ACA, Independent Contractors, and the Staffing Industry

As of September 2014, freelancers now make up about 34% of the American workforce. Even when you consider that some of that 34% are moonlighters (people who have regular full-time jobs and do side gigs in their spare time) and temporary workers, that still leaves a sizable number of independent contractors. The growth of what’s being call the “freelance economy” has been driven in part by the implementation of the Affordable Care Act (ACA). Whether the ACA’s influence in this area was planned or unanticipated, its effects will be felt for some time.

Thanks to the ACA, employees who were tied to jobs in the past because they needed benefits for their families can now go out on their own as independent contractors and still get the healthcare coverage they need. Consequently, the new freelance economy will be both a threat to and an opportunity for staffing agencies.

The threat is pretty clear: your skilled employees (the accountants, engineers, software developers, etc., through which you earn a living by billing your clients for their work) have found a way to provide benefits for their families while making more money and having more flexibility with their time than they would if they were on your payroll (or your clients’ payrolls).

Sounds like bad news for staffing firms, doesn’t it? It doesn’t have to be that way, though. The new economy also brings good news for staffing firms. In order to make the positive possibilities into realities, though, you must do a bit of work.

To seize the opportunity, you’ll need to educate your clients on the benefits of hiring contractors and the pitfalls of doing so themselves; you’ll also need to prepare them for the possibility that using more freelancers can open them up to added scrutiny from various regulatory and oversight organizations (e.g., U.S. Department of Labor, IRS, state agencies dealing with labor and taxes).

Once your clients understand these risks, you can then shift the conversation to moving their contractors onto your payroll. For this service, you’d offer clients a reduced fee (one that’s less than your fee for recruiting and staffing the contractors yourself) and function as a professional employer organization (PEO) that leases the employees back to those companies.  

Not only does this approach make life a little easier for your clients, but it can also make your life a little easier by opening up another route through which you can bring more top talent onto your payroll. At the end of their contracts, for example, some contractors may find that it’s easier to have your staffing firm place them in contract jobs (rather than source jobs on their own). In this case, you’d have the opportunity to place them in more traditional and higher-margin contract positions.

The freelance economy isn’t going to disappear any time in the near future. While it’s here, instead of bemoaning the difficulties it brings, focus instead on its many positives. With the right outlook and careful planning, you can turn lemons into enough lemonade to quench your clients’ thirst—and your own!


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