What is a Contingent Worker? Definition, Types, Pros & Cons

Contingent workers are becoming an integral part of the organizational workforce. According to SIA's Gig Economy Report, they have grown in numbers to constitute one-third of US workers today. The trends are similar in Europe and Asia as well. In fact, the report claims that contingent workers contribute $1.3 trillion to the US economy.

As the role of contingent workers becomes important in the global economy, it's vital for organizations to have the capability to align contingent workforce management effectively with their vision. Organizations need an integrated approach to capitalize on such workers for their growth. So, let's begin by understanding what constitutes such a workforce before moving on to learn the ways they may be useful or problematic.

Key Takeaways

• Contingent workers offer flexible expertise: They include freelancers, contractors, and consultants who provide specialized skills for short-term projects without long-term commitments.
• Benefits include cost efficiency and agility: Organizations save on training and benefits while scaling workforce needs quickly to meet market demands.
• Challenges involve compliance and cohesion: Misclassification risks, lack of commitment, and integration issues require robust management and communication strategies.

What are Contingent Workers?

A contingent workforce consists of workers who provide their services on a provisional, non-permanent basis. It includes consultants, freelancers, contractors, advisors, or any other type of temporary workers who work on a specific project for a defined period of time. The details of what constitutes job completion and payment delivery are typically defined as well.

The gig economy is being driven by workers' desire for greater flexibility at work and organizations' need for niche talent on a non-permanent basis. Organizations will increasingly rely on contingent workers to fill gaps in their global workforce and optimize their resource allocation and utilization.

Types of Contingent Workers

For business alignment and success, it's vital for organizations to know about the types of contingent workers and how they differ from each other. Broadly speaking, there are three types of contingent workers:

Consultants

These are the self-employed types with specialized expertise. They are engaged in solving a specific problem and have access to company information on a need-to-know basis. The company rarely offers them benefits. Importantly, they are responsible for filing their own tax returns.

Examples: Professionals specializing in digital marketing, design marketing, promotions, accounting, software development, etc.

Temporary Workers

Agencies employ these workers to meet seasonal or non-permanent demand. These workers engage in predetermined tasks for a defined period. The agency is responsible for paying these workers while it bills the company based on the hourly wage agreement.

Examples: Professionals specializing in customer service, retail associates, software development, support engineers, etc.

Contractors

They are self-employed professionals and responsible for everything, right from sharing invoices to collecting payments for their work and paying their taxes. They can provide their services via sole proprietorship or operate through a single-member business entity.

Examples: Construction workers, accountants, photographers, copywriters, bookkeepers, virtual assistants, etc.

Statement of Work (SoW) Employees

These workers are employed when a company engages in a professional services firms to provide services based on a specific scope of work. The parties come to an agreement about the specific deliverables, prices, and timelines.

Examples: Firms that provide services in areas such as marketing, digital marketing, advertising, software development, tech support, customer service, etc.

Differences Between Permanent Employees & Contingent Workers

Permanent employees and contingent workers enjoy a different set of benefits and provisions. How they differ precisely depends on the organization's policy, industry, and local laws.

Legal Status

There are several laws and regulations, including wage regulations, overtime pay, time off and other benefits that often protect permanent employees. In comparison, contingent workers don't receive the same level of protection.

The lack of protection also means that contingent workers enjoy less job security.

Wages & Benefits

Permanent employees typically receive a wholesome package that includes paid time off, binding separation rules, gratuity, and health insurance. In most cases, contingent workers don't receive the above benefits.

Tenure

Organizations engage permanent employees for long-term commitments. Therefore, they expect them to continue for as long as possible. In contrast, they employ contingent workers for predefined periods of time unless the circumstances demand an extension.

Onboarding & Training

Permanent employees undergo an elaborate onboarding process that prepares them for the road ahead. The organization expends time and money to train them for the challenges they face, depending on its requirements.

However, organizations expect contingent workers to hit the ground running and rarely offer them extensive training sessions.

Permanent Employees vs. Contingent Workers

The Benefits of a Contingent Workforce

All said and done, the increasing adoption of a contingent workforce is testimony to the fact that they bring many benefits to organizations.

High-skill & Market-ready Workforce

This workforce consists of professionals with highly specialized skills who are employed on a contract basis (lower costs). Since they're more tuned to market changes, they are better equipped to adapt quickly to your organization's requirements.

Cost & Time Efficiency

Considering that contingent workers don't bring costs related to training and other mandated benefits, they enable cost-efficiency gains. Further, since the rules of hiring and separation are more flexible, organizations can optimize the related costs. Apart from this, with the added resources, organizations can save time since teams can complete projects faster and scale up processes as per the need without requiring a lot of time for hiring.

On-demand Workforce

The demand for a specialized workforce can fluctuate depending on market conditions. In such circumstances, it may be unnecessary to engage permanent employees. Contingent workers allow organizations to scale up or down their workforce based on their current needs without burdening themselves with long-term costs and commitment.

Flexibility & Agility

Contingent workers enable employers to expand to more markets, geographically or otherwise, in a shorter time frame. Also, for any specific skill requirements for a project, employers don't have to stay restricted to their existing talent pool.

The Disadvantages of a Contingent Workforce

However, engaging contingent workers also comes with its share of disadvantages.

Control

It's difficult to create a semblance of order with contingent workers because their schedules are flexible by contract. Organizations can neither leave them to their own devices nor micromanage them. Since they don't provide adequate onboarding and orientation, such workers take time to operate in sync with the organization's inner workings.

Commitment

Most contracts allow contingent workers to leave at short notice, which puts the project's progress at risk. Worker attrition at a critical project phase can delay or even derail the project's momentum. Therefore, organizations must put a contingency plan in place to facilitate business continuity at all costs.

Cohesion

Since a different set of rules governs permanent and contingent workers, this may affect their ability to work cohesively as a team. To boost teamwork, it's vital to instill a sense of belonging amongst the contingent workers too. To this end, organizations must communicate well with all workers and listen to and address their concerns.

Compliance

Failure to accurately classify workers and adhere to regulations can cause compliance risks like fines, penalties and lawsuits. As the laws and regulations are complex and ever-changing, organizations are at risk of inadvertently flouting them. To preempt such compliance risks, organizations must employ advanced software solutions that are tailored to overcome present-day challenges.

Conclusion

As the market conditions become more volatile and dynamic, more organizations will opt to engage contingent workers. However, organizations must conduct a comprehensive study before they employ a contingent workforce management solution that fits their business needs.

Organizations must be wary of jumping on the bandwagon simply because others are doing it. A long-term suitability analysis will reveal whether the move can bring advantages without the accompanying risks. Finally, should organizations decide to proceed, they must leverage advanced workforce management software to hire and manage a contingent workforce.