"Contract Employees": The New Normal?

The difference is that now he is a contract employee. He no longer gets any of the perks of being a permanent worker, including paid vacations or sick days, health insurance or tuition assistance. And he estimates that he makes about 20 percent less — for the same job he was doing before. The thing he misses most? "A feeling of security."

--"Need a job? Contract work could be the new normal," by Eve Tahmincioglu, msnbc.com (5.6.10)

And the new contract employee--freelance worker, if you will--must now pay the payroll taxes previously paid by his employer, as well as the portion the employee previously paid. The good news is all for employers, especially the vast majority of employers who previously treated most all their workers as legal employees. As re-employment starts to increase in a recovering economy, changing to contract workers is just too attractive to many of them. The reality:

As employers begin to cautiously hire again after the deepest economic downturn in a generation, [contract workers are] in the vanguard of an emerging new contingent work force. For some businesses, these contingent workers could become a permanent solution, eliminating a huge swath of full-time jobs with benefits, say labor and business experts.

"It's cheaper to hire contingent workers, but also more flexible for employers," said Bill Kahnweiler, associate professor and human resource expert at Georgia State University's Department of Public Management and Policy. Contingent workers allow companies to stay lean and avoid hiring more permanent workers. "If someone decides, 'We need to be this size,' it's far easier to do that with contract workers and temps," Kahnweiler said.

But how big an issue is this anyway? Is this a major trend or just a short-term strategy, much as temporary employees have always been used to meet staffing needs in economic declines and the early phase of economic recoveries? Some economists believe that we need more time and data to be confident of longer-term directions and answers, and that data will not be available for a couple years. But many others feel the handwriting is already on the wall. The article continues:

Just check any job search site and type in "freelance," "temporary" or "contractor," and you easily can find hundreds of hits in a broad array of industries. Monster.com saw a 46.2 percent spike in contract job postings in March compared to the same month last year, said Matthew Henson, a spokesman for the jobs site. Overall job listings increased 32 percent in the same period.

Littler Mendelson, one of the largest employment law firms in the country, predicted in a report last year titled "The Emerging New Workforce" that 50 percent of new jobs that emerge after the recession will be contingent positions, and as a result "as high as 35 percent of the work force will be made up of temporary workers, contractors or other project-based labor."

Staffing agencies also are seeing the trend. "Last year, a lot of companies were using temps to fill in as an extension of the work force, or to supplement a new burst in clients, or on a project basis," said Tina Chen, director of operations for Westmont, Ill.-based Carlisle Staffing. She saw a 43 percent increase in her company's billable hours from December to March. "Now they're looking to a supplemental work force full time."

Who are the people now finding their jobs changed to contract worker? And of critical importance to the future of our workforce, what does this mean for healthcare and retirement for the new contract workers? Apparently these contract employees will include large numbers of professional and technical workers, as well as lower-wage hourly workers. Some will still be able to afford their own health insurance and retirement savings, although their monthly take-home earnings will be considerably less. And lower income workers will not likely be able to afford either one. The experts:

Garry Mathiason, senior managing shareholder at Littler Mendelson, said it is the new normal. "As the economy gets moving faster, there will be more opportunities, and many of those will be in contingent jobs," he said. Such free-agent work has gone far beyond low-skilled jobs and the construction sector, he said, where contract work long has been prevalent. Mathiason expects to see a rise in the use of contingent workers in highly skilled positions — including scientists, engineers, professionals and managers — as companies aim to do more project-based work with small groups of professionals they can bring in as needed. He compares it to making a movie, where producers bring in the crew needed to get the job done.

But such a "transient" work force could end up hurting workers because many of the protections and benefits of being full-time employees, including unemployment insurance and some labor laws, don't apply to free agents. Contingent workers typically don't get sick or vacation days, retirement accounts or health coverage. "Companies want a more flexible work force, but we have to think about what's the next way we're going to protect people," said Sara Horowitz, founder of Freelancers Unions.

"This contingent economy is threatening to the American middle class," said Mr. Ackerman. "Workers like the flexibility, but not if they have to trade off guaranteed hours, health insurance or a secure retirement."

Corporations and other employers have never embraced managing health insurance or retirement pensions for their employees. To them it is not so much about providing and managing the the best and most effective health care, but rather, managing and reducing to the extent possible an unwelcome, dramatically rising business expense. And in recent years they have more openly acted as if they would be happy to be relieved of that responsibility. Perhaps a public option or a national health care plan will in time necessarily be back on the table. It will because so many more people will have need of it, and will be more likely to demand it. And what of retirement savings? That will have to be revisited as well.

But aren't there labor and tax laws about who must be treated as a full-time employee, and who can be treated as an "independent contractor?" Yes, there are. The rules are based on how integral the job or function is to the nature of the business, and how much day-to-day management and direction control are exercised by the employer or contractor. Could this put a halt to the broad conversion of employee jobs to contractor jobs, or at least slow it down. Perhaps, but it is sometimes a fuzzy area, and the government is far behind in audits of this issue. The article:

Sometimes contract workers are misclassified as independent contractors because employers don't want to pay benefits," said Mitch Ackerman, executive vice president of one of the Service Employees International Union. "What we find with part-time, contingent and independent contracting work is there's incredibly high incidents of wage theft, labor law violations and health violations," — especially when low-wage earners are involved, he said.

Alexander Passantino, former acting administrator for the U.S. Department of Labor's wage and hour division and an employment attorney with Seyfarth Shaw LLP, said employers need to look to guidelines established by government agencies to determine a worker's status. "The more control, the more likely it will be that the individual will be an employee."
Another factor to look at, he added, is whether the services provided by an individual are an integral part of a business. For example, "in a restaurant, the servers are an integral part of the business, but a plumber is not," he said.

Employers who misclassify an employee can face fines and back taxes and may have to pay benefits such as overtime or retirement. A 2000 Labor Department study, the most recent available, found 10 percent to 30 percent of firms audited in nine states misclassified at least some employees. Some government estimates show that more than 3 million workers are misclassified.

The federal government and state officials have recently pledged to crack down on such practices. The White House's latest budget includes funding to hire federal investigators to look into violations, and the IRS announced a three-year contractor classification audit of thousands of companies.

Lets hope so. But these wheels turn slowly, and IRS and labor audits can take years from the date of these employer changes before they are addressed and concluded. A lot of change may have already taken place, a new direction set, and the damage will likely be done. And regardless, most of the employers who are well advised will recast and redefine these new job requirements to come closer to the legal definition of an independent contractor. Get used to it; it may be the new normal.

http://www.msnbc.msn.com/id/36826679/ns/business-careers