Events over the past few decades have conspired to bring about a dramatic change in the nature of employment that is only now beginning to manifest. Simple things that seem to have no impact on employment, like slight adjustments to the tax code or legislation intended to provide governance to public corporations, have had a tremendous impact on how organizations are structured. And, of course, how organizations are structured has a direct link to employment.
In the past, business leaders believed that they needed to do everything and do it all well to succeed. As a result, mega-corporations were developed. As time passed, executives began to realize that perhaps some small or niche player out there could take over a small piece of the process, helping to do it better and cheaper, because that is their specialty. Call them what you will-outsourcers, third-party providers, contractors, consultants, service organizations-they were there to improve productivity, reduce cost, and allow the business to focus on their core competencies.
As the concept gained steam, outsourcing took over areas that companies would traditionally not outsource, such as customer care, 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 of when someone mentions outsourcing. The boutique marketing firm, the local law or accounting practice, the logo designer you found online, and big companies like IBM Global Services are all outsourcers in one form or another, just on a very different scale.
Once outsourcing gained a foothold, it became the hot topic, particularly for publicly traded companies. Why? Well, quite simply, outsourcing was a quick and dirty way to reduce headcount, which demonstrated to industry analysts and investors that corporate costs were being cut to benefit the bottom line. Needless to say, much outsourcing was done as a cloak, simply shifting the line item where the expense was recorded, delivering negligible savings, and, at times, costing a good deal more.
Two key ingredients in recent years have caused companies to review their entire employment infrastructure. The first is benefits, which includes health, medical, family-related (such as FMLA), and retirement. The cost to an organization to manage these benefit programs, particularly in light of the dramatically increased amount of regulation concerning healthcare, is staggering. The liability issues companies bear place an additional burden as well.
As a result, many companies have begun to pursue 1099 relationships (with 1099 referring to the IRS form companies complete when engaging a sub-contractor, not an actual employee) instead of W-2 employees. Many professional and executive positions are now filled by contractors, not actual corporate employees.
No one knows what the future holds, but with the trend toward increased regulations, which places an even greater burden on employers, my expectation is that companies will move even more to 1099 contractor relationships. Are you ready to be a consultant or contractor, which in many cases means working for a small firm or becoming a sole proprietor?