiring full-time staff may be cost-effective when compared to the costs and distractions (and potential penalties) of free-lance staff if costs of audits are considered. This is particularly the case for employees without families as health care costs vary dramatically from ~$25k/yr for an employee with a family to ~$12k/yr for a married employee, to $7k/yr for a single employee.