The past few decades have seen companies increasingly turning to contingent workers. In 2017, the U.S. Bureau of Labor Statistics revealed that contingent workers are across all main occupational groups. A sampling of blue-collar industries shows that contingent workers have a presence in various roles:
- Construction and extraction – 11%
- Transportation – 7.5%
- Installation, maintenance, and repair- 2%
Hiring contingent workers can help your company meet specific skill demands without making long-term commitments. This is a more agile and less costly solution than hiring full-time employees. Of course, contingent workers come with drawbacks. But with the proper management strategy, you can mitigate the risks associated with hiring contingent workers.
First, let’s review the definition of a contingent worker and why their specific responsibilities matter to the classification of this type of employee.
What is a contingent worker?
A contingent worker is an individual who works for your company on a contract, as-needed, or temporal basis. Contingent workers join a segment of the labor market that consists of independent contractors, temporary workers, freelance workers, and other non-traditional employees. These workers are not employed full-time or under traditional employment arrangements.
Contingent workers are often hired to perform specific tasks or projects for a limited period of time. Do you need to clear specific projects off your plate but don’t have enough workers or the right in-house skills? Hiring a contingent worker may be the solution. You can use them to backfill a regular worker on leave, augment your in-house team temporarily, or inject specialized abilities into a project.
Unlike W2 employees, contingent workers don’t work on a continuous, open-ended workload. Contingent workers:
1. Handle defined projects
You hire contingent workers as needed for a specified period or a time-bound project. Your organization doesn’t have to retain them once the period ends. For example, if you need an accountant to help with the year-end close but don’t want to add another full-time employee, you might hire a contract worker for three months.
2. Serve an undefined period
The work relationship between your company and the contingent worker exists for an indefinite period. The arrangement often depends on the contingent worker’s availability and your business needs. You can always create an agreement that gives the worker the option to renew at specific intervals. For example, you may hire a contingent worker to fill an employee’s leave of absence for an indefinite period.
Type of contingent workers
Contingent workers consist of non-employee workers like temporary workers, independent contractors, consultants, gig workers and freelancers. It’s common to find these terms being used interchangeably due to their overlapping definitions. Universally, contingent workers don’t have an employer-employee relationship with the company they work for. Here’s a closer look at each type of contingent worker:
Independent contractors
Independent contractors are less a worker type and more a classification. Independent contractors—also known as 1099 workers—are defined by the Internal Revenue Service through three factors: behavioral control, financial control, and type of relationship. These workers provide a service on behalf of your company but aren’t under your direct control in terms of what work is being completed, when it’s completed, or how it’s completed. Independent contractors undertake a project according to their agreement with the client and finish it on their own schedule. They can also have their own company and hire their team members. It’s their responsibility to pay their self-employment payroll taxes.
Freelancers
Freelance workers are independent contractors who complete project-based assignments. Freelancers are usually paid by the project, with milestone payments along the way. While less commonly referred to as a member of the contingent workforce, freelancers can temporarily fill a need when a company requires a specific skill set.
Gig workers
Gig workers often use apps or platforms to find clients mainly for short-term tasks. And they’re in almost all industries. A few examples include:
- Drivers on ride-sharing services such as Lyft and Uber
- Drivers on delivery platforms like Doordash
- Last-mile delivery drivers and companies that serve ecommerce behemoths such as Amazon and Walmart
- Construction and home workers like plumbers, electricians, carpenters, roofers, landscapers, exterminators, and painters
- Food services and platforms that allow personal chefs, bartenders, and caterers to be independent contractors
Gig workers can be hired on a contingent basis through agencies and gig labor marketplaces. Niche labor platforms allow businesses to hire contingent workers through an app or website, often with the click of a button. Popular platforms in this category include Fiverr, Upwork, Tend, TaskRabbit, Hallo and others.
Temporary workers
During those busy seasons or when a short-term project crops up, you may not have enough hands on the deck. Contingent workers can fill the gap, so you avoid the time-consuming stress of sourcing for short-term employees. Temp workers are popular in retail and hospitality, where businesses experience a high demand for staff during the holidays and other peak seasons. Large companies often have a temp agency on retainer to fill these roles quickly and efficiently.
Benefits of hiring contingent workers
Contingent workers continually make sense for companies that need to scale or fill gaps quickly. A study by Staffing Industry Analysts found that hiring contingent workers can speed up the hiring process by as much as 50%. Other benefits include:
1. Inject flexibility into your staffing plans
A contingent labor pool allows you to quickly cut down or ramp up your workforce depending on seasons and economic conditions. It also allows you to staff for specific skillsets and needs—and not just bodies to fill a seat.
2. Streamline your hiring process
You won’t need to go through the entire recruitment process for contingent workers. The agency or platform you hire from will have already vetted the workers on your behalf. All you need to do is make your pick.
3. Get access to a larger talent pool
When you open your contingent workforce to include freelancers and gig workers, you’ve got a nearly endless talent pool at your fingertips. You’re not limited by geography or even skill sets.
4. Reduce employment-related costs
You don’t have to worry about employee benefits, training, or even office space for contingent workers. All these costs are borne by the worker or their agency.
5. Focus on your business goals
By outsourcing the hiring of contingent workers, you can focus on what you do best—running and growing your business.
6. Test the waters before committing
Hiring contingent workers gives you a chance to try out an employee before making a long-term commitment. If they’re not a good fit, you can let them go without any drama.
7. Build your company culture
Injecting contingent workers into your company culture can be a great way to improve morale and keep your team energized. Contingent workers often have new ideas and perspectives that can help push your business forward.
8. Stay compliant
With the ever-changing regulatory landscape, it’s more important than ever to make sure you’re compliant with all employment laws. When you use an agency or platform to hire contingent workers, they will take care of all the compliance issues on your behalf.
Disadvantages of contingent workers
While contingent workers come with a perk of benefits, it’s wise to consider some drawbacks. These disadvantages are not to be taken lightly—they could have a serious impact on your business if you’re not careful.
1. Quality and consistency issues
When you’re hiring contingent workers, you’re essentially outsourcing the screening process to an agency or platform. This can lead to quality and consistency issues with the workers you receive. To mitigate this, take the time to review worker profiles and ratings before making your pick.
2. Lack of commitment
Contingent workers are, by definition, not committed to your company in the long run. They may leave at any time for a better offer or simply because they don’t need the work anymore. This can lead to disruptions in your business and increased costs as you scramble to find a replacement.
3. Difficult to track work progress
It can be difficult to track the work progress of contingent workers since they’re not always working on site. This lack of visibility can lead to projects falling behind schedule and a general feeling of unease among managers.
4. Higher costs and tax risks
While contingent workers may seem like a cheaper option upfront, they can actually end up costing you more in the long run. This is because you often have to pay an agency or platform a percentage of the workers’ wages on top of their hourly rate. Also, if you erroneously classify an individual as a contingent worker when they’re supposed to be declared permanent employees, penalties can haunt you.
5. Increased complexity
Hiring contingent workers can add a layer of complexity to your business. You’ll need to keep track of multiple workers from different agencies or platforms, which can be time-consuming and confusing.
6. Security risks
If you’re not careful, hiring contingent workers can pose security risks to your business. This is because you give up some control over who has access to your sensitive data and information. Make sure you only work with reputable agencies and platforms and that you have strict security protocols in place.
7. Cultural impact
If your regular employees feel like they’re being replaced by contingent workers, it can lead to a decrease in morale. This can impact productivity and lead to higher turnover rates. It can also be difficult for contingent workers to integrate with other workers and forge long-term work relationships. Even if they wanted to, their short-term stint in the company wouldn’t allow it. The result may be a loosely knit team without a strong culture. To avoid this, make sure you communicate openly with your team about why you’re hiring contingent workers and how they fit into the big picture.
Contingent workers can be a key to growth—if done right
Hiring contingent workers can be a major boon to your business if you’re thorough and thoughtful in your approach. Done right, a contingent workforce allows you to tap into a larger talent pool, scale up or down quickly to meet changing business needs and improve your bottom line.
When you factor in the cost, compliance and quality advantages contingent workers offer, it’s easy to see how they can be a key to growth for your business.
However, a contingent agreement is no reason to drop certain incentives and perks for any kind of worker. Keep your contingent workers happy and coming back with same-day pay. Need a payroll platform that can help you pay contingent workers fast? Check out Everee.