Employers are increasingly turning to more flexible arrangements to engage workers beyond the traditional permanent employment contract.
Among the alternatives, using contingent workers may offer organisations a more agile and cost-effective solution to meeting specific skill needs without the long-term commitment of recruiting permanent employees.
What is a contingent worker?
Contingent workers are individuals who are not on the payroll, but instead provide independent services to an organisation. Contingent workers include independent contractors, freelancers, consultants, advisors or other outsourced workers hired on a per-job and non-permanent basis.
Unlike standard ‘temp’ workers, who in most cases require on-the-job training, contingent workers are typically highly skilled and trained for the specific job in question.
The contingent worker undertakes the work on a temporary basis, where their employment is contingent on the job for which they are hired. As such, they are not employees and the organisation has no responsibility to provide continuous, permanent work.
In some cases, the contingent worker may only be hired for a period of days, or a few short weeks or months, subject to the needs of the organisation at any given time.
In other cases, the contingent worker may be hired on an indefinite basis for as long as the job takes to complete, albeit without a permanent contract of employment.
What is the employment status of a contingent worker?
The employment status of a contingent worker is different to that of an employee.
An employee is hired under a fixed term or permanent ‘contract of employment’. This is also often referred to as a ‘contract of service’, which denotes an employer-employee relationship.
In contrast, a contingent worker is usually hired under a ‘contract for services’ or ‘consultancy agreement’, which details what the job is and how long the worker will be required to complete this. The worker then leaves the organisation on completion. The individual may be re-hired if the need arises at a later date, but each job will be treated as an entirely separate contractual agreement on each occasion.
The contingent worker is usually classed as ‘self-employed’ rather than ‘employed’, whereby they are running their own business for themselves and take responsibility for its success or failure. As such, a person is generally classed as a ‘contingent worker’ if:
- They have a contract for services where they agree a fixed price for their work with their customer or client based on bids or quotes
- They can decide what work they do and when, as well as where or how to do it, subject to completing this within an agreed contractual schedule and within other set parameters
- They do not get holiday, sick pay, or maternity/paternity pay, when they are not working
- They can usually hire someone else to do the work
- They are not under direct supervision when working, where the focus is not on how the work is completed but on the results
- They are responsible for fixing any unsatisfactory work in their own time
- They usually use their own money to buy business assets, cover running costs, and provide tools and equipment for their work
- They can work for more than one customer or client
- They submit invoices for the work they have done, where they are responsible for paying their own tax and National Insurance
- They cannot join the business’s pension scheme
For example, a contingent worker might be an independent tax consultant or accountant. This skilled and trained individual can be hired during the tax season, with the sole purpose of completing the taxes for the organisation. Once the taxes are completed, the arrangement ends and they move on to another job with a different client.
Contingent workers are typically engaged through specialist recruitment agencies and outsourcing organisations.
What are the benefits of using a contingent workforce?
A contingent workforce can benefit both your business and the individual worker in question in a number of different ways.
The contingent worker can be used to bridge any critical skills gaps on a temporary basis, increasing the flexibility and responsiveness of your workforce as and when needed. As such, the contingent worker can offer you greater workforce flexibility, allowing you to expand your labour force and improve your productivity output on demand, without accruing the costs traditionally associated with retaining permanent employees.
Contingent workers are not salaried, and are responsible for paying for their own taxes and national insurance contributions as they work for themselves, not for you. They are also not entitled to receive statutory or contractual benefits, where their rights and responsibilities are determined by the terms of the contract for services. Even though a contingent worker will often charge a higher rate than the pro rota equivalent for an employee, a business can still make significant savings, including savings on administrative costs associated with payroll.
Further, because contingent workers are usually highly skilled in what they do, you do not need to invest money and valuable time in attracting and recruiting the right person, or training them to do the job once they are hired – nor will you incur any additional costs in severance packages when the job is complete. You only need to pay contingent workers for the work that they do, thereby avoiding the cost of compensating a permanent employee by way of redundancy payments whose skills are no longer required.
You may also find that the productivity of a contingent worker is greater than that to be expected of a permanent employee, where the independent contractor will not only be looking to impress their customer or client with the highest standard of work, so as to encourage more work in the future, but also by completing the job in the most time efficient manner.
For the contingent worker, there are also several advantages of working on a self-employed basis, one the biggest being the opportunity to build on their experience and skillset with different customers or clients within various working environments. This also provides them with the flexibility to pick and choose who they work for, based on what best suits their skills and interests, and working this around any family or other commitments that they might have.
The role of contingent workers during the pandemic and beyond
The economic crisis caused by the coronavirus outbreak has added greater incentive for business owners to make use of highly skilled and trained contingent workers to get the job done.
With labour being one of the biggest business expenses, employers are looking for ways to maintain operations while increasing agility, improving efficiency and lowering cost. In a post-pandemic economy, with the financial difficulties facing many businesses due to lockdown, having the flexibility to respond as market conditions quickly change is even more appealing.
Even prior to the coronavirus pandemic, businesses worldwide have dramatically increased their use of contingent workers as they struggle with rising labour costs and the need for a workforce that can quickly adapt to market conditions.
However, caution should still be exercised as the use of contingent workers carries its own potential risks, not least where a worker is improperly classified as self-employed. If you declare someone an independent worker when in fact they should be classified as an employee, you can be faced with fines and penalties from HMRC, in addition to paying the taxes and national insurance owing for that individual.
Equally, the worker may also claim that they should never have been treated as an independent contractor but, instead, as an employee, entitled to the various statutory and contractual benefits associated with an employer/employee relationship. It is therefore crucial to understand the specific distinctions between contingent workers and employees.
Equally, it is crucial that you properly manage a contingent workforce, so as not to negate its potential benefits. This means that you must be able to identify what talent you need to deploy and where, and whether any skills gap will be best met through hiring someone temporarily to get the job done – where the initial outlay in costs may be high – or whether recruiting someone long-term may be more cost effective, despite any statutory and contractual benefits associated with a permanent member of staff.
In some cases, especially where existing members of staff are otherwise occupied, and you have new tasks that must be handled on an ongoing basis, it may make better commercial sense to hire additional full-time or part-time employees. If, on the other hand, upcoming projects are of limited duration or you need specialised skills unavailable internally, then a mix of full-time employees and contingent workers may be your best bet.
By learning how and when to effectively source and procure a high-quality and on-demand contingent workforce, you can hope to achieve improved operational and strategic performance, greater organisational flexibility with stronger alignment to your specific business needs at any given time, and overall lower labour costs in the long-term.
DavidsonMorris’ HR consultants and business employment lawyers work with employers to support with all aspects of workforce management. We can advise on the implications of different types of employment status on your responsibilities and on workers’ rights, and support with drafting effective terms, conditions and legal documentation to mitigate legal risks. For advice on engaging contingency workers, contact us.
Contingent workers FAQs
What do you mean by contingent workforce?
A contingent workforce refers to a workforce that comprises of people who are not on the company payroll but instead provide independent services to a company or organisation on-demand. This includes independent contractors, freelancers, consultants, advisors or other out-sourced workers who are hired on a per-job and non-permanent basis.
What is an example of a contingent worker?
An example of a contingent worker might be an independent accountant, hired with the sole purpose of completing the taxes for the organisation. Once the accounts are finalised, they move on to another job with a different client.
Why do companies use contingent workers?
There are various benefits to a company in using contingent workers, including the ability to hire highly trained and skilled workers to get the job done. In this way, a company can meet their strategic and operational needs at any given time, without the statutory and contractual responsibilities associated with employing someone on a permanent basis.
How do you manage a contingent workforce?
Managing a contingent workforce can be complex, requiring informed decisions around what talent to deploy and where, depending on both the strategic and operational needs of a company or organisation. This requires a collaborated approach to staffing management, where you are able to identify and fill any critical skills gaps across the business.
Last updated: 22 November 2020