CNBC | Momentive Small Business Survey

Small-business owners don't like to use freelance workers. Are they wrong?

Jobseekers wait to get into the JobNewsUSA job fair at the BB&T Center in Sunrise, Florida.
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A majority of small-business owners are bullish on the economy and the outlook for their sales growth in the next year, but just 27 percent say they plan to hire full-time staff, according to the CNBC/SurveyMonkey Small Business Survey.

Freelance staffing could bridge this gap, especially as the Trump administration expands the definition of the freelance labor market. Earlier this month, Labor Secretary Alexander Acosta withdrew an Obama-era legal opinion that favored a broad definition of who is an employee versus who is a freelancer. The move allows companies to classify more workers as freelancers, meaning they are not subject to the same federal wage and hour regulations as salaried employees.

The freelance economy is booming. According to 2016 data from the Metropolitan Policy Program at the Brookings Institution, the number of workers operating as independent contractors has increased by 27 percent more than payroll employees.

But businesses on Main Street have been reluctant to embrace this growing, often inexpensive and flexible labor pool. Out of more than 2,200 small-business owners recently surveyed by Manta, only 36 percent currently use contract workers. Eighty-five percent, meanwhile, said that they have no intentions of hiring any contract workers this year. The reasons for this hiring reluctance range from general employer-staff relationship fears to legal and compliance worries.

Paychex small business jobs index down for 4th consecutive month
Paychex small business jobs index down for 4th consecutive month

Aaron Lin, managing director of a small web design and digital marketing agency, cites the inability to monitor freelancers as one reason he's hesitant to outsource important tasks. Lin prefers the reliability of traditional employees, knowing they will treat his business information with care and represent his company in a professional manner.

Jesse Harrison, founder of Zeus Legal Funding in Los Angeles, worries more about compliance and security issues.

"When things are getting done at a remote location by a freelancer who is not associated with your company, there are a lot of legal issues there," Harrison said. "If the freelancer's computer gets hacked and your client's information gets into the wrong hands, you would be responsible."

Concerns like these, while valid, may also be overstated, as staffing companies ride the freelance economy boom and cover some of these headaches.

In many instances, freelancers are going to be more invested in the outcome of their work for you than are W-2 employees.
Amber Hinds
owner of digital agency Road Warrior Creative

Upwork, the world's largest global freelancing platform, with 3 million jobs posted annually, vets its talent and offers a premium solution for enterprise that ensures worker classification and onboarding requirements are met. For clients that subscribe to its compliance services, Upwork can also receive indemnification from misclassification risk, which can lead to an IRS audit.

Small-business owners who do use freelancers say there are a few practical considerations to keep in mind in order to maximize use of this labor market alternative and minimize the expense.

More from the CNBC/SurveyMonkey Small Business Survey:
Why half of small businesses still don't have a website
They may be optimistic, but small-business owners just aren't hiring
Entrepreneurs really don't care what Trump does on trade and immigration

"I don't think that small-business owners should let fears of business reputation or security stop them from working with freelancers," said Amber Hinds, owner of digital agency Road Warrior Creative. "In many instances, freelancers are going to be more invested in the outcome of their work for you than are W-2 employees. If they don't produce good results for you, you have more recourse with freelancers than you do with an employee," Hinds said.

She said business owners can sue, report them to the Better Business Bureau or write negative reviews of freelancers online. "I think most freelancers are aware of this and will strive to provide great results because of it," Hinds said.

Jonathan Weber, CEO of tech publishing company Marathon Studios, said it's fair to have trust and security concerns. "Most people who consistently use freelancers have been burned at some point," he said. But Weber added that the benefits still outweigh the risks: Most freelancers are highly skilled professionals who can bring value to a company at an affordable cost.

"To identify the best freelancers, my strategy has always been to hire multiple contractors to work on portions of a single project and then retain the ones who prove themselves to be the best workers," Weber said.

He added, "As time goes on, you start to build relationships with a network of individuals who you have worked with before, and will be able to directly approach them with work without having to face the uncertainty and risk of hiring someone new."

By Zachary Basu, special to