Whether you call it freelancing, entrepreneurship, or hustling, there’s no denying that the non-traditional work is more prevalent now than ever as more people turn side gigs into flourishing careers.
Independent contractors, who encompass everything from Uber drivers to freelance graphic designers, are taking the job market by storm. Over the first 15 years of the 2000s, 1099-MISC forms—the tax forms issued to independent contractors— increased by about 22%, while the number of W-2 forms—tax forms issued to traditional employees—decreased by 3.5%, according to George Mason University’s Mercatus Center.
Here’s why today’s economy is the perfect incubator for a nation of self-employed, side gig hustlers, whether we like it or not.
The Difference Between 1099 and W-2 Work
1099 and W-2 are two different forms used to report income to the IRS when filing taxes. A 1099 form is used by independent contractors, while a W-2 is used by full-time employees. However, the distinction between the two types of work is far greater than how taxes get paid.
Being a traditional W-2 employee means your taxes are taken out of your paycheck and you’re provided with a list of benefits, ranging from healthcare to retirement contributions. Companies are required to pay W-2 employees a minimum wage, provide everything an employee needs to do their job, and reimburse most business expenses.
As a 1099 employee, you don’t receive the same protections and benefits. You’re responsible for filing your own taxes, covering business-related expenses, and obtaining the equipment and supplies needed to do your job, although these expenses can be written off on your taxes.
The Perks of the 1099 Lifestyle
If you’re working as an independent contractor, your client can’t dictate your work schedule or force you to come into the office or attend meetings on a full-time basis. Your job is to complete your work by the agreed-upon deadline, but how you get there is up to you. If you want to take a random Wednesday off or hire someone to help you complete your work, you can. If you need to spend a day working for a different client, you can do that as well. How you spend your time is none of their business.
As a W2 employee, your employer has a lot more leverage over you. They can tell you what hours to work, where to work, and how to complete your work, and they also have some power over what you do outside of work. For example, employers can preclude W-2 employees from doing other work on the side, running their own blogs, podcasts, and social media platforms, or even partaking in activities outside of work that make the company look bad.
Why Millennials and 1099 Work Are the Perfect Match
Millennials aren’t the only generation participating in 1099 work. In fact, contract work has been around for decades in the form of farmworkers, construction workers, musicians, and more.
However, culturally speaking, younger generations are a large driving force in new labor trends. While often stereotyped as lazy and entitled, millennials are marked less by a lack of ambition and more by a shift in priorities away from superficial achievements and toward personal and collective fulfillment. According to Deloitte’s 2019 Global Millennial Survey, the most common ambition amongst millennials is to see the world, and millennials as a whole are more interested in positively impacting their communities and the world than they are in having children and starting families.
Pair this with a prevalent sense of skepticism toward business and a tendency to change jobs more frequently than previous generations, and it’s easy to see why the freedom and self-direction of 1099 work might be attractive to this generation of folks born between 1981 and 1996.
Financial Crises and Technological Advancement at the Forefront of This New Economy
The technology is certainly here to support growth in the self-employment sector. Thanks to the internet, remote work is quickly becoming the norm. The ability to work for any company from anywhere in the world lends itself nicely to freelancing. Social media has given everyone the ability to create their own platform and profit from it. Sharing economy apps that allow anyone with a smartphone to partake in ridesharing, home-sharing, meal delivery, and more have also facilitated the growth of the gig economy.
There are other profound reasons that self-employment and the “gig economy” have caught on so rapidly in recent years. For one, events like September 11th and the 2008–2009 financial crisis shocked our nation, and along with impending crises like climate change and terrorism, have paved the way for a generation that feels very uncertain about the future. While the major benefit of full-time employment used to be a feeling of stability and security, no job is a sure thing in today’s economy.
The Increase in 1099 Work Isn’t Completely By Choice
While millennials might seem made for self-employment, not all young folks are happy participants in the gig economy. According to the Mercatus Center report, the most likely culprit for the increase in 1099 work isn’t the increased availability of side gigs. Rather, side gigs have become more available because more people are demanding them—often out of necessity.
The report explains that there’s been a sharp decline in the job creation rate since the early 2000s, with the biggest drop taking place around the financial crisis. Pair difficulty finding traditional employment with stagnant wages, and it’s not hard to understand why more folks are turning toward freelancing and side gigs to fill gaps of unemployment and underemployment. Previous decades proved that the single-earner household is no longer financially tenable for most families. Perhaps what we’re seeing now is that holding a single job is no longer financially tenable for most individuals.
Many industries have taken huge hits to business in the past couple of decades. In the search for bigger profit margins, firing W-2 employees and replacing them with 1099 contractors can be a huge help. Companies are no longer on the line for shelling out benefits and covering their half of payroll taxes. Businesses can also avoid paying salaries to a full staff during slow periods by using contractors and doling out work only when need it—and the budget to pay for it.
1099 Work Can Lead to a Better Work-Life Balance
Because you’re able to set your own rates as a contractor, 1099 workers who demand their worth often find they’re able to make far more money freelancing than they ever could in traditional employment. Higher hourly rates also allow freelancers to make up for increased tax rates and having to cover their own health insurance and plan for retirement as a small business owner. Freelancers can demand higher rates because they’re much cheaper for companies than a full-time employee.
Self-employed individuals also have the flexibility to pursue new opportunities as they wish, giving them full control over the direction of their careers. When it comes to personal fulfillment, the ability to set your own hours, and maybe even work remotely, is for many a priceless benefit that greatly outweighs 401(k) matching.
For folks who prefer the stability of working full-time or can’t afford to surrender employer-sponsored benefits, the rise of 1099 work can be frustrating and scary. However, those with personalities and goals that align with self-employment can reap great benefits from this new economy.