Key Takeaways
1. Contingent workforce generally refers to the portion of a company’s workers who are engaged on non-traditional terms with fewer contractual commitments.
2. Advantages of engaging a contingent workforce include lower long-term costs, increased business capability to respond to surges and lulls in demand, more immediate access to specialist expertise, and reduced need for staff training and development.
3. A contingent workforce needs intelligent management in order to ensure that all workers remain focused on company goals and engaged in their work regardless of employment status.
4. Compliance with local laws and tax regimes is essential when hiring a contingent workforce overseas. Misclassification of employees can result in fines and legal difficulties. Expert guidance is advised before hiring.
The COVID-19 pandemic accelerated an existing trend towards outsourcing and the use of more flexible and shorter-term workers by many businesses in the US and globally. Contingent workforce finance is often now one of the top categories of indirect enterprise spend by major companies.
With non-traditional employment modes growing as a proportion of the total workforce and increasing corporate spending in this area, the contingent workforce merits greater strategic consideration by senior executives. In tandem full integration with strategic workforce planning and HR policies is required in order to maximize benefits and mitigate risks.
What is a contingent workforce?
‘Contingent workforce’ is a broad umbrella term often used to describe a labor pool made up of people in various employment categories who may be engaged by companies for a fixed period, type of work, or set project only. Modern businesses increasingly have both a contingent workforce and permanent staff on indefinite contracts, and experience the advantages and disadvantages of both models.
The picture of the contingent workforce isn’t clear-cut. Depending on the business sector, country of operation and individual situation, contingent workers might fall into a range of overlapping categories. Other companies can also be part of the contingent workforce when providing an outsourced service. For example:
- Independent contractors and consultants
- In the US, a contingent worker is often an independent contractor or freelancer, also known as a ’1099 employee’. This group of workers are often hired where projects require a high level of expertise or experience not available in the permanent workforce. Examples might include graphic designers and video editors, social media and wider marketing experts, computer programmers, app developers, and web developers.
- ‘Zero hours’ staff
- Common in the UK but tightly regulated or illegal in several countries, zero-hours employees are neither guaranteed a set number of hours work, nor obligated to work hours offered. Under the terms of their contracts, zero-hours workers may be entitled to national minimum wage, paid holiday, work-related expenses etc.
- ‘On call’ staff
- Contingent staff who engage in work when called to do so may be zero-hours workers, casual employees, or permanent staff working overtime on their standard contracts. Many sectors operate a system of “bank” staff where one or more types of worker can be called in to cover surges, sickness or other emergencies, e.g. care workers, medical staff, cleaners.
- Temporary staff
- Temporary staff are usually employed on fixed-term contracts either via an employment agency or directly by a hiring company. Pay, sickness and holiday entitlement will depend on national law as well as any terms agreed in their individual contracts.
- Casual staff
- This term is often used to describe workers who provide services on a flexible or irregular basis, often in industries where there is a seasonal or otherwise fluctuating demand, e.g. textile pieceworkers and warehouse packers. Depending on individual contracts and local laws, these staff might be classified as employees, contractors, self-employed or in some other category.
- Third-party providers and agencies
- Management consultancies, accounting firms and recruitment organizations may all provide a proportion of the contingent workforce, giving other companies large and small access to a pool of high-level talent and expertise which they lack in-house
What are the benefits of a contingent workforce?
The principal benefit of a contingent workforce is all-round flexibility for employers, which then flows into a range of more specific benefits.
Business responsiveness
A contingent workforce allows companies to respond effectively to increases and decreases in demand in different sectors or markets. When work volume surges, you can call in your contingent workforce. When business slows, you have no need to formally lay off or compensate long-term staff. For international companies, access to a contingent workforce in priority countries allows speedy change of focus between markets as business needs dictate.
In contrast, permanent and fixed-term employees always need to be paid and deployed regardless of the economic and business environment. Terminating employment when there is insufficient business, or staff do not have the skills and experience now required, can be costly for the employer and traumatic for employees with long-term expectations.
Lower overall costs
While overall employment costs will always depend on local laws and the terms of individual contracts, using a contingent workforce is generally cheaper in the long term than maintaining a permanently-employed workforce of similar size and shape.
Contractors and consultants will often command higher hourly rates than comparable permanent employees, but engaging a contractor does not usually entail paying the same wider benefits (e.g. healthcare, pensions, redundancy). Nor does it tie a company into longer-term financial commitments.
Certain services may only be needed every few years (e.g. completely new websites, customer databases, or personnel management systems) and it makes more sense to hire a highly skilled individual for a matter of months to produce these outputs than to keep web designers and IT architecture gurus on the payroll indefinitely.
Access to specialist skills and otherwise unattainable talent
Businesses may be able to access more skilled and experienced staff for specialized work as part of a contingent workforce than they would be able to recruit as permanent employees.
No need for extra training and development
Permanent staff will often need significant training or development at the start of their employment, or when beginning a new project. When you hire a contingent workforce, you will usually be engaging people who already have the skills and experience required to start work immediately.
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What are the disadvantages of a contingent workforce?
When thinking about a contingent workforce, it is important to balance the advantages carefully alongside the disadvantages and risks.
Less oversight in hiring and screening
When contingent staff are engaged via an expert intermediary (e.g. recruitment agency), the hiring company will generally not have direct oversight of the screening process and will rely on the competence of the agency.
Even when directly hiring contingent workers, HR and managers may perform a lighter level of due diligence than for permanent employees. This raises the risk of exposing the business to workers who have not been as thoroughly security checked or screened as longer-term staff.
Blurred accountability
When dealing with a contingent workforce, responsibility and accountability for delivery and success can easily become blurred around what lies with the hiring company, or passes to third-party service providers, recruitment agencies or independent contractors/consultants themselves.
Companies may need to think about lines of accountability in more depth and mitigate risks as regards customer data, commercial confidentiality, and other areas, Failures could lead to significant damage to business and reputation and/or legal problems further down the road.
To mitigate this risk, it is worth considering the value of non-disclosure agreements for your independent contractors and other contingent workers.
Employee misclassification
As the contingent workforce grows, so does the risk of employee misclassification with all its attendant legal and tax risks. Risks are sharpened for businesses operating in multiple countries with different legal regimes. Expert advice should be taken early, particularly when moving into new markets.
Read more about this topic at What Is the Difference Between Employees and Independent Contractors?
Lower staff engagement
Contingent workers may be less likely to feel like part of a corporate team and therefore less personally committed to the achievement of company objectives than counterparts employed on long-term or permanent contracts. This presents a challenge for managers working to direct and motivate all staff.
Fragmented management
Managers can struggle with the effective deployment and monitoring of contingent workforce compared to permanent workers, especially where business plans, HR and operational strategies fail to include specific guidance on how to integrate contingent workers.
Reduced continuity and institutional memory
Turnover of contingent staff is likely to be higher than among the permanent workforce and the institutional memory of an organization will be reduced. If contingent workers are client-facing, then turnover may also have an effect on stakeholder engagement and business reputation.
How do I manage a contingent workforce?
Contingent workforce management can be divided into two branches, the inclusive and the exclusive approach. With inclusive management, contingent workers are aligned with existing HR and management systems. Under an exclusive approach, they are treated separately, sometimes operating entirely outside hiring company HR and management systems.
While the exact management of contractors and other contingent workforce will vary for every company, there are some common principles that may help to steer thinking:
- Clear leadership and management
- Contingent workers should know who is in charge of their project, who they report to within the hiring company, and how their own work connects with the company’s strategy and goals. Expectations on behavior and performance should be explicitly set out and agreed upon, including with any agency or third-party provider.
- Coherent objectives
- The objectives of contingent workers and permanent staff should be shared, complementary and/or mutually reinforcing. If contingent and non-contingent staff are working towards incompatible goals, this could hamper business performance.
- Visibility
- Contingent workers should be clearly visible within a company’s workforce strategy, HR policy, and staff management processes, even if only to state that they lie outside certain areas. Managers should have full knowledge and oversight of the nature and number of their contingent workforce, even where direct line-management responsibilities are delegated to agencies and third-party providers.
- Engagement and inclusion
- With an inclusive management approach, contingent workers should be integrated with relevant project teams and involved in corporate and team-building activities as appropriate. Under an exclusive approach, hiring managers need to have confidence that agencies or third-party providers are providing sufficient support and oversight to motivate and guide your contingent staff.
A final word…
There are many reasons why a business might need to call on a contingent workforce. Whether you’re looking for reliable specialists on tap for complex projects, or a boost in casual workers to manage a temporary business surge, Horizons can help you to hire the contingent staff you require in full compliance with laws and tax regimes in your countries of operation.
Frequently asked questions
Contingent means existing only in certain circumstances. In employment terms, those circumstances are dictated by business needs, which could include a temporary requirement for more staff or more specialized staff than are available in the permanent workforce.
It depends. Contingent workers are often hired specifically because they’re not employees and can be accessed on demand without entering into any long term commitments. When the term is used in this way, it means the same thing as an ‘independent contractor’.
When handling short term surges in demand, or defined projects which require specialist input for a limited time, contingent workers may be a better staffing choice than permanent or indefinite employees.
