What is a contingent worker?
A contingent worker is someone who works for an organisation on a temporary basis, not as a permanent employee.
Over the past decade, businesses have increased their use of contingent workers as they struggle with rising labour costs, skills gaps, and a need for a flexible workforce that can adapt to changing conditions on the fly. According to a recent Economist Impact report, 50% of organisations are sourcing talent by increasing the use of an external workforce. This number is only expected to grow as more organisations make contingent workers a crucial part of their workforce strategies – and as more professionals embrace gig work to gain more flexibility, or to earn additional income.
Contingent worker meaning
Contingent workers work for an organisation on a project-by-project or short-term basis. These non-permanent, non-salaried workers include independent contractors, freelancers, temps, and service labour – working either on-site or remotely. Contingent workers can be found in every industry around the globe, lending their diverse skill sets to organisations in a wide range of roles, from nurses and translators to app developers and influencers. Companies can hire contingent workers directly or via a staffing agency.
Contingent workers make up one part of an organisation’s external workforce. The other part consists of service providers, sourced from businesses that provide people-based services, such as marketing agencies, consultancies, law firms, and outsourced IT. These providers fall under services procurement and complete projects via a statement of work (SOW).
Contingent workers vs. employees
Contingent workers are not employees, although they make up a key part of the workforce. The main difference is that employees work directly for an organisation and are on its payroll, and contingent workers work via short-term contracts, but there are several other key distinctions:
Contingent workers:
Flexible schedule and working hours driven by deliverables
Paid per contract or project
Not eligible for employee benefits
Workers responsible for calculating and paying their own income tax and liability insurance
Hourly or day rate tends to be higher in lieu of benefits and regular hours
Controls when and where they work
Employees:
Predictable schedule and working hours
Paid a set wage or salary
Usually receives benefits like group health insurance, paid time off, or retirement savings
Employers hold back taxes on behalf of employees
Hourly or day rate is often lower, though guaranteed throughout the year
Works at employer-set intervals and locations
Contingent worker examples
For every role you can imagine, some contingent workers can step in to lend their expertise when needed. Here are just a few examples:
Creatives including writers, videographers, and graphic designers who use their creative skills and experiences to help bring a company’s ideas and promotional materials to life.
Healthcare workers who – as we saw during the pandemic – may be called upon to provide services during unusual events or particularly busy periods during the year.
Field service experts and service technicians who can help deliver efficient support to a company’s customers or help out on sites in the field.
IT specialists who can help a company leverage, update, or fix its operating technologies, whether in the office or remotely. They can also provide support to other employees and consultants.
Translation services to bring a company’s offerings and resources to new markets that speak different languages.
Software developers who can help design, build, and extend innovative applications for employees and customers.
What are the advantages and challenges of hiring contingent workers?
Business leaders surveyed cited risk reduction (30.8%), cost-saving initiatives (30%), and flexible workforce planning (29.6%) as their top reasons for leveraging flexible labour. With good reason. Contingent workers can provide much needed agility for companies that experience seasonal fluctuations or need to ramp up or down quickly to weather economic downturns. This flexibility results in other distinct advantages.
For example, by bringing on contingent workers only when needed, an organisation can save money while still jumping on new opportunities and reaching new markets. Not only can these temporary workers bring in missing skill sets, but they can offer fresh perspectives that can help evolve the business in surprising ways. This strategy is crucial for keeping workforces rightsized for any changing need.
The main disadvantage is that employers might sacrifice a degree of control. Contingent workers often enjoy more flexibility in working hours and style, which can result in lower productivity if the worker is not conscientious. Also, hiring these types of workers needs to be done in tangent with evolving tax and labour regulations. Violations can result in having to change a worker’s status or paying fines, penalties, and back taxes. Thankfully, contingent workforce management technology can help mitigate these risks.
What is contingent workforce management?
Contingent workforce management is the process of hiring and managing non-permanent workers at scale. Contingent workforce management solutions support this process, providing tools for everything from initial requisitions and negotiations to onboarding/offboarding, engagement, invoicing, payment, and managing risk and compliance.
Often, contingent workforce management tools are part of a broader vendor management system (VMS), the most advanced of which also offers tools for services procurement – so the entire external workforce can be managed with one system.
Trends in contingent labour
As organisations continue to recognise the strategic role contingent work plays in their total workforce management strategy, several forces are shaping when and how to employ, engage, and manage this growing external segment.
1) Growth in flexible labour spurred by economic uncertainty. Supply chain issues, inflation, and geopolitics continue to disrupt the global economy, leading to an upswing in adopting temporary workers. In a 2022 survey, business leaders cited flexible workforce planning (35.3%) as a key driver for hiring contingent workers, indicating the important role this talent can play in meeting volatile work demands on tight budgets.
2) The need for greater total workforce visibility. In a recent HBR survey, 48% of respondents cited visibility across the total workforce – including contingent workers, service providers, and employees – as a top priority. Tight integration between VMS and human capital management (HCM) systems is needed to provide the complete picture – helping organisations better understand their talent needs, optimise resource use, close skills gaps, ensure compliance, and more.
3) Partnerships with service vendors and MSPs. A 2023 Economic Impact report recognised the central role that managed service providers (MSPs), staffing agencies, and similar suppliers will play in providing access to some of the flexible labour that companies need to meet delivery and growth targets. This means that HR and procurement teams will need to form close partnerships with MSPs and staffing agencies to round out their contingent labour strategies.
4) Digital transformation of procurement. The same 2023 Economist Impact report also reveals that a third of procurement leaders believe external workforce management is a key driver for digital transformation within procurement. New technology and modern systems are needed to manage contingent labour and the risks that go along with it – such as confidential data exposure, limited work visibility, and the complexity and time taken for onboarding and offboarding.
5) Evolution of contingent workforce management. To address the new realities of flexible labour, workforce software will continue to support AI-powered reporting and automation for tracking all kinds of workers – including agency and contingent contractors – as well as their hours, pay rates, skillsets, and more. More companies will leverage online services, mobile apps, and freelance marketplaces to source and tap non-payroll talent. Additionally, contingent workers are starting to demand diversity, equity, and inclusion (DEI) programmes and pay transparency – and companies who want to compete for top talent must deliver on this.
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