It has become increasingly common for companies to hire contingent workers to fill staffing needs and help with short-term or high-skill projects. But what exactly are contingent workers, and how can employers navigate the sometimes-confusing rules and regulations associated with them? We’ll explain everything you need to know about contingent workers in this post.
What is a contingent worker?
A contingent worker is essentially a temporary worker—one who will only work with your organization for a set amount of time. This time period can be as short as a few days, as is often the case with temporary or seasonal workers, or as long as several months. A contingent worker will likely stay with your company only as long as it will take to complete work on a certain project, such as a marketing campaign or tax preparation season. Often the relationship between a contingent worker and the company they work for is defined in a legal contract that outlines the scope and duration of their work with you.
The primary difference between contingent workers and employees is the nature of the working relationship. Contingent workers, whether contractors or temporary workers, don’t share the same employer/employee relationship that full-time, traditional employees do. The employer/employee relationship comes with certain requirements and parameters. For employees, they must follow their employer’s rules in the workplace. They’re subject to their employer’s expectations about their availability and conduct. In return, they receive a salary or wage and (often) benefits like healthcare or retirement funds. For employers, the employer/employee relationship provides them with reliable, consistent labor to maintain optimal business functions. In exchange for the profits this relationship makes possible, they’re expected (and in some cases required by law) to provide for their employees through wages, paid time off (PTO), payroll tax contributions, healthcare, and other benefits.
The contingent worker/client relationship is free of most, but not all, of these standard expectations.
What are some types of contingent workers?
The term contingent workers is an umbrella term that covers many different types of workers. Here are a few types that may ring a bell.
Contractors work for their clients for a set amount of time—for example, 15 hours per month—or for the duration of a project. The key difference between an independent contractor and an employee is that for contractors, a client has no legal right to dictate how, when, or where the work will be completed. An employer can require that their employees work at an office in-person two days per week. But a company cannot require that a contractor complete their work at a certain time of day, for example. Many contractors are location-independent for this reason. This is the main difference between contractors and employees. But there are other differences as well, which we will get into later.
Notably, all contractors are contingent workers, but only some contingent workers are contractors.
Temporary, leased, and on-call workers
Temp workers work for their employers for a short amount of time. They might be hired to cover shifts during the holiday season or to help administrative staff get through a backlog of paperwork for a few weeks. The temporary worker arrangement looks more like traditional employment than contractors do. They might be required to do their work in-person, work a full eight hour shift, or wear a uniform. But temp workers usually aren’t employees of the companies they temp for. Rather, they work for the employment agency that arranges their short-term assignments.
Two less common types of contingent workers are leased workers and on-call workers. Leased workers are similar to temp workers in that they are short-term employees whose labor is leased from their primary employer to different clients for short-term contracts. An example of a leased worker is a traveling dental hygienist whose services are temporarily leased to different dentist offices across the country.
On-call workers are workers who contract with clients to be on-call for certain types of work. For instance, a nurse might be on-call a few days per week with a school or summer camp. The worker’s availability and time commitment to a certain client are negotiated in advance. Usually on-call workers only work part-time for each individual client.
Why is a person’s employment type important?
It’s critical that your company correctly designates workers as employees or contractors. Incorrect classification can lead to legal and financial liability, because employees are owed certain privileges that contractors don’t qualify for.
Employees have rights to fair wages (including minimum wage and overtime) and unpaid family leave (such as maternity leave). Depending on the employer’s size and the number of hours a person works, employees may also be entitled to employer-provided health insurance. Employees also benefit from their employer withholding taxes and contributing to payroll taxes.
In comparison, independent contractors waive their rights to these benefits in exchange for the freedom to set their own hours, work style, and pay. They are responsible for withholding their own taxes and paying them quarterly, and usually they have to find healthcare independently.
Do contingent workers receive benefits?
Generally, contingent workers do not receive benefits. They are outside of the permanent, full-time employer/employee relationship and therefore are not entitled to the same benefits.
One exception is in the case of temporary or leased workers, who sometimes receive benefits from the staffing agency that they work for (but not from their temporary employers).
Are contingent workers subject to different tax requirements?
Contingent workers do have different tax responsibilities than employees. Some types of contingent workers may have their taxes withheld, either by a staffing agency or by their temporary employer. But many contingent workers are self-employed, so they are generally required to pay self-employment taxes and it’s up to them to calculate, set aside, and pay their own local, state, and federal income taxes as required (generally quarterly).
Why hire a contingent worker?
From an employer’s perspective, working with contractors can be more cost-effective because they aren’t as expensive as full-time employees in terms of benefits and payroll taxes. Working with a contractor may seem more expensive at first, because as business owners, they have to cover all the overhead of running a business when pricing their services. But because of the short-term nature of the arrangement and savings on benefits administration, contingent workers can end up being more affordable than traditional, full-time employees.
Many contingent workers, including contractors who own and operate their own small businesses, are highly skilled. They may work independently because of their entrepreneurial spirit and passion for what they do.
Onboarding new employees is time-consuming and expensive. Even the most bare-bones approach to employee onboarding is a significant undertaking. Contingent workers are used to quickly adapting to their clients’ needs without much hand-holding. Typically, they also don’t require nearly as much paperwork to establish a working relationship.