Businesses are continuously looking for ways to cut costs and maximize productivity with the aim of boosting profits. As employing a workforce is one of the biggest business expenses for most companies, many firms are looking for modern, innovative ways to complete tasks with a lower budget. Contingent workers are here to meet this demand while also producing better results.
What is a contingent worker?
The definition of a contingent worker is an independent contractor, freelancer, consultant or other temporary outsourced person who is hired by a firm on a per-project basis. A contingent worker can work onsite or remotely. It’s not the location that defines the worker, it’s the nature of the relationship between them and the company that delegates the tasks.
Although contingent workers are only hired for temporary projects, they’re not the same as temp workers. Contingent workers are highly skilled, with vast experience and knowledge in their field.
They’re hired to complete specific tasks and projects on a one-off basis. When the project is finished, the worker and the company part ways. However, the firm may contact the contingent worker in the future when they need their skills for another project. The worker is under no obligation to accept work from the business and the business has no responsibility to provide the worker with ongoing tasks.
Types of contingent workers
There are three main types of contingent workers which can help improve your business. Depending on your requirements, you may find it beneficial to hire one or more of the following:
Temporary workers
Temporary workers are usually employed by a staffing agency but work onsite as part of their temp work assignments. This type of contingent staff member can be hired for anywhere from a few hours to a few months, making them an excellent solution for businesses which rely upon flexibility.
Consultants
Industry experts, consultants provide professional advice to businesses which need help. This category of contingent worker often functions within complex, technical or highly specialized fields, such as intellectual property, business strategy or marketing. Consultants tend to have a high level of independence and rarely carry out the work they recommend.
Independent contractors
This division of contingent workers includes freelancers and gig workers who aren’t employed or represented by a staffing agency. Independent contractors are self-employed individuals who offer their services to businesses independently. This means they’re fully responsible for all employment-related taxes and are rarely eligible for company benefits.
Contingent worker vs employee
By definition, contingent staff aren’t employees. In case you find yourself in any legal situation with tax entities such as the IRS, it’s important you fully understand the differences between contingent workers and employees.
Contingent workers aren’t on your payroll
You don’t pay contingent workers as part of payroll like you do permanent employees. When using a self-employed independent contractor, the individual will invoice you for their work. When you use the services of a contingent worker employed by an agency, the agency will invoice you for the individual’s work.
However closely you work with your contingent staff and regardless as to the responsibilities they have, your business doesn’t need to withhold nor pay employment taxes. The individual or the agency is entirely responsible for paying their own taxes and securing their own benefits.
You hire contingent workers on demand for set periods of time
While you hire full- and part-time workers on a permanent basis, you hire contingent staff on an as-needed basis and for a limited time or project. Although you can certainly extend the contract or rehire the worker if both parties agree, you’re not obliged to retain your contingent hires after the project or contract has come to an end.
Contingent staff are not eligible for benefits
As they’re not your employees, contingent workers aren’t eligible for company benefits or other perks, such as stock options and retirement plans. Independent contractors are responsible for sourcing these benefits themselves, while workers employed by agencies are usually taken care of by the agency.
Contingent workers have a lot of freedom
You can instruct your permanent employees on how and when to complete a project, but you don’t have this control over all kinds of contingent workers. You can advise temporary staff working onsite how and when to work. But consultants and independent contractors who work offsite are in charge of the way they complete the tasks delegated to them.
What are the pros and cons of hiring contingent workers?
Hiring contingent workers can be an excellent part of your business strategy, helping you cut costs while improving efficiency. But as with any major business decision, working with non-permanent contractors also comes with a couple of flaws.
Pros
Cost
Delegating projects to contingent workers is much more cost effective for business owners than hiring employees. When working with contingent workers, businesses don’t have to provide health benefits, vacation leave, sick days or extra payment for working overtime. Neither do they have to collect and pay taxes out of the workers’ paychecks.
As contingent workers often work offsite, you don’t have to provide an onsite location for them to work in nor tools to complete tasks with. This saves greatly on overhead costs.
All this saves businesses a significant amount in recruiting and hiring costs, as well as cutting down on expenses associated with human resources and payroll.
Flexibility
A contingent workforce increases flexibility. When there’s a sudden increase of projects or a new task arises that would highly benefit the company, a contingent worker can be hired to bridge the gap and ensure there are enough people to complete all necessary tasks. As soon as the project is complete or business slows back down, the company can simply end the contact with the contingent worker.
This frees the business up from having to pay the salary for a worker who is no longer required without the need of firing them. In a fragile economy, this great flexibility is a huge advantage.
Expertise
Hiring contingent workers is an easy way for firms to gain access to experts when they can’t source them internally. When companies hire employees, there’s always the risk that they’ll spend weeks if not months recruiting someone suitable for the job, only to lose all the value of the experience and knowledge when the new employee is forced to complete tasks in a certain way.
Contingent workers have the expertise businesses are looking for, with the added freedom that allows them to complete tasks their way, ensuring superior results.
Fresh Perspectives
Whether you hire a contingent worker for a few hours or a few days, adding a new member to your team brings a new perspective to the table which can greatly improve your business.
A fresh pair of eyes will be able to identify problem areas you’ve grown blind to and offer up solutions to problems you’re too close to. By continually hiring different contingent staff members, you’re constantly benefitting from the knowledge, expertise and viewpoint of a diverse pool of people.
Cons
Control
The freedom that contingent workers enjoy which produces the best results can sometimes be a disadvantage for business owners. Contingent workers can’t be relied upon to be available for work, meetings or talks between specific hours, nor can they be told how to manage the projects. If a business owner wants total control over its workforce, traditional employees are a better option.
Taxes
Problems can arise when the lines between employees and independent contractors become blurred. If a business owner incorrectly claims a worker to be a contractor when they’re actually an employee, the business will be hit with various penalties. They’ll also have to pay the employee taxes they should have been paying from the beginning.
If a firm is working with true contingent workers, this won’t be a problem, since they’re definitely not employees of the firm. Incorrect classification and the consequent fines only become an issue when the professional relationship between the business and the worker changes.
Legal Issues
One of the benefits of hiring a contingent workforce is that you’re not obliged to provide workers’ compensation coverage. However, if your contingent employees work onsite and they’re injured on the job, they could sue you if they don’t have their own cover or aren’t covered by their staffing agency.
Contingent workers for an agile workforce
As the demand for greater flexibility, more cost effectiveness and increased productivity rises, the rewards of a contingent workforce become more apparent. By leveraging the benefits of non-permanent workers, any business can grow and succeed. Advantages are always coupled with disadvantages, but through transparency and planning, even the biggest drawbacks can be overcome.