Small Businesses Say: We Want Independent Contractors

SurePayroll Small Business ScorecardIf you are an independent contractor or freelancer, the economy may be looking up for you — at least where small businesses are concerned.

Every month SurePayroll puts together its Small Business Scorecard. The Scorecard tracks hiring data among the 25,000 small businesses that use the SurePayroll service.

As part of that Scorecard the company calculates a Contractor Index. The Contractor Index shows the percentage of 1099 contractors versus W-2 employees hired in small businesses.

The Contractor Index for March 2009 shows that an increasing percentage of staffing help are independent contractors — nearly 4 out of 100 workers are brought on as independent contractors:

We track how dependent small businesses are on independent contractors with the SurePayroll Contractor Index.

As of the end of March 2009, the Contractor Index now stands at 3.88 percent.

This means that for every 100 workers engaged by small businesses in February, 3.88 are 1099 independent contractors and 96.12 are W-2 employees

This is up from 3.82 percent in the prior month. It’s also a record high for the Contractor Index.

In other words, more than ever before, small business owners are opting to engage an independent contractor rather than hire an employee.

This suggests 4 possible implicatons:

(1) The economy is starting to brighten a little. Typically, hiring of temporary employees and contractors is a leading indicator. If you’re just starting to see a little light after a long dark tunnel of recession, but are still feeling sales are a little weak, you’re more likely to start by bringing on temporary or contract help. You won’t feel confident enough to hire employees yet. Couple that with the fact that SurePayroll’s Scorecard shows hiring among small businesses is rising, and it’s one small nascent sign of an improving economy.

(2) Independent contractors are becoming a preferred way to staff a business, regardless of the economy. These days small businesses are run lean and mean.  Sites like Elance help you staff up with contractors. So instead of hiring a single employee, small businesses might bring on several freelancers or contractors.  That way you get a wider range of skills than one person can bring.

(3) Entrepreneurship is in.  People are choosing to become independent contractors, not employees, so that they can run their own businesses.  Many prefer contractor status.

(4) Those who prefer to be employees are forced into accepting contractor roles.  The commentary to the Contractor Index suggests people are accepting contracting roles instead of employment, because they really want to be employees but can’t negotiate a good enough deal in this economy.  I’m sure there’s some of that going on — although I don’t think that’s true across the board, by any means.  Many prefer to remain independent.  Often independent contractors will in turn hire other independent contractors to support THEIR own businesses. I receive as many 1099 forms as I give out each year.

Your thoughts?

More in: 13 Comments ▼

Anita Campbell Anita Campbell is the Founder, CEO and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses.

13 Reactions
  1. Finally! Some good news. I use when my small co needs help and I have also used it to fill the gap when i need project work. So I’m very glad to hear about this SurePayroll Contractor Index because it adds some additional light to the tunnel.

  2. I predicted something like this trend about 6 weeks ago — see:

    (and I also suggested that this requires a whole new kind of education — both in schools + also “continuing ed” / “lifelong learning”)

    🙂 nmw

  3. One thing I forgot to add to the article with respect to point #4:

    Joining a company as an independent contractor can be a good deal for the “unwilling” freelancer who really wants an employment position. Typically, contractor status will be temporary. Businesses sometimes consider it a “try before you buy” type of engagement and will eventually bring on the contractor as an employee after (1) the contractor proves to be a good worker, and (2) the economy improves and the hiring manager thinks a full-time employee position will be less uncertain.

    Just a thought for those of you who prefer to be employees and not contractors.

  4. “If you are an independent contractor or freelancer, the economy may be looking up for you.”
    Although the demand for contractors may be going up, the number of workers in that market is going through the roof IMHO. I do occasional freelance work through to supplement my income. It’s mad the number of proposals each RFP gets from prospective contractors. And quite often these are very qualified people.

  5. Well, this does sound like good news. Let’s hope we continue seeing positive improvements.

    jjray, With the number of skilled employees out of work, I can understand that competition is steep right now. Good point.

  6. I think this trend of hiring independent contractors also highlights the burden the gov’t has created in hiring employees. Small businesses are laden with taxes and red tape to hire employees, so they’d rather avoid that until the market is healthier. It would be great to see some reform in this area as part of a real stimulus package.

  7. Martin Lindeskog

    Here in Sweden you have job form called “rent your employer”. From a site called (“Company Power” in Swedish):

    “When you are able to be booked for assignments but you are not currently employed… RENT YOUR EMPLOYER!”

  8. Yes, Amanda. This is definitely a great news. Like you and any other entrepreneur out there, I too wish to see more positive signs in the midst of our economic situation right now.

  9. I have read a number of studies (while working on client projects) about the growing trend around hiring contingent workforces (contract workers, temps, flex workers) and many companies are doing that “try before you buy” but also many “employee” types are discovering that they can surf from shift to shift when they are in the right database of contract workers. Guru, eLance, Odesk, P2W2, and a few other major players allow you to find virtual assignments, but there are examples of these services in many metros. In Seattle, we have one called Freelance Seattle which shows local and virtual gigs. Craigslist does, too, of course.

    From the employer perspective, the challenge is vetting the right candidates from hundreds of responses. Maybe one can find a virtual assistant on P2W2 and then have them help you sort the list.

  10. Getting employees to be contractors can be hard. Some employees are NOT made to be entrepreneurs and work for themselves.

    Dr. Wright
    The Wright Place TV Show

  11. Anita thanks for introducing me to the Contractor Index. Very interesting findings. I think this may be a leading indicator, as many companies don’t want to hire employees until they’re absolutely sure their businesses is moving in the right direction. But I agree with you and think we’ll see more small businesses using contractors for certain needs, while hiring employees for important areas core to the business.


  12. Glad to hear the economy is finally showing some signs of life. However, my question would be how sustainable would these current trends be in the long run? If the economy does continue to look bright for small business owners, what does that mean for freelancers, independent contractors and entrepreneurship in general?
    For now I agree, Entrepreneurship is in! Looks like the best way to get your idea into the market, is to live, breathe and eat your ideas. What’s amazing about this current trend is that certain online services can now bridge together like-minded individuals and create a space for them to connect.