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Contingent workforce management: what employers need to know

June 22, 2021 - 22 min read

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What is a contingent workforce?

Why is a contingent workforce crucial for a company?

Pros and cons of a contingent workforce

Contingent workforce trends

What is contingent workforce management?

When does a contingent workforce make sense?

How to find a contingent workforce

Create and manage your own contingent workforce

The workforce is changing. Companies and workers are taking advantage of technology and new workforce models to meet their needs.

More people than ever are working flexibly or performing “side hustles” as part of a non-traditional workforce. Many people, often younger workers, prefer more flexible forms of employment over the traditional job model.  

Companies often benefit from a contingent workforce, also known as contingent labor. Used well, contingent labor and other flexible models can benefit companies that need to fill roles where demand fluctuates or grows rapidly. From a pure cost basis, using flexible and contingent workers can save companies many employee expenses.

Let’s discuss what a contingent workforce is. We’ll show you how it works, why it’s important, and some examples of a contingent workforce.

What is a contingent workforce?

Traditionally, companies hire employees as part of an in-house workforce. They pay them either an annual salary or an hourly wage. Being offered a job this way comes with some understanding that both the job and the worker will be around for the long term.

This kind of employment typically comes with the option for employee benefits such as healthcare, paid time off, and the option to participate in retirement benefits such as a 401K. In addition, a company might have other incentives including an annual bonus, vested stock options, or professional development programs to encourage talent to stay with the company. 

A contingent workforce is completely different.

Contingent workers aren’t considered employees of an organization. They’re hired on as temporary workers through an agency. The agency handles the billing of the company and the payment of the worker. For temp agencies, the agency is the employer of record and handles all of the details such as validating work status, payroll deductions for taxes, and other government filings.

More recently, freelance platforms have sprung up that play a similar role matching workforce skills to company needs except they do not employ the worker, either. Platforms avoid most of the costs and overhead of employment as well. 

Still, other workers have their own contracts with the company. Contract workers may be freelancers who work for multiple other clients at overlapping times. They bill the company for their services and are paid directly by the company, however, they are not on the payroll and the company doesn't withold taxes. They are sometimes considered seasonal workers or seasonal employment. 

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Some companies hire contingent workers on a trial basis and eventually hire them as employees. Others take on contingent workers for a fixed amount of time to work on a specific project or for a busy seasonal period.

Contingent workers can be consultants, contractors, freelancers, part-time workers, or anyone with alternative work arrangements.

Generally, the job security of a contingent worker is less secure. Whether the company will keep you on is determined by job performance and whether you’re still needed. In some positions, your contract may be on a week-to-week basis.

This means that a contingent employee may be less committed to the company. They show up (or do the entire project virtually, possibly independently) and do the work to get paid. They’re often moving on to another job. But this is not always the case. Some "contingent" workers have long-term contracts or a series of shorter contracts that span years. They may be just as dedicated to the companies they work for, regardless of the amount of time they are employed. 

In addition, those in alternative work arrangements know that their reputation matters if they want to get future projects. Many are dedicated to delivering high-quality work and performing well.

Today, most organizations have a mix of contingent and non-contingent workers.

Why is a contingent workforce crucial for a company?

Companies need to do everything in their power to remain competitive.

Today, estimates of workers in alternative employment arrangements vary widely. It is reported that as many as 40% of workers now have some form of contingent job (possibly in addition to a traditional job). The US Bureau of Labor Statistics puts the number much lower, around 12 % of the workforce. Some of the discrepancy has to do with terminology. People with flexible or part-time arrangements may still be employed in a traditional way by their employer. In addition, people who are in these arrangements may not report accurately to avoid self-employment or other taxes.  

Even if you aren’t making use of contingent talent, chances are your competitors are.

That means they’re only paying for labor on an as-needed basis. They’re also likely saving costs on things like health insurance and other employee-related expenses such as matching 401K.

The rise in a contingent workforce is due to a growing need for people with in-demand digital skills. Many companies struggle to find people with these skills. They may need to turn to contingent workers who aren’t within their city or possibly even the same country. Talent with in-demand skills has the power to set their own terms. That often means flexibility and freedom to pursue interesting or lucrative work.

Nowadays, many younger workers actually prefer to be part of a contingent labor force. It offers benefits like flexibility, chunks of time to pursue other interests, and the ability to work from anywhere. It also lets some pursue a mix of growth and development opportunities they want to build skills and expertise that they might not get in a traditional role.

It can be a win-win situation for both companies and their contingent workers.

In fact, contingent workers are more than twice as likely as non-contingent workers to be under age 25. They’re also twice as likely as non-contingent workers to work part-time.

Companies are now seeing the need to replace an aging workforce although many Boomers might also want to stay partially employed. Middle-aged workers in many cases may have caregiving responsibilities that may make flexibility more attractive. Companies will also have to meet the different work expectations of millennials and the next generation as well. 

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Pros and cons of a contingent workforce

There is no hard and fast rule when deciding whether or not to hire contingent workers. Companies might have an overall policy, but the ultimate decision comes down to case-by-case analysis. Before deciding to use alternative workforce arrangements, be sure to weigh the pros and cons. That way, you can determine if it really makes sense for your situation.

Pros of hiring contingent labor

  • Flexibility. Your company can assess its needs on an ongoing basis. Staffing procurement can be quickly and easily adjusted on-demand for short-term or seasonal peaks.
  • Fewer costs. An independent contractor or another contingent worker won’t require health insurance or other employee benefits such as PTO that workers are legally entitled to in many areas. You also avoid the significant costs associated with recruiting and hiring.
  • Access to high-quality, in-demand talent that wouldn’t otherwise be available. You may want to hire a specialist or consultant for a particular project but don’t necessarily need to hire them full-time. You also get access to an additional external talent pool that isn’t necessarily looking to be employed or that your company couldn't afford or attract full-time.
  • Less training is required. Contingent workers are often highly specialized. That means you won’t need to provide a significant amount of training. This is especially true compared to someone hired straight out of university or an intern.

 Cons of hiring a contingent workforce

  • Compliance is more difficult. Labor laws can vary significantly from state to state or even between cities. Companies dealing with a contingent workforce should use clear, accurate job descriptions. Exemption status, any time frames involved, and pay rates should be clearly outlined in job postings. The more details provided the better. 
  • Lack of understanding of the arrangement. Companies will sometimes have a hard time telling a contingent worker that the job has a definite end date or condition. This can be especially confusing if you are hiring contingent workers to work side-by-side with regular employees. 

    If clear expectations and end dates are not conveyed, contingent workers can sometimes feel like they were led on.  They may feel like there was a misclassification, and they should have been considered full-time employees. Everything will seem like it’s going great, and then their position may be terminated without warning.
  • Communication can be harder. Contingent workers often don't have time to adopt a company's core values or culture. So communication between the worker and company can be difficult. This makes effective communication strategies all the more important. Even more practically, your company may not have a good process for granting contingent workers access to all of the systems and tools they need to complete the work effectively.
  • Fragmented management. It's often not clear who a contingent worker reports to. One person may manage their day-to-day workload. Another person may be responsible for signing their weekly timesheets or paying invoices.
  • Disconnected workforce. Contingent workers often aren’t with a company long enough to know if they’ll be a good cultural fit. If contingent workers aren’t included in company meetings or events, it can make them feel like they aren’t truly part of the team. They may be treated differently with different expectations. Regular employees also benefit from company perks that the contingent worker might not have access to. All of this can create tension and negatively impact the work environment.

  • Lost learning. Whatever the worker learns on the job walks out the door with them when they leave. In addition, when the contingent worker leaves, the company isn't any closer to having developed those skills in-house. Unless the company makes an effort to capture some of the knowledge and insights that come from the project, perhaps by embedding regular employees with the contingent talent. 

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Contingent workforce trends

By all accounts, the contingent workforce is only continuing to grow. There were nearly 6 million contingent workers in the US as of 2017. Contingent workers now provide many jobs that were essential in the past

One stigma that is often associated with the contingent workforce is that it is made up of unskilled workers. This is a false assumption. 38.9% of independent contractors now have a bachelor’s degree or higher. And as mentioned above, often include professionals with highly in-demand skills such as design and engineering.

Luckily, there has recently been a shift in how contingent work is portrayed. In the past, many people wouldn’t have even considered the possibility of taking on contingent work. The ideal job was a stable career in a company — a permanent position with a salary. But with the rise of the gig economy, many are taking advantage of the flexibility that contract work often offers. 

Today, just over half of contingent workers (55%) say they would have preferred a permanent job to their current position. That means nearly half of contingent laborers actually embrace and prefer contingent work.

Companies and workers alike appreciate the flexibility that comes from contingent labor. Many younger workers, in particular, are part of the gig economy. They may do extra work for a few hours per week that is separate from their main career.

Not all Millennials and Gen Zers have traditional views when it comes to employment. And the overall workforce appears to be shifting to accommodate this. With millennials set to make up 75% of the workforce by 2025, companies will need to adjust accordingly.

What is contingent workforce management?

A contingent workforce program requires a specific style of management. It'd be a mistake to lump contingent workers in with regular permanent employees and manage them all the same way.

Effectively managing contingent workers calls for its own approach.

For one thing, many contract workers are freelancers or consultants. They see themselves as entrepreneurs and contractors. So in most cases, it'd be a mistake to talk to them like employees.

A contingent workforce manager will also need to take a slightly different approach when it comes to hiring contingent workers as well.

For example, using a vendor management system (VMS) helps keep workforce data in a central, digital location.

Effective management is key to getting the most out of a contingent workforce.

When does a contingent workforce make sense?

Contingent workers are best for projects of definite scope and duration.

Here are some examples of when you could use a contingent workforce:

  • Seasonal work. There are numerous industries where work can only be completed during specific periods of the year. So it makes sense to only hire a contingent workforce for the months that you can use them. Most contingent seasonal jobs will be during warmer parts of the year or during the winter holiday time. Jobs like farming, roofing, landscaping, and most construction can only be done outside of winter. Likewise, it doesn’t make sense to employ a snowplow driver outside of winter. Seasonal employees are also typically hired around the month leading up to Black Friday through New Year. 
  • Maternity or medical leave. Your permanent employees may be legally entitled to time off. If your tax accountant is planning to take off 12 weeks after they have their baby, you’ll need someone to fill in. Most jobs can’t be left unfilled for months at a time.
  • Extended vacation. A permanent employee who's been with the company for 20 years may be entitled to four weeks of paid vacation or a sabbatical. If they decide to take all of their vacation days all at once, you could be left with an unfilled position for a month or more.
  • Military duty. If your company employs someone in the military reserves, they may be required to serve for a couple of days per month. More importantly, they may be called upon suddenly during disasters or other major events or if a war ever breaks out. In that case, you may be left searching for a contingent worker without much notice.
  • Jury duty. A permanent employee may be selected for jury duty and required to leave work for an extended period. Some cases may last for a month or more. Because of the unknown duration of their leave, you’ll need a contingent worker who you can quickly hire and let go when they’re no longer needed. 

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How to find a contingent workforce

There are a few ways to go about finding contingent workers for your company. 

If you’ve got the time and an established HR department, you can manage recruitment, onboarding, and payroll for your contingent staff yourself.

When you are hiring contingent workers, make sure that everyone knows upfront that it’s a temporary arrangement. You can always make it permanent later if the worker is a good fit. 

But don’t make any promises upfront that you can’t keep. It’s not fair to your contingent worker, and any resentment they feel is likely to be reflected in the quality of their work.

Another option is to outsource your contingent staff hiring and HR needs to an external party. These go by many names, including an employment agency, staffing agency, or employer of record.

Outsourcing your contingent workforce management means there’s less to worry about in terms of compliance. Your employment agency is an expert in this area and manages everything for you.

Create and manage your own contingent workforce

A contingent workforce is something that a growing number of companies will need to embrace going forward. 

A contingent workforce has its own pros and cons. It also requires its own type of management. This will be even more true as we see new forms of contingent employment emerge. Companies will need to be thoughtful about how to manage the various types of flexible employment arrangements in ways that still support innovation, inclusion, and belonging. No matter what your badge says.

Figuring out how to use and develop different types of contingent workers is key to staying competitive.

BetterUp can help you develop a better workforcerequest a free demo today.

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Published June 22, 2021

Erin Eatough, PhD

Sr. Insights Manager

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