The modern workplace has evolved in numerous aspects in the last few years. Businesses integrate innovative solutions to expedite and future-proof their operations. For instance, the traditional work-from-office model is now being replaced by hybrid and remote settings.
On the other hand, professionals are leveraging their skills for full-time, part-time, or contract-based opportunities. Employees now consider comfort as a key factor in employment decisions. Therefore, businesses are managing both internal teams and contingent employees.
In this blog, we discuss the contingent workforce – what it is, why it is important, their various types and much more.
What Is A Contingent Workforce?
A contingent workforce is a group of employees bound by a time or project-based contract. Businesses often hire contingent employees to keep up with their operational demands and remain competitive in the industry. The mix of internal and contingent teams leads to better productivity and growth.
A contingent employee can be a freelancer, consultant, part-timer, or any professional on a temporary employment agreement. They are not guaranteed the same benefits as those of a full-time staff.
Since they are not registered with any business, contingent employees manage their taxes and have the freedom to work with other clients.
Why Is A Contingent Workforce Important For A Company?
From a financial viewpoint, hiring a contingent workforce is better than hiring full-time employees. You pay them only when you require their skills and are not obligated to pay for their insurance, taxes, 401k, or other benefits.
However, a bigger impact of hiring contingent employees is the available talent pool. Freelancers and other contractors have the marketable skills you need. Therefore, you pay for their services when you want and finish important tasks. The varied skill in the gig industry is hard to find. Hence, a contingent employee will fill the skill gap in your company’s workforce.
Another important factor that advocates the importance of a contingent workforce is the tedious process of replacing full-time employees. Amidst the Great Resignation (add backlink) and economic upheavals, employees are laid off to manage the books or resign to pursue other opportunities. In this regard, a contingent employee will be the best temporary replacement until you train the recruit.
Contingent Employee Versus A Full- Time Employee
So, how to differentiate between a contingent employee and a full-time employee?
Firstly, contingent employees are not a part of the company’s payroll. They are also called non-employee workers. On the other hand, full-time employees are registered on the company’s payroll.
Furthermore, contingent employees work on time-based projects or temporarily per the agreement. Therefore, they have to pay their taxes themselves and cannot receive any benefit from their employer.
However, full-time employees receive their pay after deducting relevant taxes and social security contributions. Moreover, they receive insurance, paid leaves, stock options and much more.
Go through this blog to better understand the difference between contingent worker vs employee.
Different Types Of Contingent Employees
There are different types of contingent employees based on their contract, nature of work, number of hours they work, etc.
Today businesses do not hire contractors only when the need arises. Organizations usually maintain a talent pool or a database of temporary employees to suit their business needs.
Temporary Contingent Employees
As the name suggests, these professionals are hired temporarily to support existing teams in completing projects. A temporary contingent workforce aids companies that require help for a short stint. They also meet seasonal demands or fill in for a specialized skill set.
When you plan on global expansion, you can set up a team of remote temporary staff to cold call and generate leads across different time zones. This will enable your company to work round the clock and quickly achieve your goals.
Consultant Or A Contingent Specialist
Consultants are also a substantial part of the contingent workforce. They are experts in their respective fields and offer counsel, audits, frameworks, and strategic direction. However, they are more experienced than their temporary counterparts.
You must remember that these specialists are not part of the company's payroll.
Independent contractors can be any freelancers, consultants, and gig employees who are not bound to any company's payroll and legal obligations.
They are self-employed and are not represented by agencies or a staffing firm. The contractors manage their own business, pay taxes, and are not guaranteed any benefits.
Businesses hire independent contractors to manage tasks that require a specialized skill set for a short period. They may be hired regularly across a particular season.
However, keeping up with their identity as contingent employee, they are not company employees.
Also, they decide their work timings and how to execute the task, unless you provide specific directions. Any intervention to their working process or timing is seen as a non-compliance issue.
You may associate contingent employees with the following names:
- Gig employee
- Non-payroll employee
- Individual resource
- Agency employee
- Flexible employee
- Staff augmentation
Pros And Cons Of A Contingent Workforce
A contingent workforce is an important asset to every organization. However, you must understand that they are a separate team that requires guidance and supervision.
Before making a final decision on assembling a contingent workforce, you must consider the following:
As the contractors are available for a limited time, you can hire them only for specific projects and terminate the agreement. These employees are an excellent option for seasonal and short-term tasks that require certain expertise for a limited duration.
You are not obligated to provide employee benefits such as health insurance or paid leaves to a contingent employee. Hence, you are saving your company significant expenses involved in recruiting, hiring and managing for working on a single project.
Access to in-demand skills
A contingent employee can fill in as an expert based on their skills. They are a wise option if you do not want a full-time employee handling the project. Furthermore, you can create a contingent workforce with diverse skills to enhance your services.
Contingent employees are highly skilled in their field and do not require many directions. On the contrary, full-time employees require training for the role from the first day and need some time to adapt to the workplace.
Risk of non-compliance
The labor laws surrounding the hiring and management of contingent employees vary within countries. You must detail every aspect of the role in the job description, including the tenure, fees and conditions of termination.
It is your responsibility to manage your contingent employees compliantly. Lack of legal awareness can land you in major trouble.
Challenges in communication
Since a contingent employee is hired for a specific project and time, they do not adapt to a company’s culture and working style. The divergent opinions and processes of the two parties can lead to friction.
Contingent employees are not formally a part of the company. Therefore, they miss out on various perks and team-bonding initiatives. The differences in the treatment of a full-time and contingent employee can create a rift, ultimately impacting the work environment. Without an effective contingent workforce management, you might have a difficult time in handling the contractual employees.
Read this blog to better understand the advantages and disadvantages of a contingent workforce.
Trends Surrounding Contingent Workforce
- 50% of the global contingent workforce specializes in computer programming, IT projects, marketing and counseling
- The number of non-temporary freelancers has grown from 33.8% in 2020 to 25% in 2021
- A lot of highly-educated professionals are taking up freelancing. In 2021, 51% of post-graduates became freelancers, up from 6% in 2020.
- 44% of freelancers claimed in 2021 that they are making more as freelancers than other full-time employees in similar roles.
- Amidst The Great Resignation, 56% of full-time employees are considering freelance work.
- 48% of new freelancers want to build a career in a contingent workforce
What Is Contingent Workforce Management?
In simple words, contingent workforce management refers to the way a company treats its contingent employees.
The temporary staff demands a different management style since they are not your regular full-time employees. You should not speak to them like full-time employees since they are self-employed and consider themselves entrepreneurs.
Furthermore, hiring contingent employees requires a different approach. Many businesses rely on agencies that act as brokers for freelancers. Some use a vendor management system (VMS) which keeps a database of available contractors according to skill, fees and experience.
Therefore, you need a distinct management plan regarding contingent workforce to ensure your operations run smoothly.
Best Practices In Contingent Workforce Management
Inclusive HR Policies
Some companies follow an 'exclusive' approach to contingent talent management. This means that the contractors are not a part of their HR processes. Therefore, there is no proper onboarding, management and offboarding procedure.
In such a scenario, the temporary employees take longer to acclimate to the workspace, ultimately affecting their performance.
Hence, it is advised to follow an 'inclusive' approach to contingent employees and include them in the mandatory HR processes.
An Elevated HR experience
Within an inclusive workspace, the HR administration ensures cohesion between all members, regardless of their contract type. They update all team members regarding the company's technology, culture and etiquette. This practice ensures that all employees are on the same page and understand the company better.
An example of good culture within a particular team is full-time employees and discussing with temporary staff and sharing ideas before making decisions. Another instance is recognizing the birthdays of your contingent staff and the entire team, wishing them the best.
Consequently, the contingent employees will be willing to come back and collaborate on future projects. They might even consider joining as a full-time employee, considering how much you value and appreciate them.
A good HR experience will also enhance your image within the industry. Most contractors are active on various social media portals and their feedback will impact your outlook as an employer.
Organizations typically do not measure and store the performance data of their contingent employees. Even if they do, the data is stored in external systems, which can risk the security and access to the information. This is mainly because of the limited tenure of the contractor and their low priority as compared to a full-time employee.
However, recording performance data of your contingent workforce will enable you to:
Compare their performance with full-time employees in similar job roles
Gain valuable insights to enhance the productivity of other full-time and contractual employees in similar roles
Another important reason to record the performance of your temporary staff in your HR system is to prepare for succession planning. This is a scenario when you end up hiring a contingent employee permanently. In such a case, it would be helpful to have pre-recorded performance data to set goals for better productivity.
What Are The Key Challenges In Contingent Workforce Management?
The flexibility of a contingent workforce is one of its biggest advantages. It allows you to scale up the hiring whenever necessary to suit the demands. However, this fluidity comes at a cost because it becomes increasingly difficult to manage all the freelancers and contractors in one place.
When you scale up the contingent workforce, your HR and accounting team must adapt to the growing numbers. As a result, they will manage the data of numerous professionals across various sectors, job roles and time zones. Therefore, you must have an efficient contingent workforce management system.
Your hiring processes also bring obstacles related to tracking and connecting with the temporary staff. For example, agency employees are always taking directions from their representatives. Therefore, you will end up engaging more with the third party rather than the contingent employee.
Another challenge while hiring contingent employees is maintaining legal compliance with their country's labor laws. You are responsible for ensuring that your contingent workforce is paid and managed per the relevant regulations. Normally, a legal team can help you in such matters.
Options For Effective Contingent Workforce Management
Despite the challenges, your contingent labor is an integral part of your organization and you must manage them effectively. With the steady growth of the gig economy and the rising demand for contingent employee, it is crucial to have contingent workforce management (CWM) system in place.
You can choose to manage your contingent employees via an internal team. However, you need the relevant resources, expert-level knowledge of the supplier management procedure, awareness of the compliant employment methods and access to real-time data of the contingent supply chain. If your HR administration cannot scale to rising demands, you must explore other options.
You can choose with either of the following to ensure a smooth CWM process:
Business Process Outsourcing (BPO)
A BPO is a third-party professional services agency that commits to delivering your task for a certain price. The actual professional who delivers your work will be under a contract with the agency. You can also enter a contractual agreement with a Limited Company, which will, in turn, employ professionals and deliver the task.
Vendor Management System (VMS)
This cloud-based software helps you execute typical CWM tasks. However, you need a dedicated employee, either internal or via a management solution, to operate the VMS platform. You must have a skilled professional handling the platform, as the performance and results of the software rest completely on their expertise.
Managed Service Provider (MSP)
This is an outsourcing provider that helps you manage all your CWM needs. Most businesses prefer MSPs, like Multiplier, as they provide access to compliance, vendor management and technology experts.
When Does A Contingent Workforce Make Sense?
Since contingent employees have a finite availability, it is best to hire them in certain circumstances.
The following examples advocate hiring a contingent workforce:
Certain job roles are in demand only during specific periods of the year. Therefore, it is wise to hire temporary staff to deliver the work during that period. Many seasonal jobs arise during the warmer or colder times of the year, like farming, landscaping and roofing. Hence, companies in these sectors hire contractors aggressively for a specific time during the right season.
Extended vacation or medical leave
There are certain job roles in a business that demands daily activity, like cleaning, accounting, etc. If a permanent employee working in these roles takes time off for any reason, anyone from the contingent workforce can take over the job.
If one of your employees is associated with the military, they may be summoned for a few days each month. They might receive urgent calls during a major event, such as a disaster or a war. In such cases, your contingent employees will keep your operations running and you won’t have to look for a worthy replacement in the last hour.
If a permanent employee is selected for jury duty, they might leave for an extended period. Depending on the case, the leave might be more than a month. In such abrupt and uncertain circumstances, you can rely on your contingent employee to deliver the tasks till the full-time employee returns.
How To Find A Contingent Workforce
There are two ways to find a contingent employee that suits your needs:
If you have enough time, resources and expertise within your company, you can choose to hire, onboard and manage the contingent staff internally. You must specify the contractual nature of the employment and avoid making unnecessary promises about a permanent position after the contract ends.
This entails partnering with an external agency to assemble and manage your contingent workforce. You may contact an agency to draw up a list of freelancers for you. Managing the recruits is easier with an EOR provider in case you do not have local entities on a global level.
Ultimately, outsourcing these tasks will lead to lesser stress and legal risks. Partner with a reliable agency to ensure you do not overlook any domestic or international regulations.
How To Classify Someone As A Contingent Employee?
The US Supreme Court states that according to the Fair Labor Standards Act, the following factors determine if a professional is a contingent employee:
- The duration of the services
- The permanency of the employment relationship
- The investment made by the alleged contractor for better facilities and equipment
- The nature and degree of influence of the principle
- The opportunities of profit and loss for the alleged contractor
- The degree of initiative, discernment and vision in open market competition with others necessary for the alleged contractor's success
- The independence of the business organization and operation
Many businesses look to save taxes by misclassifying a few members as contractors. This can lead to hefty fines and legal issues as there are strict laws against this malpractice. Considering the complexities, it is best to take legal advice before classifying a team member as a contingent employee.
How Multiplier Can Help You Manage Your Contingent Workforce?
Multiplier’s suite of services helps you seamlessly manage your contingent and permanent workforce. You can set up a global team in 150+ countries and onboard compliantly with our EOR solutions. Furthermore, you can manage payroll, pay the relevant taxes, release payments in local currencies and get a breakdown of every expense in a single report.
Our digital platform also enables you to release payments in cryptocurrency or ESOPs, manage employee benefits, customize insurance plans and much more. We shoulder your HR responsibilities, so you can focus on growth and expansion.
Contact us to know more about our services.