Authors: Jennifer Payne & Eric Celidonio
If you’ve worked in human resources for any amount of time, it’s likely you’ve heard the term “gig economy.” With the growing popularity of companies such as Uber and Lyft whose business model centers on using independent contractors rather than full-time employees, this concept of using “gig workers” has not only piqued the interest of business and HR executives across industries but has even gained traction as a viable staffing strategy in many.
Here in the biotech industry, we’re certainly no strangers to the independent contractor or 1099 employee; not only have we been using them, we often do so at a larger percentage of the company workforce compared to other industries. According to a report from the Bureau of Labor Statistics, in May of 2017 6.9% of the total working population, or 10.9 million people were considered independent contractors. In comparison, according to a 2018 Life Sciences Trend Report, the use of contractors in biotech and life sciences ranges from 8% to 27% of a company’s workforce, depending on company size, with the smallest and largest ones tending to use them more.
There are advantages to using independent contractors, and certain benefits for those who choose to become them as well. For companies, they can help to meet the needs of very specific scenarios, in particular when a specialized type of expertise is needed, as is often the case in biotech and life sciences. By tapping into a pool of on-demand talent, they can gain access to knowledge and skills that may be required for a defined period of time that they may not otherwise be able to utilize, or may not be able to commit to beyond the scope of the immediate need. And access to that on-demand talent could be pivotal to success, especially for companies in startup or growth phases. Eric Celidonio, Founder and Managing Partner of Sci.Bio notes, “For many biotech companies in the start-up phase, consultants offer access to a specialized area of expertise without requiring a long-term commitment that newer companies may be unable to make. As companies grow quickly, their needs and priorities change, and 1099 relationships can provide much-needed experience and guidance at pivotal moments in a company’s growth.” So essentially, they get the talent they need, when they need it, without an expectation of permanence.
For those who choose to become independent contractors, they are often afforded more flexibility around what kind of work they do, how to best utilize their knowledge and strengths, and how and when to complete their work. They may also have the opportunity to gain varied experience from multiple projects and employers quickly, building a portfolio of experiences faster than working for one employer longer term. The perception of more control by working for yourself, the variety of the work, and even the possibility of higher pay can make a career as an independent contractor seem very attractive.
So with benefits on both sides of the equation, it seems like a natural choice, right? Why not staff large percentages of your workforce with contractors so you can easily flex as projects, priorities, and even economic conditions change? That’s where things become a little more complicated. Along with the advantages come scrutiny and risks, and a careful evaluation of your company’s particular circumstances is necessary to make an informed decision.
The Right Choice?
In situations when budget, easier access to otherwise unavailable or difficult to find talent, and flexibility are all key considerations, the independent contractor may be the way to go.
Because they are not generally eligible for overtime pay, health or retirement benefits, or other perks offered to traditional employees (i.e. bonuses, PTO, commuter benefits), independent contractors can be a cost-effective way to meet staffing needs. Particularly in highly competitive markets like the ones in which many biotech companies compete, or for start-ups who may not yet have the resources to compete with larger and well-established companies, eliminating the cost of those elements may allow a company to offer a higher base pay than they might otherwise be able to afford and therefore attract talent that might otherwise overlook the opportunity.
Flexibility and Agile Access to Talent
Assuming a percentage of the workforce is open to, and maybe even prefer being in an independent/self-employed arrangement, the available talent pool widens beyond what may be available with strictly traditional workers. When it comes to project-based work or pivotal growth phases where a very specialized skill-set may be needed for a finite period of time, independent contractors can be quicker and easier to both onboard and offboard as priorities change, shift and evolve. And should a company find themselves in a period of economic hardship (as many did over the past year), the absence of long-term commitment that comes with the independent contractor allows companies the ability to more easily flex their workforce to address changing economic conditions.
But What About the Risks?
However, the benefits of using independent contractors don’t come without some risks which can be grouped into a couple of different categories.
Legal Risks – Does the Work Even Qualify?
Although it may be a tempting option, legally independent contractors can’t automatically be used for any and all situations; there are requirements that must be met to classify a worker as one. Some states like California already have tests in place to determine whether or not workers qualify for W2 employment, and the US Department of Labor has also laid out specific parameters to test whether or not an arrangement legally fits the definition of independent contractor. In fact, the DOL recently updated “economic reality” guidance on the definition of independent contractors, and although the future of this guidance is uncertain with the new administration, that it’s even been recently evaluated further demonstrates how the top of mind the subject is for many.
Broadly speaking, these requirements essentially come down to is who controls the work and how much autonomy exits, and what consistency and permanence of the work exists. If the employee can mostly dictate what they do, where they do it, and how they accomplish it, they likely qualify. If conditions of work are largely dictated by the employer – what needs to be done, where it can be done and when – it may be a slippery slope that puts the employee closer to a traditional contingent or temporary employee rather than an independent contractor. There are other parameters as well related to the skills required for the work and how dependent the employee is on the employer for work, but control over the work is a large part of the determination. With that, it’s also important to keep in mind that the autonomy required often strips away a company’s ability to shift work between team members if needed, perhaps offsetting some of the flexibility contractors offer in other aspects of the work.
Morale Risks – A Recipe for Disengagement?
Legal risks are often the first to come to mind regarding independent contractors, but just as important are the impacts of morale. Consider the potential effects of having employees working side by side; one group enjoying the benefits of permanent employment while the others don’t. And further, imagine the impact if those independent workers don’t really want to be independent.
Although the freedom of being independent could be attractive, and anecdotally it’s said that more and more workers – Millennials in particular – embrace the idea, research seems to show otherwise. In a recent PwC study it’s noted that although 53% of those surveyed said that expected to be a gig worker at some point, 39% of those don’t necessarily desire it. Furthermore, anywhere from 49% to 65% of workers surveyed (depending on age) noted that job security is “very important” to them. Since often there’s no guarantee of ongoing employment in a 1099 arrangement, that very important aspect is one of the first benefits given up.
Also coming into play is the difference between an “independent contractor” and “contingent worker.” For the truly independent, self-employed contractor, the control, flexibility, and ability to work for multiple companies and gain experience quickly may outweigh the benefits of permanent employment. However, if the independent contractor is functioning more like a contingent or temporary worker, working much like W2 employees (same schedules, same work requirements, aren’t allowed to take on work with other companies at the same time), then besides potentially being legally at risk, there are now two groups of people who do similar work being treated in many different ways. Both have similar work expectations while one group is afforded benefits and perks and the other is denied. What impact might that have on company culture? How might it erode commitment and engagement in the workforce? Could it put you at risk of losing valuable skills and knowledge if a better offer comes along? Because just as 1099 arrangements allow for quick pivots from a company staffing perspective, they also allow for quick pivots from an employee perspective too. If an employee feels “temporary,” will they not hesitate to leave and take their knowledge and skills with them?
To 1099 or To Not 1099, That Is the Question
When it comes to determining whether or not a 1099 arrangement is the right decision, it’s important to evaluate it from all sides. It could be a quick, easy, and cost-effective way to get the in-demand skills needed, but consider the longer-term needs. Are the legal requirements for classification as an independent contractor being met? Is there truly a need for a highly specialized skill set on a short term basis, or might the work and need for the skills continue on beyond the scope of the current project? Is the short-term payoff of lower costs worth the potential flight risk? And could compensation challenges potentially be offset by providing more stability, ensuring the talent and skills needed continue to be available? These are all important questions to consider when making this critical, strategic staffing decision.