Use of Contract Labor by Small Businesses Continues to Grow

The IRS released their 2016 tax data on sole proprietors. 

The data covers business receipts, deductions, and net income reported by taxpayers on Schedule C of tax Form 1040.

This includes the vast majority of small businesses, including small businesses that report on a pass-through basis (LLC's, etc.). 

 In 2016 about 25.5 million sole proprietors reported about $1.422 trillion dollars in gross receipts. 

As with prior years, sole proprietor spend on contract labor caught our eye. 

As the chart below shows, U.S. sole proprietors spent about $56.8 billion on contract labor (freelancers, temps, etc.) in 2016, up from $34.4 billion in 2010.

 

This is an increase of 65% between 2010 and 2016. 

Over the same period, spending on salaries and wages (meaning traditional employees) rose from $73.7 billion to $90.9 billion, an increase of 23%. 

Way back in 2003, contract labor was only about 20% of the labor costs of sole proprietors. By 2010 it has risen to 31%. And in 2016 it reached 39%. 

This is similar to the non-employee share of the workforce at large corporations, which has also increased substantially over the last two decades.

Expect to see the growing use of non-employee labor by firms big and small to continue.

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