US businesses are increasingly hiring workers on temporary contracts as recession fears discourage companies from adding more permanent staff.
Employers posted 26 per cent more openings for contract positions between May and November than in the same period last year, according to data from LinkedIn. Postings for full-time roles were up only 6 per cent over the same period, and Department of Labor data show that new job vacancies fell in October.
“We are starting to see power shift back towards employers a little bit,” said Christine Castaneda, the head of professional recruitment at staffing firm LHH. “Employers are being more conservative.”
Beauty product maker Alleyoop originally planned to add 10 to 15 permanent employees to its 20 person team in 2023, but opted to hire only four and use a mixture of full-time contractors and freelancers for the other roles.
“When the market started slowing down, I got a little more selective about it,” Alleyoop founder David Manshoory said. “And I was like, let’s go lean in and hire . . . the key roles, and then leverage freelancers for the ones that are more nice to have, or where we feel like people enjoy being freelancers.”
In previous downturns, businesses have shifted open permanent jobs into temporary contracts to cut costs. The Covid crisis accelerated the trend, according to Liz Wilke, the principal economist for the payroll software maker Gusto. Many employers hired contract workers for the first time to assist with rapid strategic and operational shifts during the pandemic. Others leaned on contractors to make up for short staffing amid a worker shortage, Wilke said.
Contractors accounted for one in 10 of the employees paid through Gusto five years ago. Now, they are one in five. The number of businesses hiring contractors has grown, too. The number of companies on Gusto’s platform utilising contract workers grew 11 per cent this year and 28 per cent since the start of the pandemic.
“All of the changes that have happened as the world turned upside down really brought forward the advantages of contractors as an agile, really flexible, but also really skilled workforce,” Wilke said.
Larger companies have driven the demand for contract workers, with most being hired to do consulting, administrative, or creative work, according to Gusto data.
But for smaller businesses, rising wages have made it difficult to outbid large enterprises for top talent. Many have turned to contract workers to fill the gap, said the founders of human resources software maker QuickHire Deborah Gladney and Angela Muhwezi-Hall.
“It took us about eight months just to find one tech hire because we just couldn’t compete salary and benefits wise,” Gladney said. “Having contractors was the only way we were able to weather that long period of no tech hires without taking a major step back product-wise.”
Typically contracts are reserved for entry level jobs, but employers are offering them more and more for higher seniority, middle manager roles as well, according to Castaneda at LHH. US companies have also been increasingly focusing lay-offs on middle managers working in office jobs.
Before the pandemic, Philadelphia-based design agency Mod had never hired anyone on a temporary contract. But as it started doing more work remotely, director of operations Adriana Vázquez realised that hired contractors could be a more efficient way of completing the film production projects they once subcontracted to production studios.
“We are in growth mode, and our contractors allow us to stay there,” Vázquez said.
Today Mod employs 10 full-time contractors leading animation and web development, and works with about 40 others on a project by project basis.
The wave of contract hiring has also provided new opportunities for workers who might have a more difficult time competing for a full-time role, Wilke at Gusto said, including those who are older or lack traditional qualifications such as a college degree. Many will probably aim to use contract positions as a stepping stone into competitive industries including communications and tech.
And despite the associations of instability and reduced pay with contract positions, 67 per cent of contractors surveyed by Gusto said they would not prefer traditional work.
Corey Husak, a research fellow at the Washington Center for Equitable Growth who also advises Democratic Senator Bob Casey, warned that it is “rarely a good thing for most workers” to be classified as independent contractors instead of employees. Contractors are excluded from many safeguards in US labour law including minimum wage requirements, the right to organise a union, and discrimination protections.
“We often think of contracting as a second best form of employment,” Wilke said. “That’s changing. They fit into the needs of business, and also supplement and complement the skills and abilities of employees.”