Your Guide to Contingent Workers: Rules, Regulations, and Benefits

Contingent workers can be a valuable resource for small businesses. Find out what you need to know to capitalize on the full array of alternative work arrangements available.

Updated August 6, 2020

Gone are the days when a career meant working steadily toward the big party and the gold retirement watch. While full-time employees make up the bulk of the workforce, more and more workers are pursuing gig work in addition to their regular jobs or as their main source of income.

These contingent workers provide small businesses with greater flexibility when sourcing talent.

Overview: What is a contingent worker?

Contingent workers are non-employees contracted to work on a project or temporary basis. Some contingent workers are independent contractors, such as freelancers and consultants.

Others are temporary employees or contract workers employed through staffing agencies. Contingent workers also include on-call employees, who may be independent or contracted through a service.

The following are examples of different types of contingent workers:

  • Contract worker: A developer outsourced through a staffing agency provides full-time IT support to a client on an open-ended contract.
  • Consultant: A manufacturer brings in an independent expert to conduct a quality study and recommend improvements.
  • Freelancer: An accountant manages taxes and other bookkeeping work for numerous clients.
  • On-call worker: A nurse works through a specialized agency on a per-diem, on-call basis.
  • Temporary employee: A farm hires temporary workers through a staffing agency each summer to get through the harvest season.

Contingent workers can work part-time or full-time, for one client or for many. The one thing all contingent workers have in common is that they are not your employees.

Understanding the types of alternative work arrangements and how to incorporate them into your small business recruiting process can help you bring the best mix of talent to your business.

Contingent worker vs. employee: What's the difference?

There are several key differences between employees and contingent workers.

1. Contingent workers are not on your payroll

Contingent workers are either independent contractors paid hourly or by deliverable, or they are leased from staffing agencies on a contract or temporary basis. Either way, you're not responsible for managing payroll or paying employment taxes.

2. Contingent workers serve for a limited time or purpose

With a contingent worker, there is no commitment beyond the scope of the contract or project. This provides greater flexibility in workforce planning as you can grow or shrink your contingent workforce to suit the changing needs of your business.

3. Contingent workers are managed by others

Contingent workers either work independently and manage themselves or are managed by the staffing company. Some workers in alternative employment arrangements receive limited supervision and training, but they generally come to you prepared to do the work.

4. Contingent workers present a different relationship

Alternative workers are not part of your employee body, and are not as deeply embedded in your workplace culture. Yet they are part of your workforce, and the two groups mutually influence one another. Both require different approaches to function at their best.

Benefits of recruiting contingent workers

Contingent workers give you ready access to a deeper bench, broader skills, and flexible scheduling options. That means greater agility when navigating staffing challenges such as rapid growth, shifts in demand, and special projects.

Contingent workers can also save businesses money by allowing you to tailor capacity more tightly to your needs. For example, substitute teachers are on-call contingent workers who enable schools to respond swiftly to last-minute schedule changes that would otherwise disrupt services.

They also make it so that school districts can get by with fewer full-time employees, which saves them money.

1. Easier administration

Because they are not employees, alternative workers save you the time and hassle of managing payroll and benefits. Payments to independent workers are simply reported on Form 1099. They also require less work across the human resource (HR) lifecycle, from onboarding and training to offboarding.

You are also spared the administrative drag of performance management, which can eat up a lot of time and energy for front-line supervisors.

HR software can help you manage payroll and benefits more easily for all types of workers.

2. Tax and benefit savings

Since you aren't paying them as employees, contingent workers reduce your payroll taxes and benefit costs. This is a major financial advantage of hiring contingent labor.

3. Specialized expertise

Often, employees have to be jacks of all trades, particularly in small businesses. Contingent workers, on the other hand, are hired to serve a specific need, providing access to expertise and skills that are outside your wheelhouse.

For example, if you want to overhaul your website, you don't have to hire a team of web designers and developers. You can contract with an agency or hire freelancers with the precise skill set you need to complete the project.

4. Just-in-time scheduling

Substitute teachers are an example of how contingent workers can help you manage last-minute, daily scheduling challenges. Contingent workers can also help businesses with seasonal demand such as retailers, restaurants, and resorts.

5. Low commitment

It's not generally viewed as a benefit, but sometimes a lack of commitment is a good thing. Contract employees can let you test the waters on an idea before committing full-time staff to it.

Contingent workers also let you test out talent. If a contingent worker isn't a good fit, you don't have to go through the challenges of a formal termination. Those who do hit the mark can become part of your talent pool for future hires.

6. One-time projects

How often have you looked at a major project and cringed at the time it was going to take away from other tasks? With alternative workers, you don't have to rob Peter to pay Paul. You can staff up for a project and preserve your full-time employees for other priorities.

7. Rapid scale-up

A final benefit of alternative workers is that they usually arrive on your doorstep trained and ready to go. If you need to scale up an operation quickly, tapping contingent talent can be a game changer.

Screenshot of the Zenefits software time off request screen.

Zenefits HR software includes functionalities for contingent workers.

Risks of recruiting contingent workers

While contingent workers don't have as many labor protections as employees, that's not a regulatory carte blanche. Some protections such as antidiscrimination laws, safety requirements, and overtime rules can be applied to alternative workers. Which laws apply depends on your specific work arrangement.

If you regularly employ contingent workers in roles that could be filled by employees, proceed with care. Legislatures are challenging practices such as "perma-temping" that create an end run-around labor laws.

An example is the Illinois' Responsible Job Creation Act, enacted in 2018 to provide safety, wage, and discrimination protections for temporary workers.

If you're working with independent contractors, make sure they're truly independent. Worker misclassification is another area states are watching closely.

It makes good business sense to implement a contingent worker policy that treats contingent workers with the same consideration as you would any other employee. As long as you do, contingent employment arrangements can provide value to both parties.

Low commitment, high reward

Contingent workers have unique capabilities that can complement your full-time workforce. Including alternative work arrangements in your recruiting strategy is a great way to deepen your talent pool, broaden your capacity, and stretch your resources to help your business excel.

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