What Is the Contingent Workforce? Pros, Cons, and Future Trends

Think about all the people who make up your workforce. While some are employees, hired as full-time or part-time payroll workers, others will serve your company without being part of the payroll processes of the business.

Contingent workers can be hired by the hour, per deliverable, or on a monthly basis. They could be hired directly by your company or through a staffing agency or MSP.

Alice the independent contractor who does your company taxes, Geoff the freelancer who designed that snazzy new logo, Spencer the consultant who has been working full-time for the last 4 months heading up the data strategy, and your seasonal team of customer service reps that you hire via a staffing agency to meet the Black Friday spike in sales… these are all contingent workers.

Contingent workers vs. employees: what is the difference?

Understanding the difference between contingent workers and traditional employees is a pivotal task for any business intending to optimally balance its human resources needs:

Traditional employees are workers who are bound to an organization by a long-term contract, usually full-time but can also be part-time. Their work hours, roles, responsibilities, and tasks are usually well-defined and structured within the company. Their relationship with their employer is stable and enduring, often lasting for several years.
Contingent workers, also known as freelancers, independent contractors, temporary workers, or gig workers, are engaged by the company on a temporary or project basis. They are typically self-employed individuals who offer their professional services to multiple clients simultaneously. They are hired for a specific project or for a fixed period, and their engagement ends once the task or period concludes.

Pros and cons of hiring in-house employees

Employees offer the advantage of stability and commitment. They tend to have a greater sense of loyalty to the organization, contributing to a consistent company culture. Also, employees often develop a deeper understanding of the company’s operations, which can improve efficiency and productivity in the long run. Moreover, their salary and benefits are predictable expenses that can be budgeted for.

However, hiring employees involves a more considerable financial commitment, as employers are obligated to provide benefits such as health insurance, retirement contributions, vacation and sick leave, and are required to pay payroll taxes. Employers are also bound by labor laws, which may restrict the flexibility in terms of working hours and conditions. The process of onboarding and offboarding employees can also be more complex and time-consuming.

Pros and cons of hiring contingent workers

Contingent workers offer businesses flexibility in terms of labor. They can be hired as and when required, which can be particularly useful for projects requiring specialized skills or for managing fluctuating workloads. Hiring contingent workers can also lead to cost savings, as businesses are generally not obligated to provide benefits, pay payroll taxes, or provide the same level of job security as they do for traditional employees.

However, contingent workers may not feel the same sense of loyalty or commitment to the company as traditional employees, which could potentially affect their work quality or consistency. Their temporary nature could also lead to less integration with the company culture. Furthermore, while employers might save on benefits and taxes, the hourly rate or project fees for contingent workers can be higher than the effective rate for employees.

How has the reality of the contingent workforce changed in the last decade?

According to Deloitte, “Businesses have dramatically increased their use of contingent workers over the past decade as they struggle with rising labor costs and the need for a workforce that can quickly adapt to market conditions.” Up to 30% of companies’ procurement spend is going towards a contingent workforce, and this number is growing.

For companies that need to supplement their internal talent capabilities, freelancers are the perfect answer. At the same time as attracting new workers, these companies find additional benefits in a readily available pool of talent who are deeply skilled, have wide experience, and are responsive, dedicated, and ready to meet short-term and ad-hoc needs as the requirements arise.

It’s no surprise therefore that over the next 18 months, 67% of companies expect to see an increase in their use of a contingent workforce. If we zoom out to look at the next 5 years, this number jumps to almost 80%.

What are the key challenges of managing contingent workers?

Despite its significant benefits, managing a contingent workforce comes with its unique challenges.

Integration

The integration of contingent workers into an organization can be a significant challenge. Unlike full-time employees, contingent workers might not feel a sense of belonging or loyalty to the company. This can lead to issues such as a lack of motivation or engagement, which can negatively impact productivity and the quality of work.

Moreover, the integration process should not only be about assimilating contingent workers into the company culture but also about ensuring that they understand and adhere to company policies and procedures. This can be particularly challenging given the temporary nature of their engagement and the fact that they might be working remotely.

Compliance

Compliance is another major challenge when it comes to managing contingent workers. This involves ensuring that the company is in compliance with labor laws and regulations pertaining to contingent workers, which can vary by region and type of work. Non-compliance can result in legal repercussions, including fines and penalties, and can harm the company’s reputation.

Additionally, businesses need to ensure that contingent workers are properly classified. Misclassification of employees as contingent workers can lead to lawsuits and penalties. For instance, if a worker is incorrectly classified as an independent contractor rather than an employee, the company might be liable for back pay and benefits.

Onboarding and Offboarding

The onboarding and offboarding process for contingent workers can also present challenges. Given the temporary nature of their engagement, these processes need to be efficient and streamlined. At the same time, they should also be comprehensive enough to ensure that the workers understand their responsibilities and the company’s expectations.

Onboarding is particularly important for contingent workers, as they need to hit the ground running. Unlike permanent employees, who might have a longer learning curve, contingent workers are typically expected to be productive from day one. Hence, they need to be provided with the necessary resources and training to perform their job effectively.

Management and Oversight

Lastly, the management and oversight of contingent workers can be a significant challenge. Since these workers might not be physically present in the office, monitoring their performance and providing feedback can be difficult.

Furthermore, because of the temporary nature of their engagement, contingent workers might not have a clear understanding of the company’s strategic objectives. This can result in their work not aligning with the company’s goals. Therefore, it’s essential to clearly communicate expectations and provide regular feedback to ensure alignment.

What is contingent workforce management?

Contingent workforce management refers to the set of practices and processes used to manage contingent workers effectively. This involves everything from sourcing and hiring these workers to managing their performance and ensuring compliance with labor laws and regulations.

Effective contingent workforce management requires a strategic approach. This means not only focusing on operational aspects like onboarding and offboarding but also considering the bigger picture. For instance, how does the use of contingent workers align with the company’s overall business strategy and objectives?

To manage contingent workers effectively, businesses need to have clear policies and procedures in place. These should address key aspects such as worker classification, compensation, performance management, and compliance. Additionally, businesses should invest in training and development opportunities for these workers to enhance their skills and engagement.

Managing contingent workers directly: Your new competitive advantage

The majority of companies are still finding their feet when it comes to the contingent workforce, and have existing processes that are heavily focused on payroll staff. As a result, they might miss implementing processes meant for non-payroll workers, and often even outsource these tasks to a third-party to avoid compliance risk, legal headaches, and payment complexities.

However, think twice before you outsource the management of your contingent workforce. By 2030, contingent workers could be as much as 80% of the workforce overall, which means you could lose control of your company, while outsourcing costs become unsustainable.

Instead, companies who have a strong level of digital literacy, and who can therefore adjust their processes to properly manage contingent workers directly have an opportunity at their fingertips.

Instead of losing control and cohesion across their companies, by implementing the right technology to automate and streamline contingent workforce management, HR leaders can remain two steps ahead of the labor force. The technology handles tax documentation, compliance, payments, onboarding and offboarding, so that companies have all of the control, with none of the complexity.

With a direct approach to managing independent contractors, freelancers, consultants and even agency workers, your workforce can be viewed through a single pane of glass, your processes remain under your control, and your relationships are stronger and more future-focused.

Learn how Fiverr Enterprise can help you manage your contingent workforce

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