To W2 or 1099? That Is The Question

Brian Tolle has spent as much of his career as a 1099 as a W2, which is to say he has worked for himself about as long as he has worked for someone else.

Tolle is the president of The Tolle Group, which is a little misleading because the company revolves around one person – Tolle. He is the owner, operator and innovator of the Ann Arbor-based consulting firm.

Put simply Tolle is an independent contractor, and his company is based out of Ann Arbor because that's where his home office is located. He started out on his dining room table before graduating to his own office, an extra room in his house consisting of a desk, printer and desktop computer.

And Tolle couldn't be happier. His moment of clarity came when his old boss started driving him crazy. Since then Tolle has taken on work as a consultant for tech-based businesses in need of organizational development help.

It was scary at first without the safety net of perceived steady work, but a few years ago he had a "Zen moment" -- every time he was out of work he was able to hustle something else up.

"It's comparable to living on a roller coaster," Tolle says. "It's terrifying and thrilling at the same time."

And Tolle's not the only one on that ride. In 2005 there were 10.3 million independent contractors in the U.S., making up 7.4 percent of the workforce. That's up from 6.4 percent in 2001, according to the U.S. Dept. of Labor's Bureau of Labor Statistics. Current trends suggest a steady increase.

Many of these people are key members of the new economy and are more likely to have a college degree than members of the traditional workforce. They help get start-ups off the ground or offer expertise and flexibility to businesses at competitive prices. More than anything they are the source of economic innovation, demonstrating a pioneer-like entrepreneurial spirit.

"They [1099 workers] are a better educated and more sophisticated type of worker that often falls under the creative economy," Tolle says. "When you get enough of these people together feeding off of each other I think a lot of things can start to pop out."

Future workforce

This type of workforce is the future of Michigan's economy in his eyes -- a workforce of free-agent experts roaming from job to job. The ultimate at-will employees. Flexible worker bees armed with laptops and smart phones that are largely ignored by government policies focusing on 20th Century prosperity indicators like employment rates.

Lou Glazer, president of Ann Arbor-based think tank Michigan Future, sees the economy shifting in that direction. A place where more and more independent contractors become the norm, and governments will need to adjust the way they view employment. "Ultimately, policy should focus on income, not employment," he says.

Unfortunately, current policy largely ignores people like Tolle, even though people like him are a valuable, growing segment of the population. 1099 workers have to pay higher taxes because they don't have an employer to pick up part of the tab through payroll taxes like businesses do for full-time employees. Paying for health insurance and putting money aside for retirement become equally problematic.

Tax and healthcare policy as well as state budget planning will need to be reconsidered. The governments that don't will be left to service 20th Century economies, while the ones that do will be more likely to draw both 21st Century workers and jobs. 

"If that is the way the economy is going, and I think it is, the country has got to find a way to get healthcare from somewhere else than the job," Glazer says. "It's a lot easier to be a free agent in Canada than America."

Flexibility

More and more businesses are taking advantage of people like Tolle everyday. Enough to give further credence to the idea that one worker at one company with one pension is going the way of the dodo.

Translation-based businesses like IteroText in West Bloomfield and Global LT in Troy employ dozens of people but also give out work to hundreds of independent contractors both at home and around the world. Both may be extreme examples, but it's hard to find a fledging small- to medium-sized business rooted in the new economy that doesn't employ a cadre of contractors.

EEI Global, a brand-building marketing firm that specializes in interactive displays, has an average of 5-6 contractors working alongside its 150 full-time employees. These contractors are mainly young people doing jobs in areas like graphic design or older workers lending expertise. Neither show up on state or federal job assessment surveys.

"It's easier to bring in an independent expert than to rely on internal sources," says Derek Gentile, CEO and president of EEI Global.

Hiring an expert means giving that person health insurance, retirement benefits and a whole lot of other hidden costs beyond salary. Not to mention the company has to find something for that expert to do when the project is finished.

Bringing in an independent contractor allows the firm to avoid those incidental costs. Often the contractor will be paid a bit more than the going hourly rate for the work. And at the end of the contract, both parties can easily part amicably.

"The trend is that more and more work is going to be project based," Michigan Future's Glazer says. "I think over time companies are going to figure out what tasks they have to perform that are ongoing. Those will be the traditional jobs."

And some of those jobs start with free agents. Gentile's firm recently hired two independent contractors it had been working with. Both sides realized how well they work together and agreed to being married by paycheck.

However, that situation is more the exception than the rule. Fewer than 1 in 10 independent contractors say they prefer a traditional work arrangement as of 2005, according to U.S. Dept. of Labor's Bureau of Labor Statistics.

It's a mindset Tolle not only understands but adheres to. A well-run business would basically have to offer Tolle his dream job or something close to it to pry him out of self-employment. Most of the time it's not an issue of pay but the fear of falling into a boring routine.

"I would never say no outright but it’s interesting that when we start talking and I realize what I have to give up," Tolle says. "There really isn’t anything worth giving up the freedom and flexibility."

Living the life

Freedom is the one word that best captures the self-employment lifestyle. Freedom to work when and where that person wants. Freedom of from bad or crazy bosses. Creative freedom to do the job the best way one sees fit. Freedom to call your own shots. For many independent contractors, tasting a few months of that freedom is absolutely liberating.

It's a lifestyle Stephen Couchman is quite familiar with. The Royal Oak resident first got a taste of that freedom four years ago when his old company "downsized me and I had to do something," Couchman says.

Today he is a "Problem Wrangler" with a group called Pixelcrew, a loose band of techie web site builders from across southeast Michigan. Couchman calls himself a problem wrangler because "it's not about building websites anymore, it about solving problems."

To him working on his own may mean more hours, but they're his hours that he controls. That means he knows he has to get his work done, but he doesn't have to do it between the hours of 9-5 and then fill out a TPS report to top it off.

"I have friends who work jobs from 6 in the morning to 9 in the evening almost every single day," Couchman says. "I can see my kids' soccer games."


Jon Zemke is a Detroit resident and has been an independent contractor for four years. He is the News Editor for metromode and Concentrate and not even a job with Google would tempt him out of self-employment. His previous article for Metromode was Turning Brownfields Into Greenbacks.

Photos:


Brain Tolle - photo Jeff Meyers

Lou Glazer - Walter Wasacz

Tools of the trade for the freelancer

Business as usual at Bean and Leaf Coffee - Royal Oak

All other Photographs by Marvin Shaouni
Marvin Shaouni is the managing photographer for Metromode & Model D.

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