Freelance is the new full-time
Many unemployed workers are forced into freelance positions as employers pull back on full-time hiring.
NEW YORK (CNNMoney.com) -- As unemployed Americans struggle to find full-time work, many will have to settle for positions that are easier to come by - freelance.
Freelance professionals now make up more than a quarter of the U.S. working population, or 26%, according to a survey by human resources consulting firm Kelly Services, Inc, up from 19% in 2006.
"As the economy contracts, there are not only more people looking for new ways of earning money, there are also more companies looking to make their employment practices more efficient," said Rob Palmer, CEO of GoFreelance.com, a job search site for freelancers.
Freelance positions fill both needs.
For businesses, taking advantage of freelance labor is a means of saving money. By hiring freelancers instead of full-time workers, firms can only pay for workers when they need them, in addition to cutting back on costly benefit plans.
"[Employers] can hire freelancers for short-term projects in response to changes in their market, without having to make a long-term commitment," Palmer added.
But freelance jobs can be less cost effective for workers. Freelance paychecks can be erratic, plus freelance workers are vulnerable during down times, as they are the often first ones cut when companies scale back.
Moreover, freelancers, who file taxes as self-employed workers, must pay out of pocket for their own health insurance, fund their own retirement plan and generally don't qualify for unemployment insurance benefits.
James Blome knows what that's like. Blome, 46, was an executive vice president for a firm that specialized in selling agricultural products to retail stores. He was laid off in January 2008 when the business dissolved and has been unable to find another full-time position.
"There aren't many executive-level, full-time jobs," he said. "Everyone is contracting."
To make ends meet, Blome is freelancing for an investment bank based in New York that focuses exclusively on the agriculture sector. But since the majority of the work is based on mergers and acquisitions, Blome was squeezed again when that market dried up.
"With fewer projects to work on, my salary has been impacted quite a bit," he said. Blome estimates that he now makes about 50% less than he did when he was employed full time.
While Blome hopes to eventually get his own consulting firm off the ground, the major downsides to freelancing are "the lack of benefits and a consistent paycheck," he said.
"The overarching disadvantage to being a freelancer is that you have to cobble together your own social safety net," said Althea Erickson, a senior manager at the Freelancers Union, referring to the lack of benefits including health insurance.
For those trying to make it in the world of freelance, Erickson recommends creating a safety net first. She advises workers to find an inexpensive group health insurance plan like the one offered through the Freelancers Union, contribute to an IRA, which offers tax-deferred growth on your savings, and pay quarterly estimated taxes that include Social Security and Medicare taxes.
But despite the challenges, for many, freelancing offers independence and mobility in their career paths.
"There are a lot of options out there," said Kristen Sabol, a spokeswoman for Guru.com, an online marketplace for freelancers, but "you have to put them in place for yourself."
Scott Fraser plans to do just that.
Fraser, 53, looked for a full-time job in public relations for over a year since he was laid of from Blue Cross in December 2007.
Now, he has two freelancing jobs to help cover his expenses and plans to launch his own public relations company in the near future and leave the job search behind.
"If you decide to do this, go full speed ahead, that's my goal," he said. 
