The Advantages and Disadvantages of Hiring Contingent Workers

Introduction

The global pandemic has changed how companies operate, maybe even for good. As more people gravitate toward remote work permanently, the landscape of the worldwide workforce continues to evolve. Many employers are looking toward contingent workers rather than permanent hires to fill jobs, especially in non-traditional roles. Likewise, many job seekers are also turning to contingent work, even trending toward preferring contingent work over traditional work. A recent report from Statista predicts that by 2027, contingent workers will comprise a staggering 50.9% of the workforce in the United States alone.

As this trend continues, employers weigh the pros and cons of using contingent workers instead of hiring permanent employees. In this article, we will answer the following questions: Who are contingent workers? What are the advantages of hiring contingent workers? What are the disadvantages of contingent workers? How can I manage contingent workers?

Who Are Contingent Workers

The best way to describe a contingent worker is a flexible, temporary worker you can hire on an as-needed basis. These workers are not hired as permanent employees and do not receive compensation through your company's payroll. Instead, they work on individual projects as agreed in exchange for financial compensation.

Several types of workers fall under the umbrella of contingent workers, including freelancers, gig workers, independent contractors, and on-call workers. These people fill a specific job role non-permanent or can be hired to complete a specific project with a finite deadline.

Now that you understand who contingent workers are, we will discuss some advantages and disadvantages of engaging with contingent workers instead of hiring permanent employees.

Advantages of Contingent Workers

Availing yourself of the flexibility of contingent workers can provide your company with several advantages.

Reduce Human Resources Costs

According to a 2022 report from the Society for Human Resource Management (SHRM), the average cost of a newly hired employee is around $4,700. However, some employers consider the total cost of hiring a new employee to be much higher: three to four times the amount of the position's salary.

Although hiring is an unavoidable part of running a business, when examining the issue through a financial lens, it is clear that using contingent workers for individual projects or in the short term is highly cost-effective. You pay contingent workers on a per-project basis rather than an hourly wage, regardless of how productive those hours worked genuinely are.

In addition, contingent workers are only entitled to some of the same benefits that permanent employees enjoy. You will also save considerably without the obligation to pay for health insurance, pension contributions, social security and other taxes, and paid leave. With contingent workers, none of those benefits are expected or mandated.

Fill Job Postings Quickly

Again, hiring is inevitable. Along with growth, you must scale your workforce. Sometimes, it can be challenging to find the perfect candidate. As of 2022, Industry Today reported that the average time to fill a position across various industries is 42 days, although jobs requiring more skilled, experienced talent can take longer.

Hiring contingent workers, however, is markedly faster, allowing you to acquire the talent you need within the time frame you require.

Hire Diverse Professionals With Expertise

The long-held belief that contingent workers are less talented, experienced, or skilled is a thing of the past. The pandemic demanded drastic changes in the worldwide workforce. Desiring an optimal work-life balance, many professionals who previously occupied office positions now prefer non-traditional work, such as fully or at least partially remote work.

Many employers find the best talent within the contingent workforce.

Operate Under a Flexible Employment Model

Rather than hiring employees permanently, availing yourself of non-permanent workers, who are much more flexible, allows your company to evolve and remain agile within a competitive, constantly fluctuating job market.

Circumvent Tax Challenges

Permanent employees necessitate tax deductions from payroll and careful adherence to local tax legislation. This endeavor becomes infinitely more complicated if your company, like an increasing number around the world, maintains a globally-distributed workforce.

Because you do not pay contingent workers via your company payroll, your company is not required to withhold taxes. As self-employed individuals, contingent workers maintain the responsibility of paying the appropriate taxes. This saves your HR staff time and labor costs and relieves your company of any potential non-compliance penalties.

Disadvantages of Contingent Workers

Although there are many obvious advantages to hiring contingent workers, it would be disingenuous to imply that such a practice has its disadvantages.

Sacrifice Some Control Over the Worker

While, as an employer, you have every right to control certain aspects of your permanent employees' jobs, engaging with contingent workers limits some of this control. Even though the contingent worker does work for you, they are not your employee. You can provide your expectations, communicate the project's demands, and track the worker's progress. Still, the individual's time spent, methods used to complete the task, and quality of work are beyond your control.

You can inform the contingent worker what you need them to do, but you cannot control how they do it. What truly matters is the product of their work.

Accept Some Level of Security Risk

You expect your permanent employees to have at least some access to your company's data, including trade secrets, confidential information, and private data. Even though a contingent worker is not your employee, they will still likely have some level of access to this information, which may pose a risk to your company. Any misstep by the contingent worker, whether intentional or accidental, could cause serious reputational or other damage to your company.

Gamble on Trust and Reliability

As mentioned above, hiring a contingent worker takes significantly less time than hiring a permanent employee. Because of the more rapid onboarding process, you could miss a step in the screening process or fail to observe a potential issue. It can be much more challenging to determine if you can trust someone who does not work for you permanently.

Forgo Some Team Cohesion

Because contingent workers generally only spend a short time with your company, they can only sometimes bond with your employees to any significant degree. Due to this lack of bonding, the contingent worker may feel isolated, like an outsider, and not part of the team culture. This feeling of otherness could lead to decreased productivity on the part of the contingent worker.

Adhere to Classification Laws

In general, fewer employment laws apply to contingent workers than to permanent employees. It is of the utmost importance that you ensure you do not misclassify as a contingent worker who should instead fall under the employee category. The most common mistake is classifying a worker as an independent contractor when, in fact, the person should be classified as an employee.

Misclassification like this can lead to financial and even legal penalties, so you must understand the difference between an employee and a contingent worker in the context of the employment laws of the country in question.

Managing Contingent Workers

If you decide the advantages of hiring contingent workers outweigh the disadvantages, it is possible to manage the challenges involved.

Establish a Painstaking Screening Process

You want to choose the appropriate contingent worker to fill a position. To do so, you must meticulously evaluate each potential candidate. Background checks, references, and other screening steps are essential to ensure the contingent worker is reliable and qualified appropriately to meet your needs.

Safeguard Secure Data

When bringing a contingent worker on board, you may strongly consider increasing the security of confidential or sensitive company data. On top of preventing access to such information, you can also ensure that if the contingent worker needs access to it, they cannot copy, share, or publish the data.

Implement Team-building Measures

Although understandably, a contingent worker will feel less of an insider than your permanent employees do, there are ways you can ensure their seamless integration in the workplace. You can include the contingent worker in team meetings and team-building activities to help them bond with your employees, improving workplace morale and strengthening your company culture.

Ensure Legal Compliance

While it can be a challenge for many employers to avoid misclassification and other legal landmines, a simple solution to this problem is outsourcing your legal compliance management to a dedicated provider like Skuad.

Conclusion

It can be tricky to comply with the regulations and laws of various localities, but Skuad's global employment and payroll platform can help you maintain legal compliance across global borders. With Skuad's secure, user-friendly interface, you have access to compliant management of your team — permanent employees and contingent workers alike — through one centralized platform, no matter where your team members are.

Request a demo today.