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HCMWorks Insights

What is a Contingent Worker?

Posted by HCM Works on 14 Jul 2015

Companies are continuously trying to maximize efficiencies and cut costs in order to increase profitability. With labour being one of the biggest expenses in business, it’s only natural that companies would start looking for innovative ways to get work done more efficiently at lower costs, which is how the contingent workforce was born.

What Is a Contingent Worker?

Contingent workers are defined as freelancers, independent contractors, consultants, or other outsourced and non-permanent workers who are hired on a per-project basis. They can work on site or remotely. However, they are not simply temp workers—this discounts the high-value nature and complexity of today’s contingent workforce. Contingent workers are highly skilled experts in their fields.

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These workers are hired to complete specified tasks under a statement of work (SOW) provision. Once the project is over, they leave, though they may be called back when another project arises. As such, they are not employees of a company and the business owner has no responsibility to provide continuous work on a permanent basis.

Contingent Worker versus Employee

Contingent workers are not salaried. They do not receive benefits. They are responsible for their own taxes as they work for themselves—not the company. Therefore, the company is not responsible for deducting federal and provincial taxes, CPP, or EI.

Contingent workers also have more control over their own work than employees of a company do. They aren’t told how to complete projects or when to work. The company’s focus is not on how the work is completed but rather on the results.

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Advantages of a Contingent Workforce

For business owners, the advantages of a contingent workforce are mostly financial. They do not have to collect and pay taxes from the workers’ pay cheques. They don’t have to offer health benefits, provide paid sick days and vacation days or pay for overtime. This not only saves them significant money associated with recruiting and hiring permanent employees, but it also allows them to save on administrative costs associated with payroll and human resources, too.

Another added benefit of the contingent workforce is increased flexibility. When an influx of work arises or a sudden urgent project comes up, a contingent worker can be hired to perform the extra work. But once business slows down again, the business owner is not stuck paying a salary for a worker that isn’t vital to the organization, which is especially important in a fragile economy. There is no need to lay off workers when you have a contingent workforce.

Access to expertise is another advantage. Business owners can find the skills and experience they need for a specific project in a contingent worker that they cannot find internally. Businesses get to access a growing pool of highly qualified talent to ensure that work gets completed properly.

Disadvantages of a Contingent Workforce

Virtually every business decision will also have its disadvantages. For hiring a contingent workforce, one of these drawbacks is lack of control on the end of the business owners. They cannot rely on contingent workers to be available during specific hours to handle business needs and they cannot manage how the work is done.

Furthermore, using a contingent workforce brings on a whole slew of tax risks. If a business owner declares someone an independent worker when in fact he should be classified as an employee, the company can be hit with fines and penalties on top of having to pay the taxes owing for that employee.

Part of a Sound Growth Strategy

Companies are increasingly beginning to reap the rewards of a contingent workforce by embracing an ever-increasing number of non-permanent workers as part of their growth strategies. But with the advantages come the disadvantages, and these risks must be managed. A workforce management solution can help. 

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Tags: Independent Contractors, Contingent Workforce Management

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