The most comprehensive tax reform in 40 years increases the pass-through tax deductions by 20%.
Firms like PwC, Deloitte, and KPMG are prominent recruiters at all Ivy League schools including Harvard, where 18% of the 2017 graduating class went on to be consultants after commencement.
The number of individuals starting new businesses has been steadily increasing since the sharp decline in 2008. And companies like Liberty Mutual, where just this week it was announced 620 will be re-purposed or removed, are bringing in automation to increase their bottom line.
All of this activity is creating a perfect storm for an interesting outcome: the economy is swinging towards a high rate of self-employment.
Even with fear of instability an the fact that 80% of new businesses fail within the first five years, everyone want to be their own boss. Not only that, but automation is making traditional employee status almost as unstable as running your own one-person company. Automation has transferred the commodity of the worker from what can be done to what is known. Because of this and the influence of the Internet, those within the workforce are able to go into business for themselves, with tremendously fewer barriers to entry than even just a few decades ago.
There are a ton of benefits to being a contractor, consultant, or entrepreneur.
You are beholden to no one and no job. If you don’t like the specs of an offer, don’t sign on. If the project manager seems shady, say sayonara. Self-employment also gives you the option to reassess those conditions after each project. You set your own rate, and even though you have to handle your own taxes if the new rate passes it may be well worth it. There’s full autonomy; take as many or as few jobs as you want.
That also means, though, that you may not know where your next project will land.
You’re responsible for everything, including marketing yourself, managing any employees you have, ensuring all processes follow all laws and regulations, managing profit and loss, deciding how to reinvest, setting office hours and a whole slew of other things. It’s all on you. So there’s that.
Businesses see some benefit in hiring third-parties over true employees, too.
There’s a smaller investment in obtaining a consultant that a full-time employee, and there’s no HR costs like health insurance or 401K match. Contract workers are paid hourly, not salaried, which means you as an employer only pay for what you get and nothing more. Contracts for a single project give the stakeholders an opportunity to test drive the hire. If the powers like the work, other projects can be awarded or even a job offer extended. If not, both parties can walk away clean, with no termination negotiations. However, hiring a consultant or third-party means there can be no non-compete agreement, and often pay rates for those resources are somewhat or much higher than internal employees.
While it may be a slow process, the economy is leaning toward a preference for contract work, for individual contributors responsible for themselves coming together to create, plan, manage, build, and inform.
This will be key as we as a society take steps towards the omnipresent sharing economy and net-marginal cost.