Table of Contents
Table of Contents
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What Is a Contingent Worker?
Contingent workers, sometimes called gig workers, are typically hired on a project, role or seasonal basis instead of as regular employees. This alternative work arrangement offers flexibility both to workers and companies and has many other benefits. As of writing this, it is estimated that 25-30% of the US workforce is made up of contingent workers, with more companies adopting this model each year.
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Contingent Worker vs Employee
A contingent worker is not an employee of a company and is hired on a temporary or project basis to complete certain tasks. Sometimes contingent workers are hired through a staffing agency (temps); others may contract directly with the company (freelancers). Companies don’t usually pay employee payroll taxes for contingent workers, nor do they offer benefits.
Employees, on the other hand, are typically hired on a full-time or part-time basis and earn a salary/hourly wage and benefits. The company pays employee payroll taxes for employees. There is an expectation of an ongoing relationship with most employee-employer arrangements.
Types of Contingent Workers
Contingent workers can be independent contractors, freelancers, temporary workers, and other types of non-employee workers. Sometimes the terms are used interchangeably since there is considerable overlap in these broad definitions. Let’s explore three of the most common terms.
Independent contractors often perform services for multiple clients in a specialized area of talent. They typically work on a project basis, using an agreement (or scope of work) that outlines the work to be performed. They likely provide their own tools and equipment to perform the work and complete the work on their own schedule. They may even establish their own company and hire others to perform services for them. Independent contractors are responsible for the payment of their own self-employment payroll taxes.
Freelancers also typically work on a project basis for client companies. Sometimes employees in one company may work on the side as a freelancer for others. For example, a graphic designer can work on their own time to use their talents to benefit other companies who don’t need a full-time graphic design expert. More recently, internet-based companies are bringing together freelancers with companies that have projects that need to be done. Freelancers are usually paid as non-employees and are responsible for self-employment taxes.
Staffing agencies find and place workers with companies for a specified period of time or during a busy season. While some of these temporary workers may be hired permanently at the end of their temporary assignment, many temporary workers like the flexibility of choosing assignments they want to do without a long-term commitment. Temporary workers are usually paid as employees of the staffing agency that places them, so they don’t have the self-employment obligations that other types of contingent workers have.
Other Contingent Workers
Other terms for contingent workers include gig worker, outsourced worker, and consultant. The main characteristics of any contingent worker are the nature of the employment relationship (usually non-employee) and permanence of the employment relationship (temporary).
Should a Company Hire Contingent Workers?
The advantages of hiring contingent workers, especially in a tight labor market, are significant. There are also drawbacks to consider.
Advantages of Hiring Contingent Workers
- Flexibility. An external workforce can be very helpful for companies that need to ramp up or down their employee base quickly due to economic conditions or seasonality of work. This also results in increased job security for regular employees, who don’t have to be downsized when business needs change because the elasticity of the contingent workforce protects them from these types of fluctuations.
- Cost. Being able to hire talent on an as-needed basis can be very cost-effective. Besides the flexibility of reducing labor costs when business fluctuations occur, companies benefit from having specialized talent on demand rather than paying for this expertise year-round. For example, an in-house attorney will require a competitive annual salary and benefits, while a contract attorney who assists as needed will be paid only for services performed.
- Reduced administrative burdens. The time and costs involved in recruiting, hiring, onboarding, training, and managing regular employees is greatly reduced by using contingent workers, who may only need short-term, job-specific training and little administration.
- Speed. Sourcing and hiring employees takes time, and sometimes the need for critical talent is immediate. By using contingent workers, employers can move quickly to fill their openings.
- Unique skills. Contingent workers may have hard-to-find skills that businesses need. Hiring for these skills takes time and maybe more expensive than finding someone who works independently. Even if the long-term plan for a company is to bring this talent inside the organization, contingent workers can fill the gap until the positions can be filled internally.
Disadvantages of Hiring Contingent Workers
- Management. Many contingent workers aren’t given the same onboarding, orientation, and training as regular employees and may need more management as they get started. Some managers are hesitant to trust non-employees and may micro-manage their work until they are confident they can do the job. This can divert time and resources away from other important priorities.
- Control. The very nature of some contingent work is flexibility in where and how work is to be done. This can be uncomfortable for managers who want to be more hands-on with their team members. Trusting outsiders to do a job well takes great communication and follow-up skills that managers may need to learn.
- Misclassification. The IRS and Department of Labor have guidelines to help classify workers as employees or non-employee contractors. Companies who bypass these guidelines and/or misclassify employees as non-employees may face costly legal penalties.
- Commitment and loyalty. Contingent workers don’t have a long-term commitment to the company for whom they are performing services, nor is there an expectation of loyalty to the company.
- Confidentiality of company information. Depending on the nature of the contingent worker’s position, they may have access to confidential company information that can be shared with others outside the company.
- Overdependence. Companies may come to depend on the unique skills of certain contingent workers and then lose them to other projects. Striking a balance between in-house talent and external talent can be challenging.
- Integration and teamwork. Employees tend to integrate within the company and develop friendships with co-workers more than contingent workers, who don’t anticipate working for the company very long. This may translate into better teamwork amongst employees and lessened teamwork with contingent workers.
What Are the Advantages and Disadvantages of Being a Contingent Worker?
As with any employment relationship, contingent workers also enjoy certain benefits and drawbacks with this type of work arrangement.
Advantages of Being a Contingent Worker
- Flexibility. Many people like the freedom that contingent work allows them. They aren’t stuck in a job they don’t like and they can often create a livelihood doing what they love. They can also work according to a schedule that fits their preferred lifestyle. This is especially attractive for people juggling childcare or eldercare responsibilities and for those preparing for retirement, but who aren’t ready to stop working altogether.
- Variety. Contingent workers often enjoy the variety of projects and associations that this type of work allows.
- Skill development. Some contingent workers learn or improve skills that help them become more marketable when they are ready to seek regular employment.
- Resume and network building. The contingent worker can enhance their resume with work experiences and network within the companies where they work to increase their capacity to find regular employment.
Disadvantages of Being a Contingent Worker
- Money. While some professional-level contingent workers may become financially successful doing contract work, many contingent workers don’t earn as much as they would if working full-time.
- Benefits. Most contingent workers don’t qualify for company benefits, such as paid time off, 401k and profit-sharing plans, health plans, and other perks regular employees enjoy.
- Security. Many contingent workers need to hustle their next assignment and don’t have the security of a regular paycheck.
- Self-employment. Many contingent workers are responsible for paying their own self-employment taxes. Understanding and complying with these obligations can be challenging, especially for those who don’t have much of an accounting background. They either need to hire someone to help them or hope they are doing it correctly themselves, which could result in owing money at tax time and tax penalties.
How to Find Contingent Workers
There are lots of benefits to having a blended workforce, and it’s becoming more common in today’s gig economy. In fact, one study found that “more than half of executives (55%) say their company would be unable to conduct business as usual without an external workforce.”
So how can you find these workers? This section will take a look at some of the best methods for finding and hiring contingent workers.
Finding Temporary Employees, Option 1: Use a Staffing Agency
This is a common way to find temporary employees, and it’s great because it can save companies a lot of time in the hiring process. Using a staffing agency is especially helpful if your HR team is small, because the staffing agency does much of the heavy lifting when it comes to finding candidates.
If you want to work with a staffing agency, you first need to do your research to find one that aligns with your company’s needs. Be aware that different agencies offer different things, and they also charge different fees.
Your agency will spend time getting to know your company. Then, you’ll provide them with job descriptions for open positions. Recruiters from the agency advertise job posts, screen applicants, and conduct initial interviews. Then, they pass on the best candidates to the company, which conducts final interviews and makes a hiring decision.
Usually, temporary employees are on the staffing agency’s payroll, and the agency may provide them with benefits (though not always).
Finding Temporary Employees, Option 2: Follow the Normal Hiring Process
If you don’t want to have to pay a staffing agency an extra fee on top of your temporary employee’s wages, consider hiring one yourself. To do this, you’ll follow the same hiring process you use when hiring other employees.
As you begin the search for candidates, consider using the following sources:
- Job boards like Indeed, ZipRecruiter, and LinkedIn
- Social media advertisements and outreach
- Employee referrals
- Former temporary employees
For more on the best ways to find and hire temporary workers yourself, see this HR Encyclopedia article.
Finding Freelancers, Step 1: Post the Job Online
Though you can find freelancers through newspaper classifieds or word of mouth, the most reliable way to find good workers is online. There are several platforms specifically designed for freelancers, such as Upwork and Fiverr.
When you post your job, make sure to include all the things you’d normally include in a job description: job title, information about your company, job responsibilities, and required skills/experience. Beyond that, it’s also important to include how long the job will last and what your budget is.
Finding Freelancers, Step 2: Go Through Applications
If you’re using an online platform specific to freelancers, you will be able to see reviews for each person who applies. These reviews are valuable as you sort through applications. Start by weeding out anybody who isn’t qualified; next, sort through your other applicants, prioritizing the ones with lots of great reviews. Here, it can also be helpful to see if the applicants have their own website with testimonials and/or samples of their work.
Make a list of several candidates that you’re interested in, and send them a message through whatever platform you’re using (or through email if you’re not using an online platform) inviting them for an interview.
Finding Freelancers, Step 3: Interview Top Candidates
Once you have your list of top candidates, make time to meet with each of them. Video calls are usually the best way to get a sense of a person’s abilities (and determine if they’ll be easy to work with) but you can message back and forth instead if a video call doesn’t work out.
Here are a few questions to ask during the interview:
- Could I see some samples of your work?
- Have you worked on a similar project before? What was it like?
- Will you be able to dedicate enough time to have the project completed by the deadline?
- How do you prefer to communicate?
Finding Freelancers, Step 4: Hire the Best Candidate and Sort Out Details
Now that you’ve gotten a sense of each freelancer’s abilities, it’s time to decide who to hire! Get in touch with the person you choose and offer them the job. If you’re not totally sold, but think someone could be a great fit, offer them a trial period (perhaps with a smaller project). This will give you some time to see firsthand how well they do their work and how easy they are to manage. After the trial, you can move forward with larger projects.
When hiring a freelancer, it’s important to make sure all parties are aligned on the project length and schedule, payment amount, frequency of payment. You should also decide on a communication and management method early on. Does the person you hired prefer to use email, or would they rather have weekly calls? How will you give feedback, and how will they respond? Answer these questions early to avoid friction later on.
Classification Factors for a Contingent Worker
Many employers like the convenience of paying their contingent workers as non-employees. They avoid a lot of paperwork, such as I-9 and W-2 forms, and save money on payroll taxes. However, many factors are involved when determining if someone must be paid as an employee. Misclassification can be costly for employers, so understanding how to classify contingent workers is essential. Let’s examine some of the tests that should be used to make this determination. Keep in mind that satisfying the requirements of one law or agency may not be adequate for another, so care must be taken to comply with each.
Fair Labor Standards Act
Under the Fair Labor Standards Act, the employment relationship is defined by certain factors, such as the amount of control exercised by the employer and the contractor’s opportunity for profit and loss. Refer to Fact Sheet 13 for a complete list of the factors employers need to consider.
Internal Revenue Service
The IRS also looks at 11 factors in the areas of behavioral control, financial control and type of relationship. Refer to publication 15a for more information.
Some states, including California, have their own guidelines to determine classification status. Each state’s workers’ compensation laws are also important to understand. Employers should contact their state’s labor department for more information.
Examples of Contingent Assignments
Contingent workers can be found in practically any industry. From temporary workers who fill vacancies to freelancers who are experts in their field, contingent workers are available for most types of work. There are a few types of jobs that are most common, however. Let’s look at some of the most popular contingent assignments.
These are some of the most common assignments that independent contractors/freelancers take on.
- Graphic designer
- Web developer
- Software developer
- Marketing specialist
- IT (information technology)
- Data analyst
- Virtual assistant
If you’re looking for someone to fill one of the following positions, consider hiring a temporary worker.
- Restaurant server
- Retail merchandiser
- Administrative assistant
- HR assistant
- Customer service representative
- Warehouse associate
- Sales associate
- Call center associate
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Questions You’ve Asked Us About Contingent Workers
Carol Eliason Nibley, SPHR, GPHR and Principal Consultant at PeopleServe, has more than 25 years of experience in human resources, most recently serving as Vice President of Human Resources for a technology company in Utah County. Carol has taught HR certificate courses at Mountainland Technical College and in other settings for more than 12 years.