Covid has had major repercussions on businesses in the US and has impacted the way companies hire workers. During this time, the growth in the contingent workforce has been astonishing. In 2021, 32% of companies in the US replaced salaried employees with contingent workers. Labor shortages and low employee retention rates mean that this staggering trend is expected to continue.
Engaging contingent workers helps organizations best utilize their talent to meet business objectives. A contingent workforce can fill immediate needs by providing on-demand skilled labor, and the flexibility to scale up and down quickly for short-term projects.
What is a Contingent Workforce?
A contingent workforce is made up of temporary workers, hired by an organization if and when a particular skill set is required. A contingent hire can be on a contract basis, seasonal, or subject to completing a particular project.
Contingent workers are not considered employees since they do not work full-time. They do not have an ongoing employment contract with an organization, and they are not on the company’s full-time payroll.
Contingent workers generally do not receive company benefits and are less likely than employees to be protected by local labor laws. These workers can be hired directly or through a staffing agency, and they can work either on-site or remotely, depending on the needs of the organization.
Types of Contingent Workers
A recent article by Forbes states that job openings outnumber job seekers in the US by nearly two to one.
With employee-led activism on the rise, creating inclusive workplaces where everyone can be seen and heard will be key to winning the war for talent. Furthermore, the tight labor market and post-Covid economy will rely heavily on contingent work. According to Brightfield, US companies have grown their contingent workforce by more than 50% since pre-pandemic days. Suffice it to say, now is a good time to brush up on your options regarding hiring contingent workers.
Here are the basic types of contingent workers companies can hire:
Consultants
Consultants are service providers who are experts in their chosen field. They can be part of a consulting firm, staffing agency, or working as independent professionals.
Consultants don’t need an employment contract to work for an organization, but there would be a service agreement with clear goals and KPIs of their service. Typically, consultants are brought on to streamline a process, manage a significant change in the company, or review the effectiveness of standing resources. These consultants usually work in specialized areas like technology, finance, marketing, and business planning.
Temporary Workers
Temporary workers, often referred to as temps, are filler employees hired by a company to work for a limited period of time. They are staffed by third-party agencies and are on the agency’s payroll system. Temporary workers typically work on-site at the company’s location.
Hiring temporary workers benefits companies that require extra staffing for a short-term project, for seasonal work, or to fill a position while a permanent employee is taking time off.
Freelancers
Freelancers are self-employed individuals who are part of the gig economy and earn money on a project basis, or per hour.
They do short-term, project-based work and are not employees of a company. Freelancers can work on projects for multiple organizations at the same time. They can work remotely and typically choose their own working hours.
Short-term Contract Workers
Short-term employment contracts often function as if the person were a full-time employee. The contracted person would be on the company’s payroll for the duration of the contract and, depending on the contract, may enjoy some of their employee perks. However, this employment would only last for the duration of the contract. Usually three, six, or twelve months.
Companies employ workers on short-term contracts if they need skilled workers for a particular project timeline. This does not offer much job security for the employee but does maintain a clear expectation of how long their services will be retained.
Why Do Companies Hire Contingent Workers: The Benefits
Cost Savings to the Company
Most true of freelancers and temporary workers
Contingent workers don’t have the overhead costs that employees do, incur no cost while not actively working for the company, and don’t receive the company benefits or pension contributions that employees would. They also typically do not get the onboarding or skills training a permanent hire would. As a result, these workers allow companies immediate, affordable access to a talent pool in specialized areas when skill gaps need to be filled.
According to recent research, 84% of companies have experienced cost savings by hiring contingent workers.
Flexibility in Numbers and Skills-access
Most true of consultants, temporary workers, and freelancers
The contingent workforce is a resource that helps procurement since companies can access expert talent as needed. Contingent workers help companies manage new projects and quickly adapt to changing market demands. Unlike permanent employees, a contingent workforce can be quickly increased or cut back according to changing work requirements.
These highly skilled workers are often available at short notice. They can usually maintain a flexible working schedule which improves their productivity and efficiency.
Testing Hire Viability
Most true of short-term contract workers
Hiring contingent workers gives organizations a chance to effectively fill talent gaps. By bringing in a temporary worker, the company can get a sense of whether they need a permanent hire in that role. Companies also have a chance to evaluate a contingent worker’s skill set on a short-term project, and consider bringing that person onboard full-time.
Efficiency
Most true of freelancers and temporary workers
The process for hiring and onboarding contingent workers is typically much shorter and easier than hiring permanent employees. This procedure doesn’t involve intensive recruiting, interviewing, or training. In the case of a temp-hire, staffing agencies can recommend the right contingent worker for a specific job.
There is little red tape involved with contingent work, especially when it comes to freelancers. Companies can find the right contingent workers, negotiate a rate for a project, and have them get started working right away.
Organizations can also use a contingent workforce to scale their projects quickly and efficiently without staff changes affecting work quality. Contingent workers provide a company with an experienced talent pool of available candidates who have the required skills to effectively complete projects.
Fresh Perspectives
Most true of consultants and short-term contract workers
A company’s key decision makers who have been with the organization for years will be used to the same day-to-day business operations. This makes it challenging for them to streamline business processes. For example, to optimize a production line or adjust to evolving markets.
Contingent workers with relevant expertise have unique ideas and insights that help augment an organization’s productivity. Contingent workers that have valuable knowledge but no previous dispositions to a company’s processes are more likely to think “outside the box”, which is useful to identify problems and come up with unique solutions.
The Drawbacks of Contingent Workers
Limited Control
Most true of freelancers and temporary workers
Contingent workers are not employees, which means that employers will have less control over their work.
Contingent workers might have autonomy over how they work on projects including how much time they spend on a task and what methods they use to complete them. This makes it difficult to manage contingent workers or give them training as needed to improve productivity.
Security Risks
Most true of temporary workers and short-term contract workers
Contingent workers might have access to private data, software, and company facilities. A lack of the ability to oversee them while they work on-site poses potential access management risks. These risks can include intellectual property theft, sharing confidential information, and network security breaches.
To mitigate these risks, employers can limit the person’s access to sensitive information, run a background check before onboarding them, or hire through a staffing agency that can vet the worker.
Lack of Organizational Commitment
Most true of temporary workers and short-term contract workers
Contingent workers are not bound to the company in the same way that permanent employees are, which can lead to commitment issues with employers.
Contingent workers could engage in “contract hopping” where they jump from job to job before their commitment ends. This leaves companies with a sudden need to fill. A thorough screening process to analyze contract history and client feedback can help employers avoid these issues.
To avoid the unprecedented loss of these workers, companies can keep their contingent workers motivated. The best means to do so are giving them positive feedback, and taking measures to make them feel integrated as part of the organization.
Lack of Cohesion
Most true of temporary workers
Contingent workers hired for short-term work can be resented by employees who have been with an organization for years, and have trouble collaborating with a temporary colleague. This can lead to increased turnover and lower productivity.
Staffing agencies don’t always have the means to understand an organization’s cultural needs and might place a contingent worker in a situation that is a bad fit. To mitigate cohesion issues, employers can communicate effective ways to interact with contingent workers to foster acceptance and teamwork.
Contingent Workers vs. Independent Contractors: Similarities and Differences
Both contingent workers and independent contractors are hired for their specific skill sets to do project-based work. They can be hired for a limited period of time and the employer determines the length of their relationship. However, the relationships an employer would have with a contingent worker and an independent contractor are very different.
Contractors are self-employed people or sole-proprietors who hire their skills and resources out at a set or negotiable rate. They are not represented by an agency and deal with the companies they work for on a B2B level, as opposed to having an employer-employee dynamic.
Important Differences
Contingent workers do temporary project work for a company that may be tied to ad hoc tasks or a specific timeline. Contractors are hired to complete projects.
Contingent workers sell their time and ability to do work required by a company. A contractor serves a similar function, but they won’t necessarily be the ones doing the work. Contractors are more likely to act as project managers and source the labor and resources they need to provide a service.
Contingent workers are, generally speaking, paid per hour or per unit of work done, depending on the agreement they have with the company. Contractors usually receive a lump sum payment after completing a project. Often there would also be a deposit payable before they start. This is to finance materials or resources they need for the project.
Contingent workers who have duties on-site might have office space and equipment given to them by the employer. Contractors will generally use their own office equipment or hire the resources they need to complete the project.
Tools to Manage a Contingent Workforce.
To optimize the management, scheduling, and compensation of contingent workers, companies can take advantage of tools like workforce management software. These platforms enable visibility into key metrics that are important for short-term project completion. For example, it can provide detailed information about labor usage and task management to help optimize the work requirements over a project lifecycle. This in turn can tell HR how a contingent hire is faring at their responsibilities, and when to get more hands on board.
Another great tool is workforce planning software which helps companies forecast, analyze, and organize workforce supply and demand. This helps human resources organize their contingent workforce by ensuring the right people are available when needed to work on the right project.
Latest Trends on Contingent Workers
2022 is the year of the contingent workforce.
A record number of Americans left their job in 2021 and 23% of the workforce are looking for new jobs in 2022. Factors contributing to these mass resignations include the need for a better work-life balance, and the desire for more enticing opportunities.
The contingent workforce landscape is expected to keep expanding. By 2050 it is estimated that 50% to 75% of the US workforce will consist of contingent workers.
Companies who don’t keep up with contingent labor market trends are at a competitive disadvantage.
These organizations are more likely to overpay for marginal work and not onboard contingent workers with the skill set required to succeed. In 2021, US businesses struggled to effectively fill openings for both employee positions and contingent positions. Over the course of the year, the average time for a company to find and start a contingent worker on an IT assignment increased from 31 to 61 days.
With historically high inflation rates in the US, everything costs more.
This means higher bill rates (the average hourly fee charged) for contingent work for the rest of 2022. A survey determined that 53% of staffing agencies reported an increase in bill rates over the past 3 months, and 42% expect an increase in bill rates over the next 6 months.
Businesses who are achieving success in 2022 embed diversity, equity, and inclusion into their contingent workforce.
The pay gap between men and women is wide in the US and there is a lack of racial diversity amongst contingent workers. According to a recent study, companies that are in the top quartile for ethnic team diversity are 36% more likely to experience above-average financial returns.
The contingent workforce is increasing in size and complexity in the US
Unfortunately, companies are struggling to best manage and utilize these workers’ talents.
In 2020, 35% of the US workforce was made up of contingent workers. In 2022, the percentage of contingent workers in the US has risen to 40%. This has created a real dilemma for contingent workforce management. Outdated technology and service models impede companies from properly tracking and managing this many contingent workers.
The rapid increase in contingent workers is a sign of things to come.
According to Forbes, almost 40% of current employees already have a side gig, and this is on the uptake.
Side hustles provide workers with supplementary income, augment a day job, give them better work-life balance, and open up more career opportunities. Platforms like Upwork, DesignHill, and LinkedIn that help companies find contingent workers (and vice versa) are growing in number. The same goes for resources available to build a freelance career. These resources include podcasts, online courses, publications, and freelance communities.
Our Final Thoughts on the Pros, Cons, and Trends of a Contingent Workforce
Successful companies are diversifying their workforce in response to a rapidly changing US labor market.
In the past few years, there has been a shift in the requirements and expectations for both companies and workers to be successful. Organizations are incorporating strategic workforce planning, making staffing a core component of their overall goals. Because of the benefits highlighted in this article, and many more, these companies are building teams that include a substantial contingent workforce in addition to (and to compliment) the talent pool represented by their full-time employees.
Will we see a future where contingent workers completely replace full-time employees? Probably not, but there is no denying the increasing value these skilled people are adding to the job market.