What is a Contingent Worker?

6 min read
WorkMarket Team
WorkMarket Team
July 27, 2021
What is a Contingent Worker?

Freelancer, independent worker, gig worker, and independent contractor. Extended worker, on-demand worker, contingent worker. No matter what name they go by, they all fill an important role in a robust talent strategy. So, what is a contingent worker?

Dictionary.com defines a contingent worker as one who is a temporary or contracted worker for a specified period of time or a defined project. These highly skilled workers fill critical needs in the workforce, providing services such as translation, tutoring, marketing, IT Services and more. They are covered under a statement of work provision that details the job to be done and how long it should take for the job to be completed. At the end of this statement of work, the contingent worker leaves the role and can be retained by another company, or even by the same business again. These workers are given a 1099-M form at the end of the calendar year for tax purposes and any income derived by the worker is subject to self-employment taxes.

What is a Contingent Workforce?

How is this different from a W-2 employee?

The biggest difference lies in the roles a contingent worker is assigned and how they are managed. An employee is hired to work for the business every day and for whatever their assigned responsibilities are as per their job description. Those parameters are determined by the employer. Employees also are afforded certain benefits, such as health insurance, and the employer covers the employee equivalent of self-employment taxes. Employees also have the benefit of job security - letting an employee go requires a significant effort at correcting the issues that may put the employee at risk of losing their job. Whereas, a contingent worker can be let go at the end of their contracted period with no ramifications and if the business was not satisfied with their job performance, then they simply did not renew the contract.

Why Contingent Workers instead of Employees?

This answer is highly dependent on your industry and business, but generally, contingent workers are easier to find and hire and they give you access to a very specialized skill set that your in-house talent may not have and with very short notice. There are no expensive onboarding or benefit requirements needed to bring the contingent worker in or severance fees or exit packages at the end of the term. Quite simply, a contingent worker gives your business a highly skilled worker on-demand, when you need it, and gives you the advantage of agility.

Effective Management of Contingent Workers Requires Insight

We know what a contingent worker is, how it is different from an employee and why a contingent worker is advantageous. And ADP Research Institute statistics have shown that in 40% of businesses, one in four workers is a gig or contingent worker. Those statistics are even higher for 20% of businesses with one in six. Yet despite the wide use of this type of worker, these workers are unaccounted for in the overall business budget planning and as a result, the full value of this strategy goes unrealized. In their eBook “Staying Ahead of the Competition: Future-Proof Your Business with a Freelance Management System,” Aberdeen studies have shown that the average use of a contingent worker across industries has risen by 12.2% - and it shows no signs of slowing down. And businesses who utilize technology to manage their contingent workforce consistently outperform those who don’t in terms of hiring the right worker and their ability to attract top talent. In fact, Aberdeen reports that businesses that have a system in place to enhance and streamline their engagements with contingent workers and improve their speed-to-market are realizing 4.6x the revenue growth than those who are not. This is why Aberdeen goes so far as to say that investing in a Freelance Management System is essential for future-proofing their organization.

You might be asking yourself right about now, “How does technology help?” Managing a freelance, or contingent workforce is different from managing a traditional W2 workforce. For instance, contingent workers’ tax liability and reporting fall under a 1099-M instead of a W-2. The worker is responsible for the employment taxes generally covered by an organization for a traditional employee. Also, the amount owed depends on several factors based on the arrangement you have with the worker for your project instead of a specific amount every two weeks or every month. The expenses typically fall under general expenses as opposed to HR expenses, so may not be easily visible to the department that has contracted the worker since it runs through accounts payable. If your business requires the workers to have specific certifications to perform the function they are hired for, ensuring that compliance at scale can be difficult, to say the least. But technology can simplify all of this, by giving you instant access to not only who is available to work, their work history with your business, if they are certified to your requirements and if they are already working with you, if they have been issued payment and how much. While a lot of this can be managed with a spreadsheet or other “free” tools, it doesn’t really save you time (or money, if you think about it) and can be more of a liability than an asset. Freelance management systems can automate much of this process for you, by having your freelancer fill in their own information onto an intake form that also gives you instant access to their credentials and payment information. Also, a freelance management system can be programmed to tell you proactively when a freelancer is approaching the cap on hours worked to help you maintain compliance depending on your (and the freelancer’s) work location.

To truly reap the full benefits of a contingent workforce, it is critical that you have the right technology behind the scenes to help you manage the entire process. Will you be a game-changer in your industry?

Keep learning:
Game Changers: In Pursuit of Growth
On-Demand Webinar - Game Changers Part 1: Transforming your Labor Model
7 Steps for Future-Proofing Your Business with a Freelance Management System
Freelance Management Systems 101: Everything You Need to Know