What Is A Contingent Worker?

Finding the right work situation for you or your organization can be a difficult task. It can be hard to know the extent of work options available to you and even harder to discern the difference between them and choose one that works best.

One area of confusion can lie in the difference between employment and other types of work arrangements. Employment, contract work, and contingent work all have distinct definitions and offer unique avenues for work.

This article will go over what it means to be (or to hire) a contingent worker, the pros and cons of these situations, and what contingent work looks like.

Key Takeaways:

• Contingent workers are hired by companies to do specific work but are not considered official employees.

• Contingent workers are responsible for paying their own taxes on their income, as opposed to employees who have their company handle the payroll taxes.

• Many contingent workers act as independent contractors or freelancers.

• Being a contingent worker provides independence and flexibility, however it also results in a lack of stability and benefits.

What Is a Contingent Worker?

A contingent worker is someone who, while not technically an employee, is hired by a company to do specific work, often for a temporary period. The exact definition of a contingent worker and the exact legal distinction involves examining several complex factors about the nature of the work performed.

A quick and easy way of understanding contingent workers is that they are not employees of a company but rather independent workers providing a specific service for that company.

They may go by titles such as “freelancer” or “contract worker,” and as a general rule of thumb, these workers provide deliverable results to an organization without specific direction on how they should go about this task or achieve these results.

Types of Contingent Workers

Here are a few specific job titles, which may also be called contingent workers:

• Independent contractors. These workers are self-employed people with specific skills that they independently provide as services. Freelance workers and gig workers would fall into this category. These individuals provide work based on specific deadlines and deliverable guidelines but are otherwise unmanaged.

• Temporary contingent workers. These workers, also called “temps,” are employed through staffing firms and hired by organizations for temporary work. This work can last anywhere from a day to several months. These workers are great choices for extra help during busy seasons.

• Consultants. These individuals use their specialized expertise and experience to advise organizations. They typically help strategically plan in complex areas of operation such as finance, business management, or marketing.

  Unlike other types of contingent workers, consultants give organizational guidance and help make organizational decisions.

Pros of Contingent Working

Many individuals and organizations find that contingent working is an arrangement that works best for their needs. There are plenty of reasons why organizations might seek out contingent workers, including the following:

• Hands-off management. Because they are not company employees with set schedules, pays, or other requirements, contingent workers do not need a great deal of management energy.

• Fewer tax obligations. Employers are responsible for handling federal, state, and local income taxes and medicare and social security taxes for traditional employees of their organization. For contingent workers, there are no such regulations as they pay self-employment taxes.

• No requirement to offer benefits. One of the biggest pluses of contingent workers for organizations looking to cut costs is the lack of a requirement for providing benefits to these individuals.

  These benefits include health and dental insurance, paid time off, retirement plans, overtime pay, and more. Organizations also save money on the administrative costs associated with payroll and benefits.

• Flexible schedules. As they are not salaried employees, contingent workers do not need steady streams of daily work. Rather, these workers can be called upon when specific tasks need completing or when extra help is needed within the organization. This allows for higher efficiency in tackling organizational problems.

• Access to specialized expertise. Contingent workers open up the possibility of finding individuals with highly specialized skills. These individuals may be very helpful for tasks or projects that require expertise but are not part of the typical day-to-day operations.

There are also many reasons why this arrangement would be favorable to the individual or contingent workers themselves. Below are some of the reasons why someone might be interested or engaged in contingent work:

• Greater independence. Straightforward employment comes with many criticisms, time obligations, and a great deal of control over your workflow. For many, this arrangement is not optimal for their life situations or their career goals.

  Contingent working allows for the pay and experience of working in your chosen field without the feeling of being tied down to a specific job.

• Work flexibility. If there are times in your life when you are more available for work and times when you are less available, contingent work might be a good strategy for you. Many types of contingent work do not require the traditional eight hours a day, five days a week, twelve months a year model that most full-time employment comes with.

• Broader opportunities for work. Depending on the field or career path one has chosen, contingent work may be the best choice for finding the range of work opportunities you desire. For instance, consultants engage in contingent work to offer their expertise to many different organizations or people.

Cons of Contingent Working

There are also some downsides to contingent working arrangements. Below are some potential disadvantages organizations might run into:

• Inability to control workflow. Those hiring contingent workers should know that they cannot be treated like regular employees, as that isn’t what they are. You cannot manage how contingent workers get their work done; you only have control over whether the finished deliverable was completed as required.

• Cannot set a schedule. Organizations are also not able to set schedules for contingent workers. This means you will not require that a contingent worker is available for any set time or work a certain number of hours per week.

• Misclassification risk. This major drawback comes about if organizations are not careful about their planning, research, and conduct surrounding the contingent work relationship. If a contingent worker is treated as an employee, the organization must re-classify this employee and pay back taxes, incurring other fines and costs.

There are also a few disadvantages for the worker, such as:

• Lack of job security. Temporary work arrangements are exactly that, impermanent. Compared to traditional employees, contingent workers have less stable job security as continuing workflows cannot be guaranteed.

• Lack of direction. What feels like freedom for some might feel like chaos and confusion for others. Contingent workers may need more structure and more intentional management to complete their work to the best of their abilities.

• Ineligibility for benefits. As stated before, contingent workers are not eligible for the same benefits that regular employees are. If you are worried about access to healthcare, a retirement plan, or other fundamental benefits, you may want to consider contingent working.

Employment Relationship Under the Fair Labor Standards Act (FLSA)

The importance of the difference between contingent workers and employees lies in the different standards, rules, and regulations that organizations must abide by depending on the labor role.

The United States Department of Labor lays out several factors for determining the nature of a working relationship and whether or not it is an employment or contractual relationship.

The DOL clarifies that there are no specific criteria for determining whether or not someone is a contingent worker or an employee. As a workers’ rights issue, the United States Supreme Court has made several rulings that give a helpful guideline for determining the nature of the working relationship.

According to the United States DOL website, those significant determining factors are as follows:

1. “The permanency of the relationship.

2. The extent to which the services rendered are an integral part of the principal’s business.

3. The amount of the alleged contractor’s investment in facilities and equipment.

4. The nature and degree of control by the principal.

5. The alleged contractor’s opportunities for profit and loss.

6. The amount of initiative, judgment, or foresight in open market competition with others is required for the success of the claimed independent contractor.

7. The degree of independent business organization and operation.”

The DOL also gives examples of factors that some may consider pertinent but not used to determine the nature of a working relationship and whether someone is a contingent worker. These factors include:

1. The lack of a legal/formal employment agreement.

2. The time and manner in which the worker is paid.

3. The location where the work is performed.

4. Whether the worker is licensed by a local or state government.

Contingent Workers Vs. Contract Employees

Although independent contractors are considered contingent workers, contract employees are not, and it’s important to understand their differences.

Any contingent worker, including independent contractors, are not considered employees of a company. Instead they provide and bill for their services, similar to how an independent agency bills a client.

Contract employees, meanwhile, are considered employees of the company who work under special terms arranged in a contract. These terms usually define timeframe or specify responsibilities.

The main differences between contingent workers and contract employees are:

• Taxes. A contingent worker is responsible for paying their own self-employment taxes, while a contract worker will have their taxes taken out of their paycheck.

• Compensation A contingent worker is paid based on the work they do and are not paid on a set schedule. Contract workers are paid on a set schedule, similar to a regular employee.

Companies and contingent workers alike must keep these differences in mind, as well as the terms defined by the Department of Labor listed above, when navigating their relationship with one another.

Finding Contingent Workers

If you are an organization that has decided to call upon contingent workers as the right strategy for you, you may now be wondering where and how to find these workers.

If you are recruiting contingent workers, one of the most important things you will want to keep in mind is to be crystal clear about the work arrangement. Do not under any circumstances keep details of the contingent work relationship under wraps, especially the temporary nature of the job, and do not lead the worker to believe that this is a traditional employment scenario.

One of the best ways to find contingent workers is through online resources. Social media, especially professional social media such as Linkedin, will give you access to a wide range of individuals and a good chance to advertise the open positions.

Another great way to find contingent workers, especially if you are looking for a high level of expertise, is through referrals. Find individuals who have done great work for other organizations through referrals and endorsements.

Author

Chris Kolmar

Chris Kolmar is a co-founder of Zippia and the editor-in-chief of the Zippia career advice blog. He has hired over 50 people in his career, been hired five times, and wants to help you land your next job. His research has been featured on the New York Times, Thrillist, VOX, The Atlantic, and a host of local news. More recently, he's been quoted on USA Today, BusinessInsider, and CNBC.