Forward to the Past — The Fall of Traditional Employment and the Rise of Contingent Work

March 12, 2009 – 10:36 pm

Where Are the Tech Jobs in the USA?

Chances are, they are not in Silicon Valley! Yep, that’s right. If you are an independent professional in the tech industry, your best bet to land work is in the Washington D.C.  or New York City metropolitan areas. According to the most recent monthly Dice Report, as reported March 10, 2009 in eWeek Careers, Silicon Valley (2,666 job openings) lags a distant third behind the Washington D.C. / Baltimore (7,904 job openings) and the New York / New Jersey (5,527 job openings) metropolitan areas.

Dice reports that job postings for the New York metro area are down 44% compared with a year ago, a logical result of the financial services implosion. Yet, on any given day there are still over 5,000 technology job openings in the New York area.

And, nationwide, the market for tech jobs is not nearly as soft as it has been in recent memory. eWeek reports that, according to Dice SVP and CMO, Tom Silver, “Dice is seeing about 50,000 job postings in a given day, compared with about 19,000 a day during the post-9/11 tech-bubble recession of 2002.”

The Rise of Contract Labor

Nevertheless, we have been reading a lot lately about massive tech industry layoffs. What they are not telling you is that many of the laid off tech workers will be invited to return to their old projects as contractors. In a fundamental restructuring of the way tech companies (if not all companies) staff their projects, departments are eliminating head count but they are keeping the live bodies attached to those heads by converting them to contractor status.

This past January, the Aberdeen Group released a white paper titled, “Contract Labor Management, Superior Workforce Strategies for a Demanding Market.” The paper reports the results of an evaluation of more than 330 enterprises made in December 2008 and January 2009. Aberdeen research discovered that 16% of the average enterprise’s overall workforce is considered contingent labor. Slightly more than one-half of enterprises surveyed believe that the use of contract labor will increase over the next two years.

In its report, Aberdeen ranked various fields according to their representation by contingent labor. Not surprisingly, information technology led the field with an index of 83%, followed by office and clerical with an index of 79%. Interestingly, professional services came in with an index of 67% followed closely by finance/accounting/banking at 64%. Clearly, enterprises are staffing white-collar positions with contingent workers almost as much as they are technology and clerical positions.

Outsourcing and off-shoring have taught companies how to plan their work around discrete projects manned by contingent workers, such as temps, consultants and contractors. The realities of global competition have taught companies about the importance of flexibility and cost containment. Healthcare reform will soon disengage health insurance from employment, allowing independent contractors to pay the same for medical insurance as corporate employees. These and other factors set the stage for a permanent restructuring of the labor force favoring an increase in the number of independent professionals. I would not be surprised to see the contingent labor force rise from 16% today to 40% or 50% ten years from now.

Are We Returning to the Ways of Yore?

Before the introduction of employee benefit packages during the Second World War and the subsequent rise of unions and legislation protecting employee rights in the workplace, all workers were essentially contingent. To be employed meant only that someone was paying you to do a job. There were no group benefits, no payroll taxes, no income tax withholdings, no pay stubs and no IRS Form W-2 at the end of the year. Working for an employer gave you no more security than did working for yourself. Either way – employee or independent contractor – you were on your own.

Might it be that we are returning to a model of work that will closely resemble the model of work prior to World War II? Or might there be a more progressive model that retains the best of W-2 employment while it acknowledges the reality of an increasingly contingent workforce.

The Solo W-2, Inc. Business Model

Independent professionals employed by Solo W-2, Inc., www.solow2.com/, enjoy the freedom, flexibility, independence and tax advantages of self-employment. They also enjoy unparalleled back-office support and the comprehensive employee benefits of corporate employment. Truly, they have the best of both worlds!

Solo W-2, Inc., is a full-service employer of record, providing comprehensive, on-going back-office support to independent professionals. Solo W-2, Inc. also provides low-cost, contractor payrolling and co-employment risk mitigation for its client companies. No employer of record costs less or delivers more than does Solo W-2, Inc. for both independent professionals and the companies that engage their contract services.

Solo W-2, Inc. provides the following back-office support for its W-2 employees:

• Contract Administration - including contract negotiation, online time and expense reporting, timely invoicing and assertive collections of accounts receivable.

• Payroll processing - including payment of unemployment insurance, workers compensation, income tax withholding and IRS Form W-2.

• Personalized Administrative Support - Solo W-2, Inc. assigns a dedicated staff person to provide personalized administrative support for each employee.

• Benefits administration - including medical insurance (choice of HMO, PPO, or HSA Major Medical), dental insurance (choice of HMO or PPO), vision insurance, Roth 401(k) plan with 200% employer match. The Solo W-2, Inc. benefits package is arguably the best benefits package available to any independent professional anywhere in the USA.

• Long-term Disability Insurance - with tax-free benefit equal to 60% of gross wage up to $10,000 per month.

• Business Expense Reimbursement - with tax-free dollars for out-of-pocket business expenses and leaseback program for expensive tools-of-the-trade.

• Medical Expense Reimbursement - with tax-free dollars for out-of-pocket medical expenses up to $10,000 per year.

Solo W-2, Inc. provides the following support for its client companies:

• Employment of Direct-sourced Contractors - Solo W-2, Inc. employs a company’s direct-sourced contractors, including re-deployed former employees who already know the company’s systems and procedures. Companies do not have to pay high consulting firm prices; they simply outsource their contractor payment processing to Solo W-2, Inc. for maximum efficiency and minimum cost.

• Cost Containment - Solo W-2, Inc. reduces the cost of engaging contingent workers by 20-30% or more compared with traditional staffing vendors. There is no charge for compliance testing and there is no charge to convert a non-compliant independent contractor to Warranted W-2 employment status. Solo W-2, Inc. does charge the consultant’s account a nominal administrative fee equal to 6% of collected revenues. Some of our clients opt to subsidize part or all of the administrative fee as a mark-up on billings, but that is between the client company and the consultant.

• Compliance Testing and Certification of Independent Contractors - Solo W-2, Inc. assesses internally sourced independent contractors for compliance with government standards and selects the most appropriate method for mitigation of co-employment risk.

• IRS-Compliant Independent Contractors - Solo W-2, Inc. certifies IRS-compliant independent contractors and serves as their agent of record through while working on your projects.

• Non-Compliant Independent Contractors - Solo W-2, Inc. converts non-compliant consultants to W-2 worker status and serves as their employer of record while working on your projects.

• Strong, Reliable Mitigation of Co-Employment Risks - Solo W-2, Inc. provides the strongest, most reliable protection against contingent worker reclassification, class-action lawsuits and other co-employment risks. Contractors employed through Solo W-2, Inc. are covered by $5,000,000 aggregate insurance for general liability and errors & omissions. Contractors are also covered by unemployment insurance, workers compensation, life insurance, guarantee-issue long-term disability insurance, employee assistance program, Roth 401(k) plan with employer match and access to true group medical insurance (choice of HMO, PPO, or HSA), dental insurance (choice of DMO or DPO) and vision insurance.

• Automated Administration - Solo W-2, Inc. employs simple and efficient online systems for time and expense reporting, consolidated invoicing, payroll processing, and benefits administration. Solo W-2, Inc. partners with Automatic Data Processing, Inc. (ADP) to ensure absolute compliance with local, state and federal tax and employment regulations.

View a listing of all services provided by Solo W-2, Inc.
www.solow2.com/ProprietaryServices.html.

View a PowerPoint presentation that shows how Solo W-2, Inc. supports solo professionals.
www.solow2.com/Library/Solo W-2 Presentation_General.ppt

View a PowerPoint presentation that shows how Solo W-2, Inc. protects organizations that engage contingent workers.
www.solow2.com/Library/Solo IC Compliance Presentation_General.ppt

James R. Ziegler, Ph.D.