The Freelancer Economy Reaches the Shop Floor

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Editor’s note: This article originally appeared in the July 2017 edition of Surplus Record.

In a matter of years, the freelancer and sharing economy has reshaped the very core of certain industries, such as personal transportation and lodging. But while companies like Uber and Airbnb are better known as catalysts of change in connecting new types of capacity outside of traditional labor and business markets with consumer demand, the real shift that is taking shape in what we term the freelancer or sharing economy is happening in business-to-business markets.

Freelancers, or independent workers, are not employees of companies. Nor are they employees of staffing firms or “payrolled” by a third party. We define an independent worker as one that does not work exclusively as an employee of a given company but rather works for any number of different companies, usually engaged in various gigs or projects. That independent worker could be classified as a 1099 IC depending upon multiple factors.

Worker classification is an important issue. Either the accidental or deliberate misclassification of employees as contractors — even if they were “hired” as contractors — can lead to significant fines and open companies up to litigation. We have previously noted that many workers want to organize themselves and act like businesses and work for different companies (not just be an employee of one company). One of the key tests of worker classification is whether workers exhibit being in business for themselves versus being dependent on a company for employment.

This independent workforce is an increasingly important part of the economy. MBO Partners, a gig economy solutions enabler, notes that in the U.S., there are roughly 30 million independent workers. The number of “full-time” independent workers is also growing at a faster rate (12%) than the regular workforce domestically, according to MBO. These are often well-paid individuals. Independent workers earning $100,000 or more annually represent the fastest growing segment of the population (45% over the last five years) — one that comprises highly skilled workers who are vital to enterprise performance.

But so far, many of these independent workers have gravitated to technology (IT), design and other services-based roles. The opportunity for freelancers in manufacturing, however, is beginning to increase for many of the same reasons it has in other sectors. Chicago-based FactoryFix, for example, matches skilled labor in the engineering/factory automation, maintenance repair (technicians), electrical contractor/panel builders and machine operators/fabrications (including precision machining, tool/die, welding and assembly) areas with manufacturers who need short-term or long-term help.

FactoryFix’s marketing materials suggest it is “the world's first platform that lets manufacturing companies hire vetted industrial skilled labor professionals by the hour, whenever they need help.”

The matching process, based on skills and requirements, is localized to specific geographies. The process is typically driven by a smartphone app. Freelancers set their own rates, which are in turn marked up by FactoryFix and billed to buyers. As with other similar matching services in different industries, many freelancers that work through the FactoryFix platform have other “gigs” or jobs, which is commonplace in the independent contractor workforce.

Buyers can decide not to “cut out the middleman,” as well, but often have access to an expanded labor pool. Crain’s Chicago Business notes in a story on FactoryFix that “employers pay $100 per hour to hire a robotics or automation engineer or $65 to $75 per hour for a machinist. FactoryFix takes a 30% cut … by hiring contract workers, the employers save on payroll taxes, liability and unemployment insurance, and the cost of paying wages during production downturns.”

The advantage for workers (compared with contracting through staffing firms) is greater flexibility and typically higher wages given the often higher markup of traditional agency intermediaries. It can also let them decide between full-time, part-time or periodic types of working models.

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