America's freelance workforce has swollen to about 53.7 million people, or around the size of one-third of the U.S. full-time labor force. The growth signifies a massive transition in the makeup of our working population, a transition that has largely been driven by the growth of on-demand services and the proliferation of cloud and mobile technology.
More than 11.4 million of those freelance workers are finding on-demand opportunities online, a trend being driven by the advent of online platforms like Uber, Upwork and Freelancer.com. With the growth of these online platforms, making it easier to cost-effectively find work online, we expect that by 2020 the online portion of independent contractor jobs will grow to 50 percent of all existing freelance work, or roughly 25 million contracts, and that freelance work overall will experience a 15-20 percent growth.
The convergence of these two trends is resulting in the second wave of disintermediation. In the early 2000s, we saw retail, travel and information businesses go online. Brick-and-mortar shops, travel agencies and the Yellow pages were all disrupted by the growth of Internet companies offering a more convenient way to source information, goods or services.
Today, 15 years on, the current tide of change is being fueled by new platforms which cut out middlemen. Uber as an example, is disrupting limousine companies, taxi cabs and dispatchers. While freelancing platforms are cutting out the need for employment agencies, making it easier for people to go out on their own.
The current wave of disintermediation comes with several significant economic benefits. By making it easier for contractors to work for themselves, you're able to utilize excess labor capacity, maximize efficiency and enable extra income generation for those who have left the labor pool. It also gives traditional full-time or part-time workers an additional income stream.
According to a recent research study fielded by cloud accounting software company, Xero, of the hundreds of on-demand workers polled, more than half (53 percent) consider their job a career, not just a way of earning additional income. Yet, on-demand workers don't earn a lot. Nearly half of those surveyed are earning between $400- $2,000 annually and 14 percent noted that they generate income up to $50,000. Only four percent reported an income in excess of $50,000 per year.
Given the prevalence of new online marketplaces - designed to facilitate freelance work - we expect the number of American freelancers to grow significantly over the next five years. That growth is creating a fundamental shift in how U.S. workers are earning and supplementing their income.
Despite the Xero research showing on-demand workers have extraordinary job satisfaction, this type of employment is not without its drawbacks. As technology enables new workers to sidestep barriers to finding work, there are some challenges faced by individuals who are more accustomed to filing W-2s than 1099s.
On-demand workers often lack experience in simple accounting practices, such as the deduction of business expenses. More than a third of the freelancers interviewed report having trouble understanding and paying taxes, and 62 percent don't make estimated tax payments. One in four experience difficulties keeping track of expenses and 73 percent don't deduct any expenses at all.
However, just 20 percent said they turned to a professional for tax and bookkeeping advice, while 73 percent file their taxes without help. This community would be well served by online tools that provide simple bookkeeping functionality --while requiring minimal accounting knowledge.
While the earnings of the on-demand workforce are still at the lower end of the scale, the industry is still in its infancy and looks set to continue to evolve.
As the number of online marketplaces grow, their broad appeal across demographics and regions, suggests that as long as there are freelance opportunities available via these platforms, there will be no shortage of people willing to compete for them.
This new generation of worker isn't going away. The emergence of this labor pool also presents opportunities for those already in the business of servicing traditional freelancers, particularly in the areas of accounting and tax management. It's a subset which has the ability to improve the nation's economic health and lower unemployment levels.