According to a Freelance Forward: 2022 report released by Upwork, 60 million Americans performed freelance work over a twelve month period, representing 39% of the entire U.S. workforce. What’s more, 51% of all freelancers provided skilled services such as computer programming, marketing, IT, and business consulting in 2022. It’s all the more evident that this constituency of independent workers makes-up a large and growing contingent of the American workforce, making it increasingly essential for U.S. labor policies to recognize and protect the flexibility and efficiency that comes with hiring skilled independent contractors for temporary work.
One complication in surveying the independent contractor landscape involves the increasingly varied nomenclature that has evolved with subtle but distinct differences: independent contractor, freelancer, temporary worker, gig worker, self-employment, etc. While there often are real differences in these classifications, the IRS tends to only see two classifications: a W-2 or a 1099 worker. The rest is semantics, at least according to the IRS.
Agencies and Independent Contractors
In the agency ecosystem, independent contractors have always played an important function in executing client campaigns. But with some of the shift from agency of record (AOR) work to more project-based work, independent contractors will play an outsized role in the future, as agencies will need to scale their workforces quickly in response to project lifecycles.
While how heavily an agency chooses to utilize independent contractors will always be dependent on a number of factors, including of course client preference, there is a growing confluence of federal and state legislative, regulatory, and legal developments that could threaten an agency’s ability to engage independent contractors as needed.
2024 Regulatory Update
In January 2024, the Biden Administration’s Department of Labor (DOL) issued a final rule on Independent Contractor Classification under the Fair Labor Standards Act (FLSA). The DOL explained in its announcement of the final rule that the changes are meant to combat misclassification of employees as independent contractors and protect employees’ rights under federal labor standards.
The 4As submitted written comments to a October 2022 proposed rule, highlighting key areas of concern for agencies. Despite lengthy regulatory delays, high inflation, and ongoing economic instability resulting from the COVID-19 pandemic, a new independent contractor rule will go into effect in March 2024.
Read a summary of the final rule and learn why it matters to agencies here.
