Labor costs make up the largest part of most companies’ operating expenses. Employers looking to cut costs, but keep talented workers, are hiring more contingent workers. And the contingent workforce is remaining steady. According to a 2019 report by the Bureau of Labor Statistics (BLS), contingent workers make up 3.8% of the working population. Contingency employment has its advantages, both for the employer and the employee, but there are some things to consider—like compliance issues. Understanding contingency workers and how they’ll fit in at your company is the first step.
Contingent Worker Definition
Contingent means to be dependent on or conditioned by something else. The definition of a contingent worker is the same; contingent workers are hired per project, so their employment is dependent on the project. Once the project is over, the employer-employee relationship ends. Freelancers, consultants, independent contractors and short-term employees are all types of workers who make up the contingent workforce.
The BLS defines contingent workers as those with temporary employment, but they’re more than that. Contingent workers are highly skilled and offer the expertise your current workforce might be lacking. Contingent workers can be hired for other projects, but they’re not full-time employees so the company has no responsibility to offer work permanently.
How Do Contingent Workers Compare to Employees?
The biggest difference between contingent workers and full-time employees is how they’re classified by federal law. Workers classified as full-time employees fall under the protection of federal and state labor laws, including the Fair Labor Standards Act (FLSA). Some of the most essential FLSA requirements include:
- Employee Benefits Coverage. The Employee Benefits Security Administration (EBSA) imposes a wide range of fiduciary, disclosure and reporting requirements on fiduciaries of pension and welfare benefit plans and others having dealings with these plans. EBSA is responsible for enforcing the Employee Retirement Income Security Act (ERISA), which regulates employers who offer pension or welfare benefit plans for their employees. Other health care plans EBSA enforces under ERISA include the , the Comprehensive Omnibus Budget Reconciliation Act of 1985 (COBRA) and the health care portability requirements on group plans under the Health Insurance Portability and Accountability Act (HIPAA). The Employee Benefits Security Administration (EBSA) imposes a wide range of fiduciary, disclosure and reporting requirements on fiduciaries of pension and welfare benefit plans and others having dealings with these plans. ACA, the Comprehensive Omnibus Budget Reconciliation Act of 1985 (COBRA) and the health care portability requirements on group plans under the Health Insurance Portability and Accountability Act (HIPAA).
- Workers’ Compensation. Employers are required to provide workers’ compensation for employees hurt on the job.
- Unemployment Compensation. Full-time employees are awarded unemployment benefits, which are covered by an employer’s unemployment insurance premiums.
- Wage and Hour Liability. Under the FLSA, non-exempt workers must be paid the minimum wage and time-and-half-wages for hours worked over 40 per week.
In contrast, a contingent worker isn’t entitled to receive healthcare benefits, unemployment benefits, workers’ compensation and so on. But, since contingent workers aren’t employees, they don’t necessarily have to follow all of the company’s policies and procedures. Depending on the terms of the employment agreement between employer and contingent worker, contingent workers have more control over their work and how it gets done, including their schedules.
Contingent Workforce Advantages
Hiring contingent workers offers substantial financial benefits. Employers save costs associated with hiring and compensating full-time employees. For example, employers don’t have to pay payroll taxes on contingent workers, make contributions to social security or unemployment. And, as contingent workers aren’t employees, employers aren’t required to offer healthcare benefits or PTO.
The contingent workforce also provides a steady stream of talent, when and where you need it. Contingent workers can be hired based on the amount of work you have. If more construction bids were accepted than anticipated, contingent workers can be hired to help your regular crews with the temporarily increased workflow.
And contingency employment can fill any skills gaps that currently exist at your organization. Contingency workers can step and fill roles that your current employee base might not be qualified for like IT, payroll and even HR. Or say your company accepts an upcoming building project requiring specialized talent, like masonry, underground utility installation or grading, you can hire contingent workers who have that expertise.
Contingent Workforce Disadvantages
Just as contingent workers not being classified as employees is an advantage financially, it’s also a disadvantage. Aside from having a lack of control, contingent workers will never really adapt to your company culture. Employers must decide how much proprietary information to share with contingent workers.
If these contingent workers aren’t classified correctly, companies may pay fines and penalties. If you classify an employee as an independent contractor or freelancer, and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker. For example, if a worker thinks he or she has been classified incorrectly, Form 8919 can be filed for uncollected Social Security and Medicare taxes. If the social security office agrees with the worker, your company is responsible for covering those back taxes.
Misclassification can also create other tax liabilities, fines and penalties. These include obligations to provide employee benefits, workers’ compensation, unemployment compensation, wage and hour liability, and vicarious liability.
How to Recruit Contingent Workers
Recruiting contingent workers requires a different strategy than hiring regular employees. Employers need to be very specific about the position they’re looking to fill and the requirements. A clear job description is essential to hiring a contingent worker, making sure to include the key fact that the position isn’t permanent.
Because using a contingent worker is so specialized, you may want to consider using a staffing agency or posting to job boards that specifically cater to this workforce. Employee referrals are another great way to target the contingent workforce. Your current employees will be able to convey to any candidate they refer that the position is temporary.
While a contingent employee may not be able to integrate fully into your company culture, that doesn’t mean you want to hire one that won’t fit in. Contingent workers may be employed for months, and having a good working relationship with your current team will make the relationship the most effective it can be.
Hiring contingent workers can help companies lower labor costs and fill skills gaps that exist at the organization. To make sure compliance is kept, these workers must be classified correctly—and Arcoro can help. Arcoro’s Onboarding module guides employers as to which documents new employees must fill out, including W-4a or W-9a for contingent workers, I-9 Employee Eligibility Verification form
State Tax Withholding form, Direct Deposit form and the E-Verify system that verifies employee eligibility in the United States.
Arcoro’s Benefits Management software helps employers automate oversight, apply deductions and give employees access to their information. Built-in compliance features, like the Affordable Care Act Compliance module, takes the confusion out of which employees are eligible and provides reporting.
And Arcoro’s ATS provides you with the tools to recruit both regular, full-time employees and contingent workers. The modular system allows you to publish your job posting to leading national and niche boards and social media sites with a couple of clicks in our which is designed to automate compliance with federal hiring regulations. Its email templates and screening helps you quickly sort through any unqualified candidates and review applications in batches.
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