Negotiating the Freelance Economy

This article is from the May 6th edition of the Wall Street Journal (Careers section), and I thought it would make for some interesting reading here at The Daily Freelancer...

By SARAH E. NEEDLEMAN

In April 2008, Rebecca Haden lost her job when the small store she managed went out of business. A year later, she's working as many as 40 hours a week and earning much more than she did before -- even though she still doesn't have a job. Her formula? Freelancing her Web skills.

Ms. Haden, of Fayetteville, Ark., is among a growing number of professionals who are making ends meet by working on a project-by-project contract basis. Even as permanent- and temp-job opportunities are shrinking, the amount of contract work to be found on freelance-jobs sites is expanding. What's more, it's moving beyond computer-programming and graphic-design gigs for small employers to include listings from larger companies and assignments in fields such as accounting, law, engineering and sales.

Between January and March, employers posted 70,500 of these work-for-hire positions onElance.com and 43,000 on Odesk.com, which represents increases of 35% and 105%, respectively, from the same period in 2008. Sologig.com, which lists remote and on-site freelance jobs, says its average monthly postings have more than doubled to around 13,500 per month in the past year. In March, there were 750 jobs listed on VirtualAssistants.com, versus 400 in March 2008.

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Spencer Tirey for The Wall Street Journal

Rebecca Haden has landed a steady supply of project-based work, in part by using freelance-job site Odesk.

At the same time, the number of U.S. workers employed by temporary-help-services firms in March fell 27% to 1.8 million from the same month in 2008, according to the Labor Department.

As the recession takes hold, more employers are using freelance workers to avoid the expenses associated with hiring permanent staff, says Fabio Rosati, chief executive officer of Mountain View, Calif.-based Elance. "The power of online work is that it's immediate, cost-effective and flexible," he says.

Indeed, freelance workers are often cheaper and more flexible than temp workers, whose jobs, though short-term, tend to be full-time, subject to temp-agency fees, and bound by agency restrictions, such as limits on the permanent hiring of temps.

Mr-SEO.com, an online marketing firm with eight employees, began using freelance help a year ago to handle tasks in Web-site development, administrative services and copywriting. The five-year-old Seattle-based company hired 17 freelancers through Odesk.com for projects that lasted as little as a few days or as long as eight months and counting. "It gives us the flexibility to expand our work force depending on client demand," says Greg Gaskill, the company's president.

Like many workers who turn to freelance positions, Ms. Haden, a 51-year-old mother of four, didn't plan to take on piecemeal work after her layoff. At first, she approached a local Internet company about a permanent job doing Web optimization -- a technique for boosting a site's search-engine rankings. It was a skill she had learned while overseeing her former employer's online store and blog. The firm wasn't hiring, but it offered her a short freelance assignment. She accepted.

Ms. Haden, who holds a master's degree in linguistics, wrote about the experience for a popular blog on Web optimization. "People started approaching me with work pretty soon after that," she says.

'I Just Do the Fun Stuff'

One gig she landed introduced her to Odesk, which, like some other contract-job sites, can monitor freelancers' work. Since then, Ms. Haden says she's landed a steady supply of Web-optimization assignments through Odesk, as well as through her personal Web site and blog. Most months, she earns more than double her previous income. Ms. Haden says the work has been fulfilling, and she has put her permanent-job search on hold indefinitely. "I get to pick and choose what I do now," she says. "And I just do the fun stuff."

Many other laid-off professionals appear to be taking up freelancing, either as a new career or as a way to weather the downturn. Freelance-job sites say membership among individuals, which is free in many cases, has risen sharply. For example, Guru.com has nearly 878,000 freelance members today, up from around 760,000 a year ago.

Freelance-job sites also say they're seeing more midsize and large employers posting assignments, and the jobs have expanded into more business functions, such as finance, manufacturing and law. For example, roughly 1,700 new jobs were added to the sales and marketing category on Elance in March, a 50% increase from a year ago. That's led to new types of contract workers, too.

Last month, Lynn Welch became one of those new freelancers when she began a 96-hour home-based consulting stint for Axsys Technologies Inc., a large, publicly traded manufacturer of infrared technologies based in Rocky Hill, Conn. She was laid off in March from a senior marketing position at a midsize technology firm and says her Axsys contract is one of four freelance assignments she's landed either through networking or Guru. She's so far earned roughly $10,000 from freelance gigs in online marketing.

Pitfalls of Contract Work

Despite her successes, Ms. Welch, who is 40 and lives in a Washington, D.C., suburb, says she still deals with some of the pitfalls that come with contract work. For example, she says she once spent several hours researching and explaining how she'd handle a potential project, but didn't get the gig. "Some [employers] want to pick your brain and have no intention of paying you," she says. Now Ms. Welch is more cautious about sharing information with employers before a contract is signed. "If they're asking for a lot of details, that's a warning sign," she says.

Sites like Odesk, Guru and Elance guarantee payment after jobs are completed in return for commissions of about 6% to 10% of freelancers' fees. But many other sites hold individuals fully responsible for billing clients and collecting payments.

There are other downsides to freelancing, from the lack of health coverage and paid time off to the need to make your own retirement contributions. Striking out on your own also requires regularly searching for and vetting potential new assignments, while ensuring that you complete on time the ones you've already secured. Furthermore, you may need to invest in equipment such as computer software and a business phone line.

Carving Out a Niche

Should you decide to take up contract work, there are ways to help ensure the process goes smoothly. First, make sure to be very specific about your skills and expertise when you fill out a profile on a freelance job site, says Kate Lister, author of "Undress for Success: The Naked Truth About Making Money at Home." Doing so will help you stand out from the competition. "You want to carve out a niche," she says.

To figure out how much to charge for your work, research the rates that experienced freelancers demand for similar services, suggests Ms. Lister. The information can usually be found in members' profiles on freelance job sites. "Look at their portfolios and ask yourself, could I produce that level of work? Could I do much better than that?" she says. After settling on a figure, Ms. Lister suggests starting out at a slightly lower rate to build a track record.

Another option is to offer to work for just a few hours at first to prove yourself, suggests Gower Idrees, founder of RareBrain Capital LP, a consulting firm specializing in high-growth businesses in The Woodlands, Texas. Since early 2007, Mr. Idrees has hired about 1,500 freelancers from Guru -- including former big-company executives, many as consultants. "I've used them in every way possible," he says.

Mr. Idrees recommends discussing potential projects with hiring managers over the phone whenever possible, rather than using email, in order to build trust and negotiate a fair pay rate. That way, a potential freelancer "can educate [the company] on what the challenges really are," he explains. Sometimes, he says, employers aren't aware just how many hours a project will require.

Write to Sarah E. Needleman at sarah.needleman@wsj.com

Corrections & Amplifications 
Mr.-SEO.com, an online marketing firm based in Seattle, has hired 17 freelancers through Odesk.com in the past year. A previous version of this article incorrectly stated that the company hired freelancers through another job site.

Printed in The Wall Street Journal, page D1

FREELANCERS... Unite?

The idea of forming a freelancer union, or freelancer agency isn't new. I have heard the suggestion bandied about by several freelancers over the years, but I have never been able to grasp exactly how it would work. More importantly, I'm not sure that I even grasp exactly how it would benefit the individual freelancer or the freelance community. I'd like to take the time now and look at the pros and cons of the idea. 

Fellow freelancer Joe Criscuolo has been the most vocal about this, so let's start with his viewpoint...

"What we really need to do to salvage freelance as an entity is package it and sell it. Period.

What do I mean about this? Simple. We control the supply. Tricky, but there you have it. What I've been saying for over a year now. WE are the supply and the agency need for us is the demand. Currently, the agency controls both aspects of the market.

If we don't unite to form an agency of our own with our OWN interests at the heart of it, we will never see freelance as it was ever again."

Pros: 

OK, let me see if I have this right. We all join together and create a freelance agency. I'm assuming that the primary goal here would be to gain some sort of leverage against the promo agencies in order to prevent them from taking unfair advantage of individual freelancers? Perhaps we try and create a fixed and standardized hourly rate for everyone who works for the freelance agency? In addition to establishing a level playing field, we would benefit from group heath and life insurance. Alright, what else? Some sort of retirement plan or package perhaps? Maybe group training seminars in the latest software? I'm not sure I know of any other "perks" or benefits here. 

Cons: 

It seems to me that the only way something like this could even begin to work would be if every freelancer in the industry joined up. Obviously, this is an impossibility. There will always be some freelancer who either won't join, or who just doesn't know about the agency. A fixed and standardized hourly rate? Never gonna happen. There will always be "scabs" who will work for less, and there will always be agencies who simply can't afford to pay whatever hourly rate we establish. Using benefits as the incentive to join? That would have to be one phenomenal benefit package. I'd say that most freelancers already have benefits through their spouse, or have private insurance that offers somewhat competitive rates. 

A freelance placement agency would require a great deal of time, money and effort to establish. We would have to register it as a business, get a tax I.D. number, register it as an L.L.C., get a business bank account, phone numbers, fax numbers, P.O. box, buy office equipment, create letterhead, generate invoices, get an accountant, etc, etc, etc. Who, exactly, is going to do all that? And whose names are going to be listed as the owner? Who is going to come up with all the capital needed to run the operation? We would need to either charge freelancers dues, or mark up their hourly rate to the client, or maybe do both in order to cover costs. File that under the "lose-lose" category. 

Running an agency is a full-time job, and which of us is qualified to do that? One or two people will get stuck doing all the work while all the other freelancers reap the benefits? Never gonna happen. And once the agency is set up, then it would have to conform to both state and federal tax guidelines which would mean issuing W-2s just like all the other placement agencies do. Being classified as a "temp employee" and being issued W-2s is the single biggest problem that we as freelancers face. Just being issued W-2s should be a deal breaker for every freelancer out there.

Look, I became a freelancer so I could be independent. If I was going to join an agency then why wouldn't I just get a staff position at a promo agency? At least then I would have steady work. Either way I'd be giving up all the freedom and benefits of being self-employed. No more deductions for a home office, computer, milage, etc. And more importantly, no more SEP IRA contributions which offer not only a huge tax shelter, but money for my retirement.

I'm a pragmatist as well, and right now I can't see how any freelance placement agency/union will solve the primary issues that the freelancers in our industry face today. 

Will a freelancer placement agency ensure that we be:

• classified as freelancers instead of "temp employees"?

• issued 1099s?

• paid within 30 days?

• paid at a standard hourly rate?

Answer: no, no, no and no. 

So if unifying the freelance community won't provide us with our most basic and critical needs, then what's the point? Discuss...

Evolution

I haven't been posting much because I haven't had anything new to comment on. The freelance situation here on the "Gold Coast" remains pretty much the same as it did in the beginning of the year. As we all know, when money is tight at an agency one of the first ways to cut spending is by eliminating, or cutting back on freelance help. The standard procedure implemented by the Bean Counters is to make the staff employees pick up any slack in the work flow. When that inevitably fails, the Bean Counters then create a sea of paperwork and red tape that needs to be navigated before a freelancer can even be called. The intention here is to make the bureaucratic process so difficult that the creative staff won't make the effort. They'll just work around the clock themselves rather than go through the hassle of bringing in a freelancer. After all, they're lucky to have a job in the first place.

After the creative staff proves they need help, and properly fills out all the paperwork, then it's time to beat up the freelancer on his/her hourly rate. After a few episodes of this nonsense it's no wonder the phone doesn't ring. I had to go through this when I was on staff, and have been put through it as a freelancer at several agencies to date. As one Creative Director recently said to me, "Long gone are the days of just picking up the phone, and calling in a freelancer to come in for however long." It's my understanding that this type of policy has been adopted by at least four of the bigger agencies in the area, if not more. The important thing to note here is that once an agency implements this type of policy for bringing in freelancers it rarely, if ever, changes.

The first post I made to this blog was titled "The Death Of Freelance As We Know It" where I outlined how freelancing at the larger agencies, who issue W-2s instead of 1099s, is not financially advantageous. Combine this with the implementation of strict policies regarding bringing in freelance help, forcing freelancers to lower their hourly rates, withholding payments until agencies get paid by clients, and the writing on the wall seems pretty clear - at least to me.

In a response to a previous post, fellow freelancer Joe Criscuolo said "Lowering rates, not getting calls, etc. is just the sign that this industry is changing and may never return to the way it used to be. Different, yes. But not the same." I agree. Yes, the way the entire promotional industry is doing business is changing on a large scale. Unfortunately, I feel that many of these changes will have a permanent and negative impact every freelancer in the business.  

So now what? I think the answer is pretty simple. Evolve. The industry is changing pretty quickly, and if you want to remain a profitable freelancer then you better start thinking about changing/evolving as well. I think how you evolve depends on the individual, but I believe they're are many ways to do this. Obviously having a skill set that is both unique and in demand is the best way to keep busy. Web designers have always been in higher demand than print designers so maybe learning Flash or Dreamweaver would be the way to go. Of course, working for agencies who haven't adopted strict freelance policies and who issue 1099s is key. And then there is finding work outside of the promotions industry. Capitalizing on the down economy by offering to promote and market small businesses who need help can be an option as well.

Our industry is changing, and it's not the first or last time this will happen. Evolution never comes easy, but we all know what happens to things that don't evolve on this planet now don't we?