Forty-seven million Americans voluntarily parted ways with their employers in 2021 as part of a sea change in the American workforce nicknamed the Great Resignation. According to Pew Research, the biggest drivers of quitting were low pay, lack of upward mobility, disrespect, and lack of flexibility in setting a work schedule.
Widespread dissatisfaction with W-2 roles was a big reason the Great Resignation coincided with a 55% uptick in new business creation relative to 2019. Millions decided that for their next adventure, they’d rather bet on themselves than return to W-2 life.
Today, half of U.S. companies are cutting headcount and major reductions in force are becoming a near-daily occurrence as waves of layoffs hit some of the best-known brands in the country. This time, departures from the W-2 ranks are involuntary but the result is the same: new businesses continue to be formed at far greater rates than in 2019–even if many of them are businesses of one.
The throughline from 2021 to 2022 is that whether they’re leaving of their own accord or not, wage earners continue to depart W-2 life en masse and become business owners. Many won’t ever look back.
The tech-enabled migration of the American workforce to the 1099 (the IRS form used for independent contractors) economy is a secular shift that far predates the COVID-19 pandemic.
From 2000 to 2015, 1099 forms increased by 22% while W-2 forms fell 3.5%. The events of the last few years took what was already happening and propelled it forward at a breakneck pace. Current labor market headwinds should push the 1099 workforce even further. Today, even those who remain in W-2 roles are dipping their toes in the water even if simply by necessity: remarkably, 41% of adults already have a side hustle.
What I see with increasing frequency is a trend of former W-2 employees renting their services back to their former employers that they’ll never fully return to. These agreements allow contractors autonomy and boundaries. They don’t want to be “bought” as W-2 employees. In many cases, this type of arrangement is mutually beneficial by allowing companies to be nimble on staffing. Contractors also typically do not require health insurance or restricted stock units. Start-ups specifically often seek fully dedicated employees, but there’s a real benefit to hiring experienced consultants who help avoid mistakes and trial and error, given their past experiences solving very similar challenges.
The 1099 economy offers people the opportunity to be their “own boss”, to work part- or full-time offering their expertise to companies large and small, and making it the rare proposition in which everybody wins. At the very least, side hustles can be helpful in the present labor market as means of achieving a soft landing in the event of job loss.
What I’ve realized in helping people build similar businesses is that when deciding whether to start a business, a few misconceptions tend to hold entrepreneurs back:
It might be too hard to find clients
False. The worst-kept secret in Silicon Valley is how much Big Tech companies depend on contractors. There continue to be major talent gaps to fill at large corporations, especially after layoffs because targets still must be hit. Startups also continue to receive funding (although it is down 50%) and experienced part-time consultants are already common. The market is huge and social media, referrals, and communities make it easier to connect than ever.
I might not make a lot of money
It depends. If you have two to three clients paying you $10,000 each per month, that’s $240,000 to $360,000 per year. Most people I work with make double or triple their previous W-2 salary.
I’ll end up working just as hard
It’s all about the boundaries you put in place. If you choose, you can work just as many hours, although if you’re taking 100% of the revenue, you’ll make a lot more than you would in a W-2 role.
At the same time, running a business is difficult and it’s not for everyone. Landing (and keeping) clients requires self-direction, grit, and perseverance. It means dealing with uncertainty and rejection.
Being self-employed also carries greater complexity when it comes to taxes, bookkeeping, and managing health insurance. Understanding quarterly estimated taxes can be challenging–yet it’s just the tip of the iceberg. There are countless ways to optimize taxes to maximize take-home pay as well as contributions on benefits such as health insurance and retirement savings. Those who simply send their CPA a Google Sheet once a year (most people) forfeit as much as $30,000 on potential tax savings depending on their income and other factors.
For anyone weighing becoming self-employed, I’d advise answering these questions first as a checklist:
Do you have enough relevant experience to add significant value to another company?
Without experience or a developed skillset, it will be difficult to get high rates for your services. If you have more than five to seven years of impactful experience, you can sell on it.
Do you have some savings you could use as a runway?
Ideally, you have some savings you can fall back on or invest in resources to find your first client, work with a coach, etc. Otherwise, many folks start consulting while they’re still employed, building up to $10,000 a month before they decide to quit their job.
Am I fit to be self-employed?
We all have limiting beliefs. Are you a self-starter? Can you rally yourself on a bad day? Can you deal with uncertainty and rejection?
If you’ve got all the boxes checked, you’ve probably already thought about it. There’s never been a better time to make the leap, work on your offering and spin up a side business. You might just find your calling. Chances are, you’ll love the flexibility and greater earnings potential of betting on yourself.
Bradley Jacobs is the founder and CEO of Mylance, an end-to-end software platform for self-employed individuals and budding entrepreneurs to live a flexible, fulfilling work-life.
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.
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