Organizations are increasingly turning to contractors to staff their projects. So, if the contingent workforce is the new normal, what do we need to know?
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The phenomenon of contingent workforce is becoming a steady trend in the world of business. And in some respects it's a real win-win situation for the both employees and employers.
For staff, it can mean more flexibility and autonomy. For employers, there are economic benefits to explore.
However, at the same time, having contingent workers can be quite challenging, as it presents business owners with several risks.
So let’s take a closer look and explore this phenomenon – it’s nature, advantages and drawbacks, and the specifics of contingent workforce management.
A contingent workforce can be described as a workforce hired by an organization for a fixed period or to perform a specific task. Contingent workers, also called freelancers, independent contractors, or 1099 workers, are non-salaried, which means they are paid only for what they’ve done.
They may not get the same benefits as full-time employees (for example, health insurance or a retirement plan); however, the scope of their work will be different to that of a permanent employee, and they may have more flexibility around when or how they complete their work.
This means that, typically, they make their own schedule, as their only requirement is to complete work on time. Unlike traditional in-house employees, these external workers often use their own tools, and they may be based in their own home office.
The term "contingent workforce" is synonymous with "liquid workforce." Also, in some contexts, contingent workers can be referred to as "distributed workforce" (when they belong to a team whose members work from different locations).
The contingent workforce trend is a logical outcome of the modern economic realities. According to research, the largest generation in the U.S. labor workforce are Millennials, and Millennials are people raised in a highly digitalized and globalized world, which gives opportunities to work remotely, even asynchronously.
In other words, there are more opportunities than ever to cast a wide net and find a job that you actually like doing - not just a job that’s available in your area.
And while contingent workers do not have the same job security as permanent employees, they have the freedom of choice – working as freelancers, these people try themselves in different organizations and professions.
This is a great chance to get a unique experience, and even to find your true passion. And this is very different from the experience of baby boomers, many of whom secured a "job for life", often working for decades in the same organization.
No wonder the contingent workforce keeps growing, and statistics show it:
Contingent workforce can be found in virtually any industry. Here are the most common examples:
While being a contingent worker gives multiple opportunities and flexibility for a temporary employee, organizations also benefit from hiring contingent workforce, in various aspects. Let’s take a look at the main advantages companies might get:
Here we can talk about several things. Firstly, companies pay contingent workers by the project or by a period they're involved; they don't have the responsibility to keep the worker and pay them a salary – and, for this reason, they do not have to pay Federal Insurance Contribution Act (FICA).
Additionally, companies do not have to provide insurance and other social benefits for contingent workers in the same way that they would for permanent staff. Training costs for contingent workers are likely to be lower, also, as they may cover the cost of training and further development themselves, in order to stay competitive within their niche.
Finally, contingent workers will often use their own equipment, meaning that the company does not have to supply or maintain these resources.
If you need a specific skill only to complete a project, and, through resource capacity planning, you find out your employees are not skilled to do the job, a contingent worker can perfectly solve the problem. You just need to find a contractor with the skills you need, and hire them for the duration of the project in question.
Since contingent employees work for themselves, they’re interested in doing their best because otherwise, their reputation will suffer, and it will be harder for them to find the next project. They’re also motivated to work efficiently, as that will enable them take on additional clients or projects.
Having a team member who is not deeply involved in everyday processes can be very valuable – such a person can notice things that you and your permanent workers typically miss or ignore. Besides, contingent workers can share some knowledge that will be further used by your team members.
Despite the obvious advantages, hiring a contingent workforce also poses some risks for employers. Consider the following:
Misclassifying contingent workers can lead to fines and penalties. In some cases, it may be tricky to determine an employee’s status – and then the best you can do is to consult a lawyer, not to classify an actual employee as an independent contractor.
Contingent workers have more freedom to set their own schedule and work in a way that suits them. However, as an employer, this means that you have less influence over how and when the work is done. As a result, you may lose out on the chance to give suggestions or make corrections on time.
When you hire contingent workers instead of up-skilling your current team members, you deprive the latter from a chance to grow. Eventually, you may need someone with those skills on a permanent basis – but rather than building that capability in-house, you've spent all your time working with someone who is a free agent, and could even end up going and working for a competitor.
Even though contingent workers are not a permanent part of your team, it’s still important to manage them properly. After all, elements like hiring, on-boarding, payment, and team-building, as well as the whole workforce planning process, still remain the responsibility of a manager.
Here are some tips for you on how to handle a contingent workforce:
To avoid potential misunderstandings between an organization and a contingent employee, the best thing to do is to define clear rules. What is expected from individual contractors? What is their role in the team? How do you schedule them as a part of your workforce?
Discuss things like time-tracking, payment, and invoicing. Sign a contingent worker's contract, or any other agreement, to make it all clear. If necessary, create a non-disclosure agreement, too.
By doing this, you can see how effective your contingent worker is, and then compare his or her performance with the performance of your other employees – it might turn out your permanent team members need up-skilling.
Even though these people will not stay long in your organization, feeling like a part of the team can motivate them to collaborate more effectively and thus have a greater positive impact on the wider team and the project.
Just like with permanent employees, automating the management of contingent workers can make your life easier, helping you to plan your workforce. By adding a contingent worker to a unified system, you can track all the processes and stay updated, even though you might not physically observe the worker.
In Runn, for example, you can use placeholders to see where you may need to assign a contingent worker to a project. This feature helps you to identify where additional skills or capacity may be needed in your project plan - allowing you to scope out the work even if you don't have a contractor in place yet.
Further reading ➡️ Contingent Workforce Management Best Practices: 15+ Tips for Success
Contingent workforce is likely to expand, and involving temporary workers in your team can be a necessity. While it might still be unclear how to work with them, the practices described above can help managers figure that out. So plan things in advance (you could use workforce planning models, do capacity planning and forecasting) remember about risks, and be open for new opportunities!
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