Maintaining a fully capable workforce is no small feat. When an organization is constantly changing to keep up with the times, having contingencies in place makes adapting easy.
That’s where the contingent workforce comes in.
Organizations that accommodate contingent workforces within their overall workforce structure maintain the flexibility they need to meet dynamic changes in demand.
By the conclusion of this article, you’ll see the value contingent workforces have for an organization, their benefits, drawbacks, and tips on including contingent workers in your organizational structure for the best results.
What is a contingent workforce?
A contingent workforce is a broad category that refers to a wide pool of organizational talent.
The term was first coined by Audrey Freedman in 1985, but at that time, the concept was synonymous with a lack of income security. By the 1990s, however, foundational tools like managed service providers (MSPs) and Vendors-on-Premise (VOPs) were created to make temping a normal and necessary part of work culture. Today, contract talent has become a fundamental tool within corporate America and beyond to help address skills gaps, shifting dynamics, and beyond.
Contingent workers fall into different categories depending on their engagement with the organization on a contractual basis, like fixed-period workers, temporary workers, gig workers, and designated project workers.
Essentially, the clearest definition of the contingent workforce is that they are not part of the permanent workforce (i.e., regular W-2 employees). As the word “contingent” suggests, a contingent workforce is employed on a case-by-case basis with a temporary contract agreed upon by the employer and the contingent worker.
So, what is an advantage of hiring contingent workers? Contingent workforces address the demands of the modern economy. Because the times change so rapidly, many industries don’t accurately predict staffing needs quickly enough to keep up with rapidly changing dynamics.
Organizations utilize contingent workforces to bolster staffing when necessary, whether through staffing agencies or outreach to self-employed individuals within a specialty.
Contingent workers vs. contract employees
Because contingent workforce is such a broad term, delineating those workers from other categorizations helps organizations integrate them into their processes mindfully. The degree to which contingent workers interface within an organizational structure differs from similar worker categories like contract employees.
Contingent workers differ from regular W-2 employees in many ways, such as:
- How they’re paid
- Access to benefits
- Insurance, healthcare coverage
- Allotments of paid time off (PTO) or sick time
Contingent workers are typically paid on a case-by-case system: hours worked on a specific or per-project basis. Additionally, they are not offered benefits, insurance coverage, or PTO.
The chief difference that distinguishes contingent workers from other contract workers is how they are factored into payroll. Payroll typically assumes the responsibility of paying necessary taxes, like federal income tax, state income tax, Social Security payments, Medicaid, and Medicare, on behalf of their W-2 employees. Even temporary contract workers with close working relationships with an organization are sometimes more integrated into the payroll.
Alternatively, contingent workers are most clearly understood to be excluded from payroll tax; they do not have taxes taken out of their paychecks and are required to pay those taxes themselves.
Can any worker be classified as contingent?
Contingent worker is a specific classification that isn’t applied without a clear, legal basis. Labor laws determine the parameters on what kinds of workers are considered contingent and those entitled to salaried pay, scheduled hours, benefits, and other attributes of conventional employment.
There isn’t one definitive attribute that determines contingent status; several factors are required to make that determination. Here are a few factors that determine contingent status:
- Permanency
- Degree of control from management
- Profit margins
- The level of a worker’s investment in facilities and equipment
Types of contingent workers
Organizations turn to contingent workers for many reasons. Because those reasons are so specific to each organization, contingent workers fill many roles, such as:
- Writers
- Brand ambassadors
- Laborers
- Knowledge experts
- IT services
- Nursing
- And beyond
With so many roles filled by contingent workers, it is helpful to categorize them into broader types. These are the primary types of contingent workers:
1. Temporary workers
Temporary workers are workers brought on for a fixed amount of time, on a limited timespan, on-demand, or on a project basis. Because temporary workers maintain an impermanent status by definition, they are a fixture of contingent labor. Temp workers are typically employed to fill staffing gaps, fill skills shortages, or meet spikes in demand.
2. Independent contractors
Independent contractors are a mainstay in a contingent workforce. Organizations turn to contractors for specialized professionals or skills gaps unavailable within their standard workforce. Contractors work on a project-by-project basis or develop long-term relationships with an organization’s workforce.
3. Freelancers
Like independent contractors, self-employed freelancers are specialists that organizations bring on for specific projects or to supplement the existing workforce. Freelancers differ from independent contractors in that they typically handle multiple clients, whereas contractors often focus on one client at a time.
4. Consultants
Consultants are specialists that organizations bring to assist management or decision-making roles. Leaders will turn to consultants for expertise and professional input on specific areas. Like contractors, consultants work on a project basis or establish long-term working relationships with an organization.
How is a contingent workforce onboarded?
While they are not a part of the full-time workforce, contingent workers will benefit greatly from onboarding processes, as will the organization—getting every worker up to speed will boost them to peak performance for the best results.
How organizations onboard contingent workers depends on the specific needs of the role, the type of contingent worker, and their work environment.
With so many factors driving the process, organizations onboard their contingent workers in several ways:
- Existing onboarding processes
- Virtual onboarding processes
- Role-specific onboarding processes
- Integrating with staffing agency database
Because onboarding a contingent workforce is a dynamic process, leveraging technological advantages gives organizations a massive leg up.
What are the advantages of a contingent workforce?
Beyond the benefits of a contingent workforce outlined above such as the ability to quickly fill skills gaps, here are a few of the most common reasons organizations choose to employ contingent workers:
1. Flexibility
Because contingent workers are impermanent, management quickly and easily makes staffing adjustments on a case-by-case basis from an on-demand talent pool. Organizations tailor the size of the workforce, allowing for more flexibility in talent acquisition.
2. Cost savings
Contingent workforces save organizations money in several ways. For one, investing in a contingent workforce now saves on costs when crises arise. Instead of compounding costs to fix the issue, the problem is easier to solve with contingent teams.
3. Access to specialized skills
An organization’s existing workforce sometimes does not have the specialized skill set to address unique issues. Bringing on contingent workers with a specialized background allows organizations to meet every demand.
4. Reduced legal risk
Full-time employee contracts mean that employers are obligated to fulfill a greater number of legally binding items. Because contingent workers are brought on for specific contexts, their lean contracts have fewer legal risks.
5. Business responsiveness
Organizations that invest in a contingent workforce are fully equipped to respond fast. Maintaining a supplemental contingent workforce in addition to full-time workers gives an organization responsiveness that helps them adapt to shifting dynamics. When demands stress the existing workforce’s capability, contingent workers help organizations adapt.
6. Lower overall costs
When optimally applied, contingent workforces lower an organization’s labor budget. Contingent employees don’t require the same expenses affiliated with permanent employees: no health insurance, employee benefits, or payroll taxes are required.
7. No need for extra training or development
Contingent workers are hired under the pretense they are equipped to fulfill their role from the get-go. Furthermore, the specific nature of their roles means that they require little to no extra development or training.
What are the disadvantages of a contingent workforce?
Contingent workforces are a boon to an organization’s capability, but they aren’t perfect. Acknowledging the disadvantages associated with contingent workforces help organizations stay clear-eyed about and better able to implement them for the best results.
Here are the disadvantages of a contingent workforce that every organization should understand:
1. Less oversight in hiring and screening
Contingent workers are brought on for specific purposes or to meet shifting demands. Therefore, the hiring process for the contingent workforce is not as exacting as for full-time staff. Flaws in the contingent workforce are harder to identify because they are more difficult to screen due to their indirect relationship to the organization.
2. Blurred accountability
The chain of command between contingent workers and management is complex. What’s more, integrating contingent workers into a project invites the potential for miscommunications about responsibilities. As a result, accountability is sometimes blurred for a contingent workforce.
3. Employee misclassification
Bringing on different types of employees creates the potential for employee misclassification. Failure to properly classify employees—with a W-2 or 1099, for example–invites serious consequences: financial penalties, back tax payments, and even legal action.
4. Lower staff engagement
Contingent employees won’t feel the same camaraderie that full-time employers do. Their lack of engagement with company culture creates scenarios where they won’t feel the same motivations to be productive.
5. Fragmented management
Managing a full-time staff is a monumental task alone. Managing an ambiguous cohort of contingent workforce strains management’s delegation ability. Additionally, integrating the contingent and full-time workforces create even more hurdles for management.
6. Reduced continuity and institutional memory
Contingent employees acquainted with the particulars of an organization become a disadvantage because of their short-term work period. When contingent workers walk out the door, they bring all their familiarity with an organization. Perennially impermanent staff means organizations must accept a constant brain drain whenever their fixed period expires.
What is contingent workforce management? 6 best practices
Contingent workforces are massive advantages for organizations when handled properly and massive disadvantages when neglected. To that end, contingent workforce management is necessary to get the best results out of this organizational supplement.
Contingent workforce managers are staff dedicated to properly communicating with and delegating their contingent teams. The scope of contingent management is as varied as the workforce itself; management teams depend on the business sector, the organization’s size, the type of contingent workers in their teams, etc.
Nevertheless, managers in every context are united by the same core principles that lead to the better performance from contingent teams. Here are six contingent workers examples that are a staple in any effective contingent workforce program:
Clear communication
Failure to establish open channels with contingent work is a critical misstep. With clear communication, contingent workers new and old have access to consistent information streams that ensure they’re doing what needs to be done to achieve the organization’s goals.
Coherent objectives
Contingent workers don’t know an organization’s goals with the depth full-time staff members do. Providing contingent staff with a coherent set of objectives gives them a complete picture of how they fit within the organization’s goals and what is expected of them.
Integration with full-time staff
Usually, contingent workers are brought on board to assist the full-time staff. To that end, integrating them with the existing workforce effectively allows them to serve their purpose for the best results.
Onboarding and training
Leave no room for mistakes. Properly onboarding and training the contingent workforce ensures they are equipped with everything they need and situated for success.
Performance management
Just because contingent workers aren’t in-house doesn’t mean they shouldn’t be held to the same standards as other employees. Set clear expectations and monitor performance from your contingent workforce to ensure they are working at their best.
Compliance
The impermanence of contingent workers adds a degree of separation from the culture. Still, that should never translate into failure to be compliant. They’ve been brought on to do a job; managers are there to see the workforce strategy is followed with complete compliance.
The future of contingent workforces
To thrive in the modern economy, organizations must adapt or risk failure. Contingent workforces are becoming a feature of the organizational structure because they help the organization adapt to the rapidly changing business dynamics in the 21st century.
Technological innovations like hybrid remote work opportunities have made contingent workers more accessible than ever. The rise of the gig economy indicates that independent contractors, freelancers, and other temporary workers are in high supply.
Contingent workforces are the future. Learn more about why employees value flexibility so highly and how Payscale’s insights can better inform your HR practices in this article.
