Glossary of Human Resources Management and Employee Benefit Terms
A contingent worker is someone who works for an organization without being hired as their employee. Contingent workers may provide their services under a contract, temporarily, or on an as-needed basis. They are often hired to complete a specific project, rather than accepting an ongoing, open-ended workload as a permanent employee does. Examples of contingent workers include:
Temporary workers employed by a staffing agency or other third party and assigned to work for your organization
Many successful contingent workers are able to make more money or work fewer hours than they would as salaried employees—sometimes both. Also, contingent workers often value their independence. They are free to choose the most appealing assignments, and once you tell them what to do, the law says they are free to decide how to do it—no micromanaging allowed.
There are several potential strategic and financial advantages to hiring contingent workers. Among them:
Maximize flexibility. Organizations can adjust the size of their workforce as needs change instead of committing to adding permanent employees. When a contingent worker has completed their work, you’re free to decide whether to work with them again.
Access specialized skills. Workers can be brought in for one-time projects that require skills your regular workforce lacks, such as creating your company website.
Save on compensation. Companies only have to pay contingent workers the agreed-on amount for their work. They don’t have to pay overtime or provide them with employee benefits like healthcare coverage or paid time off.
Save on training costs. Generally, contingent workers are hired for advanced knowledge and skills they already possess, reducing or eliminating time to productivity.
Avoid tax responsibilities. Independent contractors, freelancers, and consultants are responsible for their own taxes. You don’t have to withhold and deposit payroll taxes, and you don’t have to pay matching employer contributions for Social Security and Medicare taxes. At the end of the year, you simply issue IRS Form 1099-MISC to contingent workers who earned more than $600.
No. The business incentives listed above can make it tempting for employers to incorrectly classify employees as contingent workers. In the United States, strict labor laws help protect workers from this practice.
It can be tricky even for well-meaning organizations to know whether an individual can be legally classified as a contingent worker. The U.S. Supreme Court has held that under the Fair Labor Standards Act, no single factor can determine this. The judges say that the complete situation must be considered, including these factors:
The extent to which the services rendered are an integral part of the principal's business.
The permanency of the relationship.
The amount of the alleged contractor's investment in facilities and equipment.
The nature and degree of control by the principal.
The alleged contractor's opportunities for profit and loss.
The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
The degree of independent business organization and operation.
With so many complexities around this topic, it’s wise to get competent legal advice if you’re considering using contingent workers.