Definition

contingent workforce

Contributor(s): Mekhala Roy

A contingent workforce is a labor pool whose members are hired by an organization on an on-demand basis. A contingent workforce consists of freelancers, independent contractors and consultants who are not on the company's payroll because they are not full-time employees of the organization. Organizations can hire a contingent worker directly or from a staffing agency. Such workers are usually added on an ad-hoc basis to a company's workforce and work either onsite or remotely. They generally receive fewer (if any) benefits and less pay than full-time workers, according to the U.S. Department of Labor, and are less likely to be protected by labor and employment laws.

The contingent workforce is an important element of an organization's workforce strategy as it provides businesses with additional agility and flexibility. Over 40% of the U.S. workforce is now made up of contingent workers, according to a report by the U.S. Government Accountability Office. The rise of the gig economy is also fueling the growth of the contingent workforce.

Contingent workforce advantages

Cost savings is one of the major benefits for organizations that hire contingent workers. Organizations save on administrative costs associated with hiring and maintaining full-time employees. Companies hiring contingent workers do not have to make contributions to their Social Security, make unemployment contributions or pay payroll taxes. Organizations are also not required to offer contingent workers health insurance and provide them perks like paid time off.

Flexibility is another benefit of the contingent workforce. Organizations can hire contingent workers on an ad-hoc and on-demand basis, and then terminate their employment once the work requirement is met.

The contingent workforce also helps businesses offset a skills gap. Contingent workers provide businesses with a large pool of experienced candidates who are already equipped with the skills required to execute a project efficiently.

Contingent workforce disadvantages

There are challenges associated with hiring contingent workers. It can be difficult to find a contingent worker who can not only perform the required job, but who can also adapt quickly to an organization's corporate culture. Companies are also often skeptical of sharing insider information with these non-permanent workers.

Organizations can also face legal and compliance issues due to worker misclassification. If an organization declares someone a contingent worker when in fact he or she should be classified as an employee, the company runs the risk of paying hefty fines and penalties. Organizations must be aware of their industry's regulations in regards to contingent workers before developing a strategy for hiring them.

With more organizations relying on the contingent workforce, businesses must be prepared to meet the challenges and demands associated with managing the contingent workforce. It is therefore important to implement standardized processes for hiring and developing a contingent workforce.

This was last updated in October 2016

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How has your organization benefited from having a contingent workforce?
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There are also inherent security concerns with a contingent workforce. Many require privileged access to corporate systems or access to sensitive data and IP. You need to make sure this growing portion of your workforce is being fully vetted and access rights managed with the same diligence as full-time employees. Honestly, even more. If you can't say for certainty that all system access is revoked once a contract is up or they move off of projects, then your organization is risk.
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