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A Growing Workforce Trend: The Nonemployee

Freelancers, independent contractors, consultants, day laborers working off the books for cash, contingent workers, temps, virtual assistants, free agents.

These are the names for the ever-growing part of America's labor force with an interesting distinction.

They aren't employees.

Or at least, they aren't on the payrolls of the companies where they spend their days (or work from home) answering phones, installing drywall, conducting research, delivering packages, engineering bridges, staffing help desks, researching logistics issues, writing Internet copy, implementing new software, cleaning toilets.

"This is employment becoming like baseball contracts," said Harry Griendling, chief executive officer of DoubleStar Inc., a West Chester staffing firm.

"Instead of having full-time regular jobs, these employees have full-time, temporary fixed-term contracts," he said.

Burned twice since 2000 (the dot-com recession and the recent bad-mortgage recession), companies have been reluctant to hire permanent employees.

"Employers are human beings, and human beings don't like firing human beings," Griendling said. "They'd rather end a contract. It's the difference between divorcing your wife and dumping your girlfriend."

Most of this nation's cultural norms turn on the employer-employee relationship, with companies providing health care, vacation time, sick days, retirement benefits, unemployment insurance, while also collecting payroll taxes for Uncle Sam.

But many of today's free agents have no health insurance or vacation time, and they are not covered by unemployment insurance.

"How do we build the security of the American workforce?" said Sara Horowitz, a retired New York lawyer, who founded the Freelancers Union 15 years ago.

Horowitz refuses to judge the trend -- her point is that our nation's institutions need to adjust to accommodate it.

"On this Labor Day," she said, "we don't even know how many of us there are. Instead, it's 'Let's ignore this and not face up to the important issues for this growing workforce.' "

Estimates of the group's size vary, from 7.4 percent, or 10.3 million independent contractors, as the U.S. Labor Department reported in 2005, in its most recent study, to one in three workers, according to Michigan researchers.

Data are spotty, but, in a sign of the group's growing importance, the Labor Department will repeat its 2005 study in 2012 and in alternate years.

The staffing industry that organizes these workers is expanding -- temporary- and contract-staffing sales totaled $87.4 billion in 2010, up 21.3 percent over 2009.

Sometimes staffing agencies act as employers, providing workers W-2s and the ability to qualify for unemployment benefits when contracts end.

Federal and state governments are paying attention. The federal government wants to spend more manpower tracking companies that misclassify employees as independent contractors, circumventing payroll taxes and overtime pay.

"It's a business model that more and more employers are using to avoid the employment relationship," said Nancy J. Leppink, who heads the U.S. Labor Department's wage-and-hour division.

A typical case was resolved recently when Parts Distribution Express of Essington agreed to pay $256,340 to 158 drivers who delivered auto parts in New Jersey.

Investigators determined that the drivers were cheated out of overtime because they were wrongly classified as independent contractors. The company disagreed but paid to settle and brought the drivers onto its payroll as employees.

The IRS estimated in 1984 that these cases cost the government $1.6 billion in lost revenue, or $3.48 billion in today's dollars.

Pennsylvania's Department of Labor and Industry estimates that it is losing $200 million in uncollected unemployment insurance fund payments from companies that misclassify their workers.

"That's based on [workplace] audits," said Patrick Beaty, deputy secretary for unemployment compensation. "But there are a lot of people we never discover. There's the whole underground economy."

Pepper Hamilton L.L.P. partner Richard J. Reibstein heads the firm's new 32-lawyer practice specializing in this category of worker.

"Federal and state regulators are looking for ways to enhance revenues," he said.

Reibstein, who works in Manhattan, said unions also push the crackdown. Union workers who become self-employed contractors lose their union affiliation, and the unions lose their dues.

That's what happened at Amoroso Baking Co. in West Philadelphia in August.

Until Aug. 7, Jeffrey Schmidt, a father of three, drove a truck delivering the West Philadelphia bakery's esteemed hoagie rolls to supermarkets and sandwich shops in Northeast Philadelphia and lower Bucks County.

A union driver with 16 years on the payroll, Schmidt, of Bensalem, had health insurance, paid days off, vacation time, a pension, workers' compensation, and money paid into the state unemployment insurance fund on his behalf.

Earlier this year, company president Leonard Amoroso decided to make a change.

"In the Italian bread industry, all but one other company in the tristate area have independent distributors," Amoroso said.

So Schmidt bought two side-by-side routes, consolidating them into one. He still drives a truck with the Amoroso's logo on the side, except now he is working seven days instead of six and paying for the truck, gas, insurance, and repairs. No benefits, no vacation, no time off, and he's no longer a Teamster.

"The option on the table was buy a route, or you're unemployed," Schmidt said.

But he is already making more money, and his wife's job provides health insurance. "I'm really looking forward to the opportunity," he said. "I always was a hustler."

After negotiations with the union, some jobs were saved. Driver Carmen Boccella of Trooper, who has 30 years at the company, opted to stay on the payroll, mainly for the health insurance. "I didn't want the headache," he said.

For Amoroso, changing the cost equation was a key motivation, but companies also say they want flexibility in deploying their workforce.

"There are always fluctuations," said Rusty Dunn, spokesman for Caterpillar Inc., the construction-machine manufacturer. "You have to have the manpower and the flexibility to react quickly."

Caterpillar's employment totals 132,239, and 18 percent are "flexible," meaning temporary or part time.

Some free agents also want flexibility. While most would like permanent jobs, the Labor Department reported, one in three say they prefer the contractor arrangement.

Among them is Susan Price of West Chester, who says her 30-hour-a-week contract job gives her time to build her new career-consulting business.

Price was laid off from McNeil Consumer Products in Fort Washington in 2008. She does not miss office politics, and she enjoys the work.

For others, such as information-technology specialist John Hamilton of Downingtown, the emotional and financial instability of the contract world was maddening.

He was laid off from his last full-time IT job in May 2001 and spent the next decade driving limos, substitute teaching, and doing odd jobs between IT contracts.

Hamilton was so eager to leave the contracting world that he took a $24,000 pay cut for a permanent job in his field; his first day was Aug. 22.

But it's more than the money. As a contractor, he always felt like an outsider, excluded from company activities.

"I feel so comfortable," he said. "I finally feel like I belong."

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