What does the term "contingent worker" mean?

Curtis Duggan -

The term 'contingent worker' refers to individuals who provide services to an organization without being hired as permanent employees. These workers are typically engaged for specific projects or periods and may include freelancers, independent contractors, temporary agency workers, and consultants. Contingent workers offer businesses flexibility and access to specialized skills but also present unique management challenges.

Key Takeaways

  • Contingent workers are not permanent employees and are often hired for specific projects or short-term needs.
  • There are various types of contingent workers, including freelancers, independent contractors, temporary agency workers, and consultants.
  • Hiring contingent workers can be cost-effective and provide businesses with flexibility and access to specialized skills.
  • Managing contingent workers requires careful attention to onboarding, integration, legal compliance, and communication.
  • The rise of the gig economy has significantly contributed to the growth of the contingent workforce, making it an essential component of modern business strategies.

Definition of a Contingent Worker

Contingent workers are temporary, outsourced employees hired for specific short-term tasks. These workers differ from traditional employees in that they are hired temporarily. As a result of their circumstances, contingent workers provide a unique alternative to permanent workers.

Types of Contingent Workers

Contingent workers come in a few different forms. These include independent contractors and freelancers with unique skills. You can also hire temporary workers from an agency or consultants based on your needs. Contingent workers represent access to a unique talent pool you can leverage for various reasons.

Benefits of Hiring Contingent Workers

Hiring contingent workers offers several strategic and financial advantages for organizations. Below are the main benefits you’ll get from hiring contingent workers to carry out some of your tasks.

Challenges of Managing Contingent Workers

Onboarding and Integration

Onboarding contingent workers can be a complex process. Companies can't afford to make contingent worker experiences an afterthought, nor can they afford hits to their employer brand that come with compliance issues. It can be difficult to find a contingent worker who can not only do the job but adapt quickly to the corporate culture.

Managing contingent workers is different from managing employees, and trying to do it with manual processes can be time-consuming and error-prone. Business owners need not only automation but also visibility into the skills, credentials, and performance history of their contingent workforce if they want to stay competitive and mitigate risk. There are increased tax risks and legal implications that need to be carefully navigated.

Communication and Coordination

You cannot manage the activities of a contingent worker as you would a permanent employee. They choose their time of work and self-manage how their work gets done. This can lead to challenges in communication and coordination, especially when multiple contingent workers are involved in a project. Additionally, companies are often skeptical of sharing inside information with these non-permanent workers.

While there can be challenges when it comes to managing your contingent workforce, the simple fact is, it is a necessity. With the gig economy growing and reliance on contingent workers increasing, businesses that don’t have an effective CWM program will soon find their competitive talent pools shrink.

How to Effectively Onboard Contingent Workers

Creating a Welcoming Environment

Although they are not full-time employees, contingent workers still need some form of introduction to the business for which they’ll be working. An exceptional candidate experience ensures these workers onboard smoothly, understand their responsibilities clearly, and feel motivated to perform at their best. Making them feel like they’re part of the team may entice them to accept assignments from the business owner in the future.

Providing Necessary Resources

Onboarding virtually can be highly effective. Digital environments make it easier for an HR department to manage the documentation necessary for contingent work – tax IDs, certifications, contract agreements, etc. Additionally, organizing contingent workers into talent pools based on skillsets or other criteria can help business owners find the right people for assignments and projects more quickly.

Setting Clear Expectations

Promote organizational culture and ensure that contingent workers understand their roles and responsibilities from the outset. This clarity helps in aligning their efforts with the company's goals and ensures a smoother workflow.

Establishing workforce management processes is crucial. A standardized process helps you comply with state, federal, and local requirements while expediting onboarding processes.

When hiring contingent workers, it's crucial to understand the legal landscape to ensure compliance and avoid potential pitfalls. How contingent workers are classified and the terms they’re engaged under impact your business’s responsibilities towards them and also how they are taxed. There are risks associated with each category of worker that you need to be aware of, regardless of where responsibility lies.

Contractual Agreements

A well-drafted contract is essential for defining the relationship between the business and the contingent worker. This contract should outline the scope of work, payment terms, duration, and any confidentiality agreements. Clear contractual agreements help mitigate risks and set expectations for both parties.

Tax Implications

Taxation for contingent workers differs significantly from that of permanent employees. Businesses must ensure they correctly classify workers to avoid penalties. Misclassification can lead to severe tax consequences, including back taxes and fines. It's advisable to consult with a tax professional to navigate these complexities.

Worker Classification

It can be tricky even for well-meaning organizations to know whether an individual can be legally classified as a contingent worker. The U.S. Supreme Court has held that under the Fair Labor Standards Act, no single factor can determine this. The judges say that the complete situation must be considered, including these factors:

  • The degree of control the business has over the worker
  • The worker's opportunity for profit or loss
  • The worker's investment in equipment or materials
  • The permanence of the working relationship
  • The extent to which the work performed is an integral part of the business
Proper classification is not just a legal formality but a critical aspect of managing contingent workers effectively.

The Role of Contingent Workers in the Gig Economy

Growth of the Gig Economy

The gig economy has seen significant growth over the past decade, with more professionals embracing gig work to gain more flexibility or to earn additional income. Over 40% of the U.S. workforce is now made up of contingent workers, according to a report by the U.S. Government Accountability Office. This rise is fueled by the increasing demand for specialized skills and the desire for a more agile workforce.

Impact on Traditional Employment

The rise of contingent workers is reshaping traditional employment models. Companies are now able to scale their workforce up or down based on project needs, leading to a more dynamic and responsive business environment. This shift also allows organizations to tap into a global talent pool, bringing in diverse skill sets that were previously inaccessible.

The future of contingent work looks promising, with emerging trends indicating continued growth. Technological advancements are making it easier for companies to manage and integrate contingent workers into their teams. Additionally, changing workforce demographics and evolving business needs are likely to further drive the adoption of contingent work arrangements.

Contingent workers are becoming an indispensable part of the workforce, offering companies the benefits of flexibility, access to specialized skills, and cost-effectiveness.

Why Companies Use Contingent Workers

Meeting Short-Term Needs

Contingent workers are often brought in to plug immediate skills gaps. This allows businesses to address urgent project requirements without the long-term commitment of hiring permanent employees. Companies can quickly scale their workforce up or down as needed, providing the agility required to meet fluctuating demands.

Gaining Fresh Perspectives

By utilizing contingent workers, businesses can bring in fresh skills and expertise that can have a lasting impact even after the assignment is completed. This infusion of new ideas and approaches can be particularly beneficial for innovation and problem-solving.

Enhancing Workforce Agility

The flexibility of contingent workers in terms of when, where, and how they work enables companies to adapt swiftly to changing market conditions. This agility is especially valuable when expanding business operations into new markets or adjusting to economic shifts.

Technological advancements have made it easier to connect businesses with specialized services, fueling the increase of contingent workers in the current labor market.

Best Practices for Managing Contingent Workers

Maintaining Open Communication

Integrating contingent workers into a workforce can have numerous benefits. One of the most important practices is maintaining open communication. This ensures that contingent workers are always in the loop and feel like part of the team. Regular check-ins and updates can help in addressing any concerns or issues promptly.

Ensuring Fair Treatment

Fair treatment is crucial for the morale and productivity of contingent workers. They should have access to the same resources and opportunities as permanent employees. This includes fair pay, access to training, and inclusion in team activities.

Regular Performance Reviews

Conducting regular performance reviews helps in setting clear expectations and providing feedback. This not only helps in improving performance but also in recognizing and rewarding good work. Performance reviews should be structured and consistent to ensure fairness and transparency.

Establishing standardized workforce management procedures also helps you find fitting employees. Keeping organizational culture in mind, even when finding temporary employees, helps you integrate employees more easily.

The Future of Contingent Work

The future of contingent work is closely tied to technological advancements. AI-powered reporting and automation will play a significant role in managing flexible labor. Workforce software will continue to evolve, supporting the tracking of hours, pay rates, and skillsets for all types of workers, including agency and contingent contractors. More companies will leverage online services and mobile apps to manage their contingent workforce efficiently.

The demographics of the workforce are changing, with a notable increase in the number of freelancers. By 2027, freelancers may make up 50.9% of the United States workforce. This shift is driven by individuals seeking more flexible work arrangements and companies recognizing the benefits of a large freelance workforce. Organizations like Novartis and Cisco are already hosting over 50,000 contingent workers each.

Businesses are increasingly relying on contingent workers to meet their evolving needs. The contingent workforce provides additional agility and flexibility, making it an essential element of an organization's workforce strategy. Over 40% of the U.S. workforce is now made up of contingent workers, highlighting the growing importance of this labor segment.

The workforce of the future: the rise of contingent work. The future of work is changing. We asked 8 industry experts about how and why work is changing.

Conclusion

In conclusion, the term 'contingent worker' encompasses a diverse group of professionals who provide their services to organizations on a temporary, contract, or as-needed basis. Unlike traditional employees, contingent workers are not part of the permanent payroll and do not receive the same benefits. However, they offer unique advantages such as flexibility, specialized skills, and cost-effectiveness. As the gig economy continues to grow, the role of contingent workers is becoming increasingly vital in today's dynamic workforce. Understanding the nuances of contingent work can help organizations effectively integrate these workers into their teams, ensuring both parties benefit from the arrangement.

Frequently Asked Questions

What does it mean to be a contingent worker?

Being a contingent worker means you are hired on a temporary or project-by-project basis, only staying until your services are no longer needed.

Why do companies use contingent workers?

Companies rely on contingent workers for short-term projects, to gain fresh perspectives on business processes, or to leverage specialized skills.

Are contingent workers considered employees?

Contingent workers are not traditional employees. They do not receive the same rights and benefits as permanent employees and are usually hired under a contract.

What are some common roles for contingent workers?

Common roles for contingent workers include freelancers, independent contractors, temporary agency workers, and consultants.

What are the benefits of hiring contingent workers?

Benefits include cost-effectiveness, flexibility, scalability, and access to specialized skills.

What are the challenges of managing contingent workers?

Challenges include onboarding and integration, legal and compliance issues, and communication and coordination.

How can companies effectively onboard contingent workers?

Companies can create a welcoming environment, provide necessary resources, and set clear expectations to effectively onboard contingent workers.

Important legal considerations include contractual agreements, tax implications, and proper worker classification.