What is a contingent worker?
Contingent worker meaning
Contingent workers are individuals hired by a company to do role- or project-based work on its behalf, but not as traditional employees.
They could include independent contractors, consultants, freelancers, temps, or other outsourced labor such as gig workers.
These workers could be contracted via suppliers or other talent pools such as staffing agencies, freelance marketplaces, or sourced directly by a company through their HR or Procurement departments.
Contingent workers are also referred to as:
- Gig workers
- Flexible labor
- Non-payroll workers
- Outsourced workforces
- Staff augmentation
- Individual resources
- Temporary staffing
- Independent contractors
- Contracted consultants
- Agency workers
Example roles of contingent workers include:
- Retail clerk
- Marketing services
- Truck driver
- IT specialist
- Construction worker
- Web designer
- Project manager
- Legal services
Contingent workers bring great benefits to companies
Contingent workers can provide much-needed agility for companies that experience seasonality, uneven fluctuations in their labor force, or economic downturns. The critical flexibility of an external workforce allows a company to ramp up or down quickly, depending on business conditions.
Research conducted in collaboration with Oxford Economics shows that external workers can help organizations realize a broad range of business goals, including managing costs (73%), boosting organizational agility (64%) and reducing risk (64%) – all critical capabilities for business resiliency, especially in uncertain economic times.
External workforce report
How visibility of your external workforce can help you drive better outcomes.
And the need for contingent workers will likely grow. The McKinsey Global Business Executives Survey reveals that approximately 70% of executives anticipate they will hire more on-site temporary workers and freelancers in the next two years, compared with pre-COVID levels.
If a natural disaster occurs, the number of insurance claims soars overnight. Our contingent workforce helps us adjust our staffing levels quickly and flexibly, so that we provide excellent support for customers in their hour of need.
Ron Tate, Director of Sourcing Management at Allstate
What is contingent workforce management?
Effectively managing flexible labor can be challenging for many companies. The complex interactions required between internal stakeholders, managed service providers (MSPs), and contingent workers typically occur across multiple tools and applications. Often there are multiple, disconnected processes and technologies for managing external workers within the same company, resulting in confusing and disconnected management, frustration, and critical time lost.
Despite their importance to many companies, contingent workers are frequently under-managed. This limits insight into their work quality, individual performance, progress on projects, and other key metrics that can impact a company’s success. It also opens the door to security breaches and compliance issues.
Part of the problem is that companies don’t have the right technology: Only 35% of executives say they have technology for contingent workforce management.
External workers are among the unsung heroes providing healthcare services in our hospitals and intensive care units. They step into crucial, high-demand roles to maintain supply chains, making sure that medicine, dairy products, fresh produce and other items reach supermarket shelves and pharmacy aisles. They are engineers, information technology professionals, skilled machinists and fabricators who sustain factory operations and perform critical infrastructure roles across industry sectors.
Vish Baliga, Chief Technology Officer, SAP Fieldglass
The role of technology
Many organizations implement vendor management software (VMS) to help them manage their contingent workers. Vendor management software is an integrated application with a company’s enterprise technology stack that allow for the full lifecycle management of contingent workers and services providers – from requisition through offboarding.
In some cases, however, organizations do not take full advantage of their VMS functionality, or do not roll the solution out across the entire enterprise. This makes it difficult for global organizations to achieve complete visibility across all their external labor force, resulting in numerous inefficiencies at an operational level, worldwide.
Only about one-third of executives say their technology helps them effectively source talent from preferred suppliers, enforce negotiated rates, and track quality of work. Even fewer have contingent workforce management solutions to help them manage security access, run bid events, and track equipment usage.
All of this and much more is possible with a best-in-class, cloud-based vendor management system that drives benefits like improved on-boarding, better compliance, automated processes, workforce transparency and more.
Explore contingent workforce solutions
Source gig workers, manage and track their work, enforce rates, and more.
Contingent workforce FAQs
“External workers” or “external workforce” is an umbrella term for all external workers, including non- contingent labor (or non-payroll workers) and services providers. Contingent workers are a part of the external workforce, but not the entire category. Learn more in our article on What is the external workforce?
Services providers, or services procurement providers, are companies that deliver people-based services to an enterprise – consulting firms, marketing agencies, law firms, or facilities management companies, to name a few. They are typically contracted to do project-based work via a statement of work (SOW), or via an annual retainer agreement that may also be tied to an SOW or other legal agreement. Learn more in our article on What is services procurement?
SAP Insights Newsletter
Gain key insights by subscribing to our newsletter.