Contingent workers are outsourced, non-permanent workers that are commonly referred to as Independent Contractors, contract workers, freelancers, gig workers, consultants, temporary talent or remote workers. They are engaged by an employer on a short-term, long term or on a project-by-project basis.
The two biggest advantages of using contingent workers or contingent labor are flexibility and cost savings. However, there are additional motivators for why strategic organizations are including temporary talent as part of their workforces.
The rise of contingent labor
Employers familiar with the phrase, "The rise of contingent labor' once associated the term with advancements in tech, bridging skills gaps, shifts in employment attitudes and a growing younger workforce.
Today, however, the workforce has new drivers of change since the COVID-19 pandemic swept across the globe. The workforce is operating under uncertainty, adjusting to revenue losses and disruptions, which leaders predict will see vast and long-lasting implications well beyond 2020.
Yet, for industry sectors experiencing a surge in a demand of services, have not experienced a disruption of services or that are including hiring as part of their recovery strategy, contingent labor is still being used as part of organizations' overall corporate strategies.
Contingent workers are not on a company's payroll but provide important services to the organization. A contingent workforce comes with both benefits and risks to the employer engaging them.
Benefits of a contingent workforce
Engaging contingent workers is gaining momentum among employers, as the strategy is primarily driven by a shortage of skilled workers and an organization's acute need for flexibility and responsiveness. A contingent workforce will provide many benefits and meet many organization's workforce needs.
One of the most significant drivers to operating a contingent workforce is saving on costs. Employers aren't required to pay contingent workers for breaks or non-productive labor. These workers also aren't entitled to the same types of benefits afforded traditional employees, such as health insurance, holiday pay, sick leave or vacation days. Contracting a contingent worker for a project means employers only pay them for as long as they need them.
Employers are also not required to withhold payroll taxes, pay social security and Medicare taxes and making unemployment contributions to contingent workers in the United States.
See how employers pay contingent workers in Canada here.
Flexibility to adapt to market demands
In today's world, organizations must be agile in order to respond to ever-changing and uncertain circumstances. Contingent workers, and the nature of their short-term agreements, are an ideal fit, as a contingent worker doesn't come with ties of a long-term contract.
A contingent workforce can be engaged on an as needed basis. If there is a sudden surge in demand for services or the need for a specialized skill arises, a contingent worker can be engaged until the project is finished or the contract is at an end.
Access to a larger talent pool
By engaging contingent workers, employers have access to a larger pool of talent where the 'best of the best' talent can be sourced. Typically, these knowledge workers come with a very specific skill set that can't be found in-house.
Access to expertise and bridging skills gaps
A contingent workforce is typically made up of highly talented workers with a specific skill set. Engaging these types of workers is a strategic way to fill skills gaps within the organization.
A contingent workforce also provides employers with the opportunity to source the skills and experience they need that they cannot find internally.
Finding new ways to do things better
Often times, a contingent worker will offer a fresh perspective when engaged by an organization. Key decision makers can sometimes be too close to day-to-day operations, which can make it tough to find new paths towards innovation. A Subject Matter Expert with experience in the industry but no ties to the organization may offer a fresh perspective that can help shape an organization's strategic direction.
Decrease in time to hire
The talent acquisition process takes an average of 27 working days to fill a new position. If employers engaged a traditional employee, a hiring team must source, screen and then onboard the new worker. An experienced contingent worker, however, comes with far less administrative requirements. Contingent talent is often available at short notice.
The risks of a contingent workforce
Operating a contingent workforce also brings risks associated with unintended co-employment and relationship misclassification.
If employers don't take the necessary steps to mitigate these risks, penalties come with a range of financial, brand, legal and tax penalties -- and keeping up with compliance is essential to avoiding fines, back payments and damages to an organization’s employer brand.
Misclassification occurs when an organization incorrectly identifies the relationship that exists between them and the temporary talent. This error can result in hefty penalties for the employer and back payments to the worker. Most organizations focus exclusively on 1099 or independent contractor classification; however, there are other important classification influencers such as overtime eligibility (Fair Labor Standards Act (FLSA) classification) and position classification for workers’ compensation coverage.
Co-employment risk refers to situations where two or more organizations exert some level of control over a worker, and are therefore considered to have employer obligations toward the employee. Co-employment risk can often exist when organizations engage contingent work that is provided by third parties.
The role of a trusted staffing agency partner
Staffing firms have a role to play—both in meeting clients’ changing skills requirements and committing their their resources to researching, vetting and implementing technologies and processes that create value to their clients, candidates, talent and partners.
Organizations that partner with a staffing agency for their contingent workforce needs will shift the hiring compliance burden to that agency. This puts the onus on the staffing agency partner to mitigate the risks associated with a contingent workforce and ensure compliance.
Effectively managing contingent program risk requires a collaborative approach between client stakeholders, ranging from procurement, legal, HR and business managers. Organizations across the globe are increasingly including temporary talent as part of their growth strategies. But with the advantages come the disadvantages, and these risks must be managed.
To learn more about risk, download our free whitepaper: A Checklist for Contingent Worker Risk: