Contracting is on the rise. Is your business ready to seize the opportunity?
By Liz Wilke, Principal Economist and Tom Bowen, Economist
As the nature of work continues to evolve, more workers are choosing contracting to build skills, earn money, or support themselves with a flexible, self-directed career. MBO Partners’ report on independent workers indicates a 34% jump in the number of independent contractors in the U.S. last year. Workers’ desire for more flexible work and the ease of assigning and monitoring tasks and jobs through digital platforms contribute to this trend.
While more workers are seeking contracting opportunities, businesses are also relying on contractors more than ever before, thanks to quickly changing needs in the post-COVID economy. One-third of business owners say having access to contractors is critical to their success, as they help them tap into hard-to-find skills while quickly responding to agile, project-based needs.
But there’s one important caveat. To effectively work with contractors, businesses need a deep understanding of what they value, and they need to have a strategy to help attract the best possible contracting talent. This helps them create a pool of high-quality contracting talent, develop positive work experiences for their contractors, and support them in producing their best work.
Gusto, the all-in-one people platform serving over 200,000 small- and medium-sized businesses, surveyed over 2,000 U.S. and international contractors and combined the results with platform data to analyze the contracting experience across U.S. companies. This report explores what contractors want from their employers, while providing recommendations for businesses seeking to better meet contractors’ needs.
By providing flexibility and interesting work, companies can expect to build long-term relationships with highly skilled, sought-after contractors, which will develop into a pool of available, agile talent for years to come.
For more on the growth of contractors and their impact upon the labor market and broader economy, please see our economic report on contractors here.
- Above all else, contractors value flexibility. The majority of U.S. and international contractors prefer contracting work to traditional employment as it provides them with autonomy, money-making, and learning opportunities. Among contractors that do not already have full-time traditional employment, 67% say they would not prefer a traditional employee arrangement.
- Working with contractors isn’t always about cost. The pay range for contractors widely varies for U.S. and international contractors. U.S. contractors seem to get more specialized work requiring greater skills and experience, allowing them to command higher rates.
- Businesses most commonly tap contractors for consulting, administrative, and creative work. Twenty-seven percent of U.S. contractors and 18% of international contractors do consulting for clients; 18% of U.S. contractors and 37% of international contractors provide administrative and back-office support. Twenty-seven percent of U.S. contractors and 26% of international contractors provide businesses with creative work, like social media management, design services, and copywriting.
- Contractors’ main challenges include finding new clients, income reporting and tax compliance, and getting accurate payments on time. Forty-five percent of U.S. contractors need help finding new clients and jobs. Twenty percent of U.S. contractors and 18% of international contractors need help getting accurate payments on time.
- Contractors are well educated lifelong learners, and they value opportunities to upskill and gain new experience. Seventy-three percent of U.S. contractors and 84% of international contractors have a university degree or higher. Thirty-nine percent of international contractors who have a university degree said they learned the skills for their last job through informal or self-taught means such as online courses or publicly accessible resources like YouTube videos. For both U.S. and international contractors, more than 90% take advantage when their clients offer any type of skill development or training opportunity.
Why do contractors choose to pursue contracting work? Flexibility.
Contractors have a variety of different reasons for working as contractors. However, the main reason U.S. contractors choose contracting is to have greater flexibility over their location or hours (58%). After that, wanting to choose their projects (32%) and earning supplemental income (29%) are the main reasons. Just 16% of U.S. contractors said they pursue contract work because they couldn’t find a full-time employee role.
Twenty-seven percent of U.S. contractors have a full-time job in addition to their contracting work. Of these, nearly 70% are working less than 10 hours per week on contract work. Their primary reasons for contracting are to supplement income or learn new skills.
Figure 1. Top reasons U.S. contractors offer contracting services.
For U.S. contractors, contracting can support early entrepreneurship. Though only 5% of contractors said they also run a business that isn’t related to their contracting work, 55% of those said that contracting provides more than half of their total income.
Entrepreneurs in particular may value the flexibility of contracting work to support them as they launch other business ventures. For entrepreneurs, contracting can be a less-risky on-ramp to entrepreneurship, instead of completely foregoing regular income to pursue a new business venture.
How are companies tapping into contractors’ skill sets? Consulting, administrative, and creative work are the most prevalent.
Contractors do many tasks for clients, using many different skills. Consulting and creative work such as design or marketing are the most common tasks for U.S. contractors. International contractors are more likely to do administrative or routine work, such as recordkeeping, data entry, and general web research.
Consulting is the “classic” contractor task. 27% of U.S. contractors and 18% of international contractors consult for clients. Consashlulting brings specialized expertise and know-how direct to businesses. Businesses benefit from contractors’ expert knowledge, and contractors typically earn more money by providing their expertise to multiple clients rather than just one.
Administrative or routine tasks include many “back office” activities. 18% of U.S. contractors and 37% of international contractors provide administrative and backoffice support. These tasks are necessary for the business to function properly, but do not create unique value for the company.
They tend to require fewer skills and less oversight, as businesses can easily assess whether these tasks have been performed well. All of these factors make administrative work attractive to contract out, so employees can focus elsewhere. The cost competitiveness of international contractors can make them an attractive choice for this type of work.
Businesses also see gains to contracting out creative work. This is the second-most common task for both U.S. and international contractors, with 27% of U.S. contractors and 26% of international contractors doing this kind of work.
Like administrative work, many creative tasks such as social media management, design services, and copywriting are relatively easy to measure. This makes them easy to give to external workers. Some companies contract with other companies to provide these services. For smaller businesses, a single contractor can be more cost-effective to get the job done.
Working with contractors can be most cost-effective, but businesses shouldn’t always expect to pay less.
The pay range for contractors widely varies. International contractors are generally paid less than U.S. contractors within the same task groups. This held true across all task groups, but was most pronounced among contractors performing technical work (e.g. data science, data analysis, software engineering, etc.) and non-technical creative work (e.g. marketing, social media, design, copywriting, etc.)
However, it’s important to note the task types are aggregated – meaning the work done by U.S. contractors may not be the exact same as the work performed by international contractors. Much of the differential in pay could be due to businesses assigning U.S. contractors more specialized or skilled work, therefore allowing U.S. contractors to command higher rates.
Figure 2. Hourly pay rates, by type of task, U.S. contractors
Figure 3. Hourly pay rates, by type of task, international contractors
No matter where contractors are located, businesses may want to consider the types of work that are best done by contractors versus in-house. For example, tapping contractors for creative work can have a lot of advantages, including the agility and flexibility to scale up and down for projects as needed.
If businesses need to work closely with contractors and have multiple touch points throughout the work day, it’s worth considering whether it may be more efficient to bring that work in-house.
For businesses that need contractors to have multiple touchpoints with their employees, it’s important to think strategically about who their key internal partners should be. By clearly designating the key people they need to build close relationships with, businesses can help ensure contractors understand what’s expected of them and how they can deliver the most value.
When working with international contractors, businesses need to consider whether the challenges of coordinating work, cultural differences, oversight and training needs, or other costs could negate potential financial advantages.
Businesses should consider the support each contractor will need to deliver effectively against their statement of work.
Contractors need businesses’ support to thrive – whether that’s coordinating across time zones or getting paid on time.
Like any worker, contractors face challenges to thriving in their careers. U.S. contractors are most likely to face challenges finding new clients and complying with income reporting and tax requirements. International contractors are more likely to face challenges when working across many time zones and overcoming language or cultural barriers with U.S. companies.
Figure 4. U.S. and international contractors say their biggest challenges include finding new clients or jobs and accessing on-time, accurate payments.
For more of our data findings and analysis, download the full report here.