The events of the last decades have conspired to produce a dramatic change in the nature of employment that is only now beginning to manifest itself. Simple things that seem to have no impact on employment, like minor adjustments to the tax code or legislation intended to provide governance for public corporations, have had a tremendous impact on the way organizations are structured. And, of course, the way organizations are structured has a direct link to employment.
In the past, business leaders believed that they had to do everything and do everything right to be successful. As a result, megacorporations developed. As time went by, executives began to realize that perhaps some small or niche actor could take over a small part of the process, helping them do it better and cheaper, because that’s their specialty. Call them what you want: subcontractors, outside vendors, contractors, consultants, service organizations, they were there to improve productivity, reduce costs, and allow the company to focus on its core competencies.
Outsourcing boom
As the concept gained traction, outsourcing took over areas that companies traditionally wouldn’t outsource, such as customer service, technical support, sales, financial management, and even human resources. Of course, not all of these processes were outsourced to offshore providers, which is what many think when someone mentions outsourcing. The boutique marketing firm, the local legal or accounting practice, the logo designer you found online, and the big companies like IBM Global Services are subcontractors in one way or another, just on a very different scale.
Once outsourcing took hold, it became the hot topic, especially for publicly traded companies. Why? Well, simply put, outsourcing was a quick and dirty way to reduce the number of employees, proving to industry analysts and investors that corporate costs were being reduced to benefit bottom line results. Needless to say, much of the outsourcing was done as a disguise, simply changing the line item where the expense was recorded, generating negligible savings and sometimes costing much more.
Enter benefits and liability
Two key ingredients in recent years have led companies to overhaul their entire employment infrastructure. The first are benefits, which include health, medical, family (like FMLA), and retirement. The cost to an organization of administering these benefit programs, particularly in light of the dramatically increased amount of regulation related to healthcare, is staggering. The liability issues borne by companies also pose an additional burden.
As a result, many companies have started looking for 1099 relationships (with 1099 referring to the IRS form that companies fill out when they hire a subcontractor, not an actual employee) rather than W-2 employees. Many professional and executive positions are now filled by contractors, not actual corporate employees.
What does the future hold?
No one knows what the future holds, but with the trend toward increased regulations, placing an even greater burden on employers, my expectation is that companies will move even further into 1099 relationships with contractors. Ready to become a consultant or contractor, which in many cases means working for a small business or becoming a sole proprietorship?
