What businesses need to know when considering a contingent workforce
Different from temporary employees, contingent workers offer a range of benefits to best current labor challenges.
Many industries are experiencing challenges in attracting and retaining qualified workers. As a result, employers are having to reevaluate their business practices in an effort to appeal (and hold on) to talented employees. To help solve this issue, many employers are increasing their dependency on contingent workers.
In fact, research conducted by Gartner shows that 32% of businesses surveyed said they plan on replacing full-time employees with contingent workers as a cost-saving measure over the next year. According to Staffing Industry Analysts, business spending in the contingent workforce area has risen 22.8% year over year.
What is a contingent worker? The career website Indeed.com defines a contingent worker as an individual who works for an organization on a temporary, on-demand basis. Typically, businesses utilize contingent workers to complete specific projects for which they currently lack internal staff.
Contingent worker vs. temporary employee The primary difference between a contingent worker and a temporary employee is that a contingent worker typically isn’t put on the business’ payroll — and therefore, the company isn’t responsible for income tax deductions.
A contingent (or contracted) worker is considered an independent contractor and is responsible for his or her own taxes. In some instances, an employer may hire a contingent worker through a staffing agency; however, if it does, tax obligations will fall on the agency.
Benefits of a contingent workforce There are several benefits to filling positions with contingent workers, including:
- No long-term commitment. A business can use contracted workers for a one-off project or keep them around for a week, a few months or longer. The business may also hire an individual on a trial basis or for a probationary period and assign smaller projects to determine whether they are a good fit. When services are no longer wanted or needed, the relationship comes to an end.
- A quicker way to fill positions. Businesses that have peak seasons typically have an immediate need to fill positions. Contingent workers can be onboarded quickly and without all the administrative red tape that comes with hiring a full-time employee.
- Greater flexibility. According to HCM Works, businesses often find that their headcounts shift rapidly depending on market conditions and company growth. Contingent workers provide the perfect opportunity for businesses to identify and assess organizational needs on an ongoing basis, rather than committing to permanent employees.
- No training required. A business that needs to fill a position that requires a particular skill set can search for a contingent worker who is already trained in that specific area.
When looking at a contingent workforce, it’s important for your business clients to understand that despite the increase in contingent labor, opportunities aren’t simply there for the taking. According to The Mom Project, of contingent workers surveyed, two of the greatest factors contributing to a prospective worker’s attractiveness to a business are competitive pay and employer supportiveness.
The survey also showed that 75% of contingent workers consider the ability to work remotely (or from a location of their choice) to be a big factor in their decision to work on a contingent basis.
Along with the benefits of a contingent workforce, there remain some ongoing challenges. These can include:
- Legal and tax risks associated with employee misclassification.
- A lack of proper guidance for managers in how to effectively monitor contingent workers.
- A lack of business continuity due to high contingent worker turnover.
- The inability to enforce accountability.
Whatever the reason your business clients may have to use a contingent workforce, it’s important they understand the benefits and potential risks involved. Two important steps toward mitigating risks are to standardize contingent workforce processes and properly document all externally sourced workers.
Paul Holbein is co-president of Builders & Tradesmen’s Insurance Services, Inc. (BTIS), an Amynta Group Company.
This article was originally published on the BTIS website and is reprinted here with permission.
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