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Contract Work Is Growing As The U.S. Workforce Grapples With Labor Constraints

Liz Wilke Principal Economist, Gusto 
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By Liz Wilke, Principal Economist and Tom Bowen, Economist  

A tight labor market and high inflation continue to make the relationship between companies and workers more dynamic. One new trend that shows no sign of slowing down is contract work. In fact, the number of companies on Gusto’s platform utilizing contractor workers has increased 11% year-on-year and 28% since the start of the pandemic (March 2020). Contingent workers, independent workers, and freelancers are a growing contingent of the workforce so it is vitally important that we understand this trend and the potential implications for the workforce. 

We’ve seen remote work rise across the country, and workers increasingly listing their desire for increased flexibility as a top priority. Against this backdrop, a rise in the number of people seeking project-based work (especially in skill- and knowledge-based roles) makes sense and creates more opportunity for both workers and businesses. 

To better understand the contractor trend, Gusto, the payroll and HR 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. Below are a few key findings from this analysis and the full report is available here. 

Contract work is growing and accelerated during the pandemic. 

In the last two years contractor payments have risen 23% and the ratio of contractors per employee is now nearly 1-to-5. This rise has been both steep and steady indicating that businesses in the U.S. are seeing real value in utilizing contract workers.

Figure 1. The ratio of contractors to employees at the average company has increased 63% since 2019

Figure 1. The ratio of contractors to employees at the average company has increased 63% since 2019

Flexibility is driving independent workers to contract positions, not lack of available full-time employment 

 Among contractors that do not already have full-time traditional employment, 67% say they would not prefer a traditional employee arrangement. While the labor market remains tight and the amount of available jobs still exceeds the number of people looking for work, U.S.-based contractors choose contracting to have more flexibility on their location or hours (58%). With many companies still sorting out their own strategies for flexible work arrangements, contract work empowers workers to ensure the terms of their working arrangements best fit their needs.

Figure 2. 58% of U.S. contractors started contracting to gain flexibility

Figure 2. 58% of U.S. contractors started contracting to gain flexibility

Nearly all U.S. contractors have some form of healthcare coverage 

Of contractors in the U.S. 32% have health insurance through an employer, 33% through a private company or healthcare marketplace, 12% receive medicare or medicaid and only 10% of US-based contractors don’t have health insurance. This is important to note as the discussion on worker classification in the U.S. unfolds, ensuring independent contractors have access to benefits is a primary focus for legislators. 

Figure 3. Most U.S.-based contractors have some form of retirement savings

Figure 3 Most U.S.-based contractors have some form of retirement savings

Internationally, contracting creates opportunity for women 

US-based and internationally- based women are more likely to choose contracting for flexibility. Of women contractors 41% of U.S. based and 46% of international contractors selected it as their top reason for contracting.

This flexibility has a positive association with women’s representation in the workforce. We see that women’s share of contractors in each country is generally higher than their share in the overall workforce with the greatest differences in Canada, Mexico and the Philippines. 

Figure 4. In several countries, women are a higher share of contractors than the labor market 

Figure 4. In several countries, women are a higher share of contractors than the labor market 

U.S. companies are paying international contractors better than workers’ home countries for similar work. 

Of the U.S. businesses utilizing international contractors, 69% of international contractors say their pay from contracting is better than pay for similar work in their home country and 38% say it is “much better.” For these workers contracting is allowing them to unlock additional value for their skills beyond what is available in their local labor market.

Contractor work is here to stay and shows know signs of slowing down

The last decade has seen a sharp rise of gig economy work and Gusto data illustrates that trend is now growing among many knowledge- and skill-based workers who want more flexibility in how, when and where they work. While contracting is not without its challenges, it also creates opportunity for many small and medium sized businesses in the U.S. that are trying to navigate changes in the economic landscape. 

For more on how businesses can maximize their work with contractors, read our business contractor report here.

Liz Wilke
Liz Wilke Liz Wilke is a Principal Economist at Gusto, researching the state of work and business in the modern economy. She is a veteran of both the technology and government sectors, where she directed research programs and public spending that supports dynamic, resilient companies and workers across the globe. Liz currently lives in Washington, D.C.
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