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Understanding the Trends of the Growing Independent IT Workforce

Understanding the Trends of the Growing Independent IT Workforce

Company leaders everywhere seem to be facing an unprecedented number of disruptive trends to the business landscape, especially in regards to their IT workforce. The rapid pace of digital transformation, massive generational shifts, and a shrinking IT talent pool are just a few of the major challenges to navigate. However, another notable trend that is crucial to understand is a subtle yet significant shift in the traditional employment model, with more and more professionals drawn to the rising gig economy. As these individuals choose contract work over permanent positions, many companies are left grappling with the implications of the growing independent IT workforce. What does this mean for your business?

The Growth of the Independent Workforce

Reports vary as to the exact number of independent workers in the US. According to a McKinsey survey, there are at least 54 million independent contractors in the US, which is 27 percent of the US working population. This is lower than the estimated 35 percent from a Freelancer’s Union survey reported by Forbes. On the other hand, it’s higher than government data, quoted in the McKinsey report at just 22 percent.

Despite the discrepancies, there is no argument that the percentage of independent contractors is on the rise. A publication from Staffing Industry Analysts projects that the independent workforce will grow a further 16.4 percent over the next five years. By 2021, 48 percent of workers will have spent at least some of their careers as an independent contractor.   Furthermore, a study from Intuit estimates that the independent workforce will be standing strong at 60 million workers by 2021.

As the McKinsey report points out, this trend is essentially a reversal of history: “The Industrial Revolution moved much of the workforce from self-employment to structured payroll jobs. Now the digital revolution may be creating a shift in the opposite direction.”

This growth is particularly apparent for technology workers, with CompTIA reporting that out of 7.7 million IT workers in the US, over 1 million are contractors. Below, we explore why this is the case.

Why are More IT Professionals Choosing to Become Independent Contractors?

There appears to be two key drivers of the growth in the independent IT workforce. The first is the fact that independent contractors typically earn greater compensation than W2 employees. Whether they are a sole proprietor, an LLC, or a corporation, they will be responsible for paying employment taxes directly, all insurance costs, and benefits. As such, they can set their own bill rates at a significantly higher rate, earning more than enough to cover those extra expenses. According to the aforementioned Staffing Industry Analysts publication, 47 percent of independent contractors report making more money than they would in traditional employment. These same individuals also believe that, as independent workers, their more diverse portfolio of clients provides greater economic stability and security.

The second driver of the growing independent IT workforce is the inherent flexibility of this employment model. These individuals essentially get to be their own boss. Independent IT contractors can be more selective over what projects they choose, have greater flexibility over their hours, what tools they use to get the job done, and have much greater control over their own career paths. For this reason, Forbes reports that 79 percent of these individuals say this work model is better than a traditional job.

Furthermore, the independent contractor model also affords IT professionals much wider exposure to different and new technologies, allowing them to continually develop their skill sets and stay leading edge. This huge benefit is not consistently available to the traditional W2 employee, who will typically remain with the same employer for an average of five years.

On a final note, many independent IT contractors choose to partner with a trusted consulting  firm. These firms invest millions of dollars in marketing efforts to find out where the best technical  jobs  are. When the consulting firm finds the right technical match, they do the hard work of representing and selling the IT contractor to the client.  The IT contractor does not have to worry about prospecting future clients when it is aligned with a true business partner. Another value-add is the fact that consulting firms typically process accounts payables faster than the direct client, so the contractor never has to deal with collecting receivables or worry about getting paid-as long as they are producing the required work product.

The Benefits of Hiring Independent Contractors in Technology

As mentioned above, CompTIA reports over 1 million people in the independent IT workforce, and that number is only growing. For employers, the benefits of hiring IT contractors often outweigh the benefits of a traditional employment model. It is key to remember that information technology is often leading-edge, which lends itself well to hiring independent technology workers who are specialized in skills specific to the project. Hiring a W2 employee with the same specialized skill set would leave you scrambling to find them work to do after the project is completed.

Additionally, aggressive demand for technical talent continues to result in an ongoing talent shortage. The independent workforce is an effective solution to this predicament. The talent pool of IT consultants inherently moves between companies more rapidly than the traditional employment model, with projects being completed on a more frequent basis. Plus, as the lure of independent work appeals to more and more technology professionals, that talent pool is steadily growing, providing more resources to tackle the talent shortage.

Companies hiring independent IT contractors through a staffing firm also receive the added benefit of eased burden on the HR and accounting department. Not only is the independent contractor required to cover their own employment taxes, health insurance, and benefits, a staffing partner also handles all the corporate insurance requirements (flow through from MSA), payables, and legal compliance on behalf of the client. Plus, for organizations that are restricted from directly hiring contractors, working with a staffing company prevents them from losing out on a huge portion of the talent pool. Many companies are caught in this trap of requiring W2 consultants.

Are You Ready for the Growing Independent IT Workforce?

As the independent IT workforce continues to grow, company policies and procedures regarding this employment model need to shift accordingly. That leaves the question, are you ready to embrace the growing independent IT workforce? Furthermore, who are you partnering with to augment your workforce? Faced with a deficit of talent, companies need to strategically align themselves with a staffing partner that is not over-leveraged in their business relationships.

There are differences in staffing firms and those who provide high level staff augmentation.  The difference is the team’s ability to discuss higher level technology and truly understand your business needs.  If you’re not sure, we challenge you to QUIZ the Resource 1 team!

At Resource 1, we build high-valuable relationships with our clients to ensure they keep pace with the cutting edge of technology. We also nurture a strong network of independent IT contractors, who turn to us time after time for new projects and amazing opportunities. Let us know today how we can assist with your hiring initiatives.

avalentine@r1consulting.com'

About Anastasia C. Valentine

As the Executive Vice President and Managing Director at Resource 1, Anastasia oversees the Technical Recruiting and Human Resources departments. She is involved in the overall strategic planning of Resource 1 and implements long term and short term company goals. Over the last 20 years, Anastasia has been involved in assisting global organizations develop cutting edge technology through identifying and positioning talent.
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