Solar Staff Study: Working With International Freelancers Saves U.S. Companies 47% of HR Costs Despite Misclassification Penalties

The research found that most businesses are continuously hiring more contractors to benefit from impressive savings in HR costs, which, on average, amount to 47% when working with international freelancers compared to local staff.

Solar Staff, an HRtech company connecting businesses with freelancers from 190 countries, conducted a survey titled “Contracting Freelancers: Navigating Trends and Savings in HR for 2024“, which analyzes savings and losses U.S. companies have when working with freelancers. The research found that most businesses are continuously hiring more contractors to benefit from impressive savings in HR costs, which, on average, amount to 47% when working with international freelancers compared to local staff.

Companies utilize freelancers to cut costs, but the emergence of laws such as the Federal Independent Contractor Rule is making it increasingly challenging. The penalties for misclassification of employees as independent contractors can result in potential fees up to $25,000 per worker, with established precedents: potential penalties are a concern for 66% of respondents.

Solar Staff’s report is based on a direct multi-choice survey of 400 C-level U.S. managers, and intends to understand whether the savings companies generate from engaging international contractors outweigh the potential penalties and legal complexities, and to explore what the future holds for the industry.

Recommended : Untraditional Ways To Discover Tech Talent And Promising Software Projects

Responding HR management stated that while hiring local freelance services mostly generates tax savings, working with international contractors may also reduce hourly rates by 10x. Most respondents reported an average savings of at least 20% on taxes and benefits, while cumulative expenses for taxes and social payments varied from 18% to 83%, depending on the employee’s salary:

– The majority of companies delegated more tasks to freelancers in 2023 (a 43% increase compared to 2022), especially those leveraging both international and local freelancers.

– Those engaging both local and international freelancers in large numbers are also the most skillful at saving, reducing costs by up to 47%.

– The main challenge associated with local freelancers is possible misclassification penalties: 66% of respondents acknowledged are facing such issues, and 75% anticipate new challenges in the future.

– When working with international contractors, legal uncertainty and potential penalties have affected 66% of businesses. 71% of respondents admitted this might lead them to start recruiting local talents instead.

“48% of US companies contract freelancers. The data we have received confirms that this generates significant savings on HR costs, not only in terms of hourly rates but also on taxes and benefits. In my opinion, the primary challenge employers face is to clearly understand in which situations it will be more advantageous to work with freelancers, especially international ones, and how to do so without violating the rights of employees.” comments Pavel Shynkarenko, co-founder and CEO of Solar Staff.

The global freelance workforce comprises around 1.57 billion individuals, with this number steadily rising each year. In the United States, freelancing is on track to constitute the majority of the workforce by 2027, injecting over $1.4 trillion into the U.S. economy. Current data indicates that 48% of all businesses engage freelancers, a trend anticipated to grow steadily in the future.

Latest HRtech Interview Insights : HRTech Interview With Tommy Barav, Founder And CEO At TimeOS