20% of Small Businesses Now Prefer Independent Contractors

Thanks in part to the Affordable Healthcare Act, independent contractor hiring is on the rise, according to a monthly SurePayroll survey.

Nearly one in five small business owners say they're now say they’re more likely to hire an independent contractor than a full-time employee, according to results from our August Small Business Scorecard. It’s a dramatic sea change in how small businesses operate, and perhaps a signal of how our economy will operate moving forward.

Why Go Independent?

Of those more likely to hire independent contractors, half said it’s simply easier to pay someone for a specific task than to bring on a full-time employee. They contract out services like marketing, information technology and administrative work.

Using a 1099 or independent contractor means not having to worry about payroll taxes and benefits, which saves businesses money. At the same time, they’re able to take advantage of the specialized skills these contractors offer. Thirty-six percent of small business owners said reduced tax and benefits costs was the top reason they hire independent contractors.

Health Care in Play

The other macro factor at play here is the much talked about Affordable Care Act. Of those more likely to hire independent contractors from our survey, 23 percent said they’re doing it to stay below 50 full-time employees, in response to requirements from the new health care law.

At the same time, contractors are freed up to do this type of freelance work, because the ACA will allow them to get health insurance on the open market. The government, in this regard, has incentivized this environment.

Looking Ahead

What does it mean for the long-term stability of the economy? In some ways, it’s been good for businesses. They can employ specialists when they need to and otherwise save on costs. They’re moving forward steadily in a jobless recovery, which our data supports. Optimism is high (71 percent) and the average paycheck is up (0.2 percent), so they’re paying existing employees a bit more, though hiring is slightly down (0.2 percent).

My concerns are that 1) As a worker, it’s hard to feel you’re on stable footing when you have to constantly string together contract work; and 2) What happens to the workers without these specialized skills? How do they compete in this changing marketplace?

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