In 2001, Dan Pink published a bestselling and forward-thinking business book titled Free Agent Nation: The Future of Working for Yourself. That future has arrived.
At the recent HRO Today Forum in Philadelphia, Gene Zaino, Peter Clayton's guest today for this Big Picture Channel Podcast on TotalPicture Radio, gave a compelling presentation on the future of work. He is the President and CEO of MBO Partners, which he founded to re-invent the way independent contractors and organizations work together. Based in the Washington, DC metro area, the company has enjoyed double-digit growth since 2003. MBO Partners is a major force in the development of best practices, risk mitigation programs, and independent contractor engagement tools that support workplace independence.
Gene Zaino TotalPicture Radio Transcript
Hi, this is Peter Clayton reporting; before we get to our interview today with Gene Zaino from the HRO today forum, I want to tell you about some exciting developments regarding the SHRM annual conference and exposition in Orlando, June 22nd through the 25th. Stay tuned and watch for updates on the conferences and events channel of TotalPicture Radio, that's totalpicture.com, to learn about unique and powerful video and podcast production services TotalPicture media will be providing this year in Orlando.
And now here's our podcast with Gene Zaino.
Peter: At the recent HRO Today forum in Philadelphia, Gene Zaino my guest today for this big picture channel podcast on TotalPicture Radio gave a compelling presentation on the future of work. He is the President and CEO of MBO Partners, which he founded to reinvent the way independent contractors and organizations work together. Based in the Washington DC metro area, the company has enjoyed double digit growth since 2003. MBO Partners is a major force in the development of best practices, risk mitigation programs and independent contractor engagement tools that support workplace independents.
Gene: Well, great to be here, Peter. Thank You.
Peter: Before we get into a conversation regarding your presentation at the HRO Today forum in Philadelphia, can you just give us some background on MBO Partners?
Gene: Yes, absolutely. Basically what we do, Peter, is we provide what I'd like to call a platform that delivers a suite of management services for solo employed professional and the clients that engage them. It's a multisided platform. This platform we like to call a business operating system which basically provides a back office that makes it easy for the self employed professional and their clients to work together, but most importantly to do it in a convenient, tax efficient and legally compliant manner.
So what we've done is, we know how difficult it is for large organizations to implement a successful program for their self-sourced contractors, and a program that kind of drives enterprise-wide adoption in making it easy for their managers, for their contractors, obviously has to be cost efficient but most importantly, fully compliant and that's where we fit in. We've been doing this for years; we've processed over $2 billion in services across 30,000 contractors in 50 of the Fortune 500 companies and hundreds of others, including the federal government.
So, when you need a program for your organization that is aggregating your self-source independent contractors or if you are an independent contractor, you probably want to learn about what we do.
Peter: Your presentation at the HRO Today forum was titled, 'The War for Top Talent, Navigating New Work Arrangements.' I want to share with the audience a few of the callouts from your Presi: 17.7 million independent workers, 24 million forecasted by 2018.
Gene, can you unpack this for us and provide us with some of the sources and contexts to these statistics.
Gene: These are real statistically accurate numbers done by an independent research firm called Emergent Research. We're in our fourth year that the survey and the research is called The State of Independence in America. It is available on our website for those that want to see it.
Basically what it does, Peter, is it surveys panels of people across the United States, Americans, about 4000 people and it asks these people how are they earning their living. Do they consider themselves an independent worker or a traditional employee? And based on their self identification of what those are, and basically we give them some guidance, like you can't have employees and you're not working at a traditional company and they self identify based on the survey and the statistics it comes out - and last year was 17.7 million of these people are working this way, which is about a million more than the previous year and a million more than that previous year. So they're growing about a million a year. The forecast for 24 million in 2018 basically is a question that asks the people that say that they are not independent today and asks them are you going to be in the next 3 years; and based on the people that say, 'Yes, I'm planning on it' and discounting that down, because a lot of people say they're going to do something, like lose weight or do something like an exercise program and really don't; so the statisticians discount that out. Even with that discount it shows that statistically the projection is 24 million by 2018. So that's where the numbers come from.
Peter: That's a whole lot of people.
Gene: It's a very large group. In fact we extend that out and believe that by 2020, at least one out of every two private sector workers will either be an independent contractor or have worked as an independent contractor at some point in their career. We do see it as sometimes a stint, where you go into it and then at some point or, certainly with the baby boom generation it's something that is a career change, but the largest segment is the Gen X segment, the late 30s/early 40s.
Peter: I was wondering with this huge number if this was mainly baby boomers who couldn't get hired for a full time job any longer because they're too old.
Gene: Actually, Peter, 80% of the people that considered themselves independent contractors, independent workers, did it because they chose to; only 20% did it because they were forced to. So that's a really interesting statistic...
Peter: That is.
Gene: ...that probably debunks a popular rumor that what you just said where, 'They can't get a real job so they're independent.' These are people that decided to. In fact, when you talk to the people that are doing it, 77% say they would not go back to traditional employment even if that opportunity was attractive and presented that to themselves.
Peter: Wow, that's pretty amazing. I think part of this, Gene, is that there are a lot people, especially the millennials, that don't want to work in cubicle farms. They just don't want to work that way.
Gene: Yes, and today about 20% of the 17.7 million are millennials, but we believe that number is going to grow dramatically over the next five years. Because typically an independent worker has eight to ten years of experience in their area of expertise. So we believe that is approaching over the next four or five years, and the demographic of the millennial is just more so than any other previous generation wanting to do things on their own and not really wanting to be part of the traditional institution of employment.
Peter: Sort of to follow up on that, back to your presi, you zoomed in on the statistic, 76% of companies conducted layoffs due to increased health costs. A lot of companies, of course, are undergoing major restructuring. Then there's the recession, then mergers and acquisitions. Again, what companies are we talking about and over what period of time did this statistic of 76% come up?
Gene: This study is a study that was just recently published by Towers Watson and it covered the years part 2014, but mostly 2013 and part 2012 and they did this because they said okay corporations in America are richer than ever before, more cash on their balance sheets, more profitable than ever and therefore, let's see how they're treating their workers. Well it turns out that 76% of companies are doing something that's further deteriorating the traditional safety net of employment and things like you just mentioned, increasing their healthcare premiums, increasing their out of pocket costs, doing an acquisition or reorganization, changing around the company, reducing their hours; and all of these things further deteriorate that traditional hire till you retire type of model, where that in combination with the statistics I just told you about in terms of peoples' desire to work independently and having the corporation side of the world, the companies that are doing things that they have to do to be competitive and agile, that just further deteriorate traditional type of employment models. And then you have the other side of the social aspect, which is people wanting to be more in control of their career and liking it. That's why we see by 2020 or that period of time somewhere it's going to be a significant part of the workforce.
Peter: Gene, you also believe that workforce trends point to a perfect storm due to technology and other factors. Can you expand upon this for us?
Gene: Yes. The perfect storm that I referred to really takes into account four major trends. The first is what we just talked about in terms of the research that we see that trend moving towards more independent work.
Second, we see businesses needing to do things that just prohibit them from increasing that safety net of employment and actually doing the reverse, like we just said in the 76% study of deteriorating it.
Third, you have our technology, the convergence of cloud technology, social technology, mobile technology just making it easier and easier and easier for individuals to start up and work in their own single person company, yet the cost has dropped dramatically. It's much easier for people to market their skills and for companies to find project based work. So we're moving into more of a project economy as a result of the technology.
Fourth is the biggest, which is our government regulatory systems, the IRS, the states, they are funded by payroll. The biggest source of funding our government is from the taxes that companies remit that are withheld from employees. As more and more of our population migrates away from traditional employment, our governments are really struggling, trying to figure out how do we keep those funds from coming in, because even though independent workers are supposed to file taxes and pay taxes, there's not a good infrastructure to do that and certainly the IRS and states don't have the resources to audit every individual person; that would be just not practical.
So there's this perfect storm where regulatory issues are being overly aggressive, in terms of trying to penalize companies that are using independent contractors and trying to reclassify them as their employee so that they could pay taxes. At the same time, you've got just business pressures and social pressures and technology pressures moving in totally a contrary direction. So you've got this perfect storm which just creates a problem. I think it's no different than Uber that is being challenged by all the taxi commissions or AirBNB by all the state legislators. Our economy and marketplace for the way people work is totally outstripping the rate of change and the infrastructure of laws that were created back in the post World War II era.
Peter: To follow up on that thought, you used a term in your presentation - work arrangement intermediation ecosystem (that's a real mouthful). But I guess, that's what you were just talking about, right?
Gene: Yeah, because you see work is a matter of someone doing a service and someone paying for it. In that work transaction there's an intermediation process, right? In the most fundamental, it's an employer/employee process. In a contingent work staffing world, it's maybe a recruiter finding somebody, or a salesperson finding a project, handing it over to the recruiter saying find me a resource because my client wants this. The recruiter finds somebody, then they put them to work and there's a billing and transaction and all that stuff. Or an independent contractor arrangement where a person goes and sets up a company and figures out how to put himself in place and bills himself to the client and payment comes in.
So there's all of this worker intermediation process, which I believe right now, is in the process of being automated and reengineered, and I think it's going to be a very large industry.
Post World War II, ADP did this. ADP figured out how to make a traditional payrolling process easier for companies and employees, and they built out the largest infrastructure for paying people on a traditional W2 and then Paychex did it as well. I believe in this new world of what's evolving as the rise of independent workers, there is going to be many new ways of handling the intermediation of work, that makes it both compliant and easier for the individual and easier for the company to use them, and that's just in the process of happening now.
Peter: I'm curious about one thing, Gene, for the companies who are using independent contractors and that seems to be very much of a growing trend; is this all about saving money by not hiring full time employees and having to pay those payroll taxes you were just talking about? Or are there some other factors in play here?
Gene: There are bad actors out there that are trying to do just that and that's where the regulatory people are really cracking down and they deserve to be cracked down. Companies should not be paying somebody something without them realizing that, hey I don't know that I'm going to have to now cover my own payroll taxes and my own benefits. But I would say that is in the lower level part of our economy, the lower end, perhaps the more construction area and that area. But on the higher end of the talent, which is really our economy is moving much more towards a knowledge-based economy, in that world it's the opposite. The people that have the best skills and are really doing what they're passionate about and most of that could be done now digitally and remotely, just like you and I are doing this call from wherever you are and wherever I am.
Peter: Over Skype.
Gene: Over Skype. So, as a result to that individuals are saying, 'well gee, I can work from wherever I want, I could do the kind of work I want and I can do it across multiple clients,' and by doing that I actually have a diversified income stream. If I'm a company, rather than hiring a person for a job, I could just hire someone to get a project done.
So it depends. I mean obviously every company is going to want their core employee base, that's certainly not going away. But in a world where things are changing so rapidly, competing globally, having a situation where there's a disruptive new company starting up in my backyard, I need to be quick on my feet as a company and to do that, it's much quicker for me to go out on the internet, go to the multitude of marketplaces, or LinkedIn or whatever or create my own little pool of talent that I could tap into when I need it, just when I need it, with the direct kind of expertise that I need that's constantly changing and constantly evolving.
So companies are doing it to be more competitive or agile and, of course, to keep their cost structure down. They have to keep their cost structure down because we're in a worldwide competitive environment. So although I would say some people do it because they're trying to avoid benefits, I think for the most part in the knowledge economy, it's the actual inverse is that they're doing it because that's where the talent is.
Peter: Last week in Philadelphia, your VP of corporate development Jay Lash, gave me this very fancy pen that was a laser pointer, a thumb drive and contained among other things, an Aberdeen research report which asserts that 26% of an average organization's contingent workforce is expected to be comprised of independent contractors this year. Are these primarily IT workers?
Gene: No. What they are primarily are more and more companies, the contingent workforce is comprised of staffing companies and independent contractors. According to the staffing industry analysts they actually did research on their own; there's about I think 2 million members in the United States, that are part of the staffing companies, the large staffing companies and the small staffing companies - the Manpowers, the Kellys, the Adeccos. But there are as you could see here, whatever 15, 17, 18 million independent contractors. So what you have is in a company you have of the contingent workforce a segment of their population which is what Aberdeen was studying.
They looked at that 26% of that is actually independent contractors, which I think is even a lower number than what's reality because companies... it's really hard for them to identify their independent contractors, because they come in as a company, and they're either part of accounts payable or they're underneath some other company or they're buried somewhere else. Independent contractors generally do not want to be part of a staffing company structure. They do not want to be paid as an hourly employee, they want to have their own business, they want to be paid in maybe on a fixed price basis which is not what staffing companies do, and they have a business expense because they are running their business, they want to have their own relationship with the client.
Today the world is kind of open. It's much easier now for companies to find those independent contractors and managers... I have this concept of bring... from a technology point of view companies have realized you could bring your own device from a technology point of view - your own iPhone, your own laptop.
I believe you're going to see companies saying, 'Okay, managers you could bring your own worker' and let them find their network amongst themselves and then just figure out a way to engage that worker and again, that's the work intermediation platform that I think is necessary.
Peter: One the things that really surprised me in this Aberdeen report is that nearly 50% of organizations have lost independent contractor talent due to poor engagement strategies. That's a big fat number, Gene. What are these companies doing wrong?
Gene: Well, you see most companies think you engage an independent contractor they have a bifurcated way of doing it. Their work intermediation system is either pay them through my staffing company or I pay them directly as a 1099, or directly to their business.
What's happening is you can't just have those simple bifurcated solutions because there's a lot of people in the middle. There's a lot of people that do not want to be paid through a staffing company, and unfortunately there's a lot of people that think they're an independent contractor from a compliance point of view, but they just don't have enough of a firewall, if you will, or enough of a credential that the legal departments of mature enterprise corporations will say, no you cannot pay this person directly to this person because they're going to be reclassified by the IRS or by the states or by the Department of Labor and Mr. Hiring Manger you can't do it. So what happens is these people say I'm going somewhere else, and they lose the talent because they don't have a proper engagement tool to figure out how to put these people in a program that makes the contractor happy and makes the legal departments and HR departments, that have to comply with the regulatory issues, fit into their model. That's kind of part of that perfect storm I was talking about.
Peter: Right, right. What advice would you give to a company looking to either consider using independent contractors or expand its use of these folks?
Gene: The number one thing you need to do is first recognize that this isn't going away. It's not cyclical, this is structural. So get with it and realize that I've got to figure out how to make independent workers a strategic part of my workforce strategy, number one. So once you have that then you're going to put more time and effort into what's the right way for me to attract these people.
Not only do I want to be an employer of choice for my full time employees, I need to figure out how to be a client of choice for my independent workers, and how do I do that. There are ways, there are multiple ways to put together programs and that's kind of what we've been doing for the last decade and a half, and figure out for the different types of independent workers what are the right ways to engage them.
It's a lot about education, it's a lot about having the right tools, and it's a lot about communicating with your managers, but there are ways to it. We've got lots of successful programs in place where the client is happy, the worker is happy and they're compliant. That's the triangular solution you need to get to. It just starts with at the top realizing that I want to make this happen, because you could do it, but you've got to first realize that these are strategic parts of my workforce.
Peter: On the other side of that coin, Gene, what advice you give our listeners who are thinking about becoming independent contractors?
Gene: I think it's a skill that they need to learn how to do at some point. The chances are one out of every two listeners are going to have to figure out how to do this at one point in their career. You can't be caught off guard and you need to learn what does it mean to be an independent worker, how do you calculate how much to bill, how do you make sure you've got your safety nets covered for yourself.
The Affordable Care Act is absolutely a step in the direction of giving people the ability to have their own healthcare, but there's a lot of other tools and elements that's needed so that you could properly have a diversified set of clients and have your own internal set of portable infrastructure that you take with you from project to project and client to client, and you've got to also know how to give yourself a brand.
Things like what you're doing with me right now, people need to realize that hey if I'm going to market myself, I've got to get myself out there. You don't have to be a salesperson, you just have to know what it is that you do really well and then you need to be able to offer that expertise. Online now it's easier than ever, there's lots of ways to do it.
Anyway, I would offer the fact that at one point in your life or your career, start learning about what it takes to be an independent worker.
Peter: I think that's some excellent advice, because let's face it, Gene, your job is not your career. They are two very separate things and you really have to invest in and pay as much attention to your career and where you're going with your career as you do with your current job, which obviously can be a real juggling act because of the demands that are placed on people in the workplace today.
Peter: Just a couple of quick questions for you, back to the HRO Today forum, what were some of your takeaways from that event this year?
Gene: Takeaways were that I actually do see HR executives paying more attention, some are wanting to change and wanting to be more innovative and I was really, really happy to hear that. It's been a long time coming. That was a big takeaway for me that I think HR is realizing that the world is changing in lots of areas, not just with independent contractors, and they're really interested in wanting to learn what's necessary and how could they help their organization gain that competitive advantage.
Peter: Last question. Are there any resources you would like to share with our audience around the ideas we've been discussing here today?
Gene: Sure. Obviously we have a ton... we have hundreds and hundreds of documents on our site regarding how to be an independent contractor/independent worker, as well as how to engage them. We've learned a long time ago in order for us to get ourselves out there, we need to offer out some really good content that we think is interesting to people, as well as our research that we spend a lot of money on funding to get that done. Obviously a little bit of self serving from a branding point of view, but there's no obligation.
If you got to mbopartners.com, you'll see a treasure trove of information regarding this topic.
Peter: Gene Zaino is the President and CEO of MBO Partners, which he founded to reinvent the way independent contractors and organizations work together. Gene, thank you very much for speaking with us today here on TotalPicture Radio.
Gene: My pleasure, Peter, thank you.
Our interview with Gene Zaino can be found in the Big Picture channel of TotalPicture Radio, that's totalpicture.com where you'll find a complete transcript of this podcast.
I hope to see you next month in Orlando, June 22nd through the 25th at the big daddy of them all, the SHRM annual conference and exposition.
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Thanks for listening.
About Peter Clayton
Peter Clayton, Producer/Host, is an award-winning producer/director of radio, television, documentary, video, interactive and Web-based media who has created breakthrough media for a wide array of Fortune 100 clients.