Contingent Workers vs. Contracted Employees:
Unlike contracted employees, contingent workers are not employed by the company. They work for themselves, are not liable for benefits, and are responsible for paying their own taxes. Instead of receiving a salary, contingent workers receive payments or commission for the work they do.
Contingent workers also have the freedom to work their own hours and to complete projects the way they see fit. Instead of focusing on how the work is completed, companies pay contingent workers based on project results.
The Advantages of a Contingent Workforce:
For many business owners, the advantages of hiring a contingent workforce are mostly financial. Since a contingent worker is not a company employee, there is no obligation to provide them with paid vacation time, health benefits, paid sick leave, or overtime pay.
There is also no need to collect and pay state or federal taxes from the worker's paycheck. Instead, an IRS 1099-NEC tax form is submitted at the end of the year. This reduces the time and money spent on payroll and administration costs.
Creating a flexible workforce.
During times of unpredictability, businesses may find it advantageous to have a flexible workforce. When there is an influx of work or a major project to complete, a contingent worker can be hired to pick up the slack.
When business is slow, the company does not need to worry about laying off staff, reducing salaries, or paying employees that are not vital to the organization.
Accessing a diverse talent pool.
Instead of investing time and money into training or hiring new employees, businesses can find highly-skilled contingent workers with the right amount of experience to assist with major projects or high workloads. Businesses also spend less time sourcing, recruiting, and onboarding these workers since they are paid per project.
The Disadvantages of a Contingent Workforce:
Increased tax risks.
There are a few tax risks involved when hiring contingent workers. The U.S. federal Department of Labor provides a strict set of guidelines for which a worker may be classed as an independent contractor versus an employee.
If an employer declares someone an independent contractor when they should be classed as an employee, the company may be liable for fines and penalties, as well as back-owed state and federal taxes for the employee.
Less control over your workers.
One of the major drawbacks of hiring contingent workers is not being able to control when and how they work on a project. Independent contractors work independently, completing projects during their own working hours in their own way. The only control a company has over a contingent worker is the amount they will pay them for the work.
What is considered a contingent worker?
A contingent worker is an independent contractor or consultant who is paid an agreed amount by a company to complete a specific project.
Why do companies use contingent workers?
Companies hire contingent workers to assist with major projects or when there is an influx of work.
What are the benefits of hiring contingent workers?
What are the disadvantages of hiring contingent workers?
Do contingent workers pay their own taxes?
Yes, independent contractors are responsible for paying their own taxes.
Do you have to pay contingent workers overtime?
No, independent contractors are not classified as employees and are not entitled to overtime pay, sick leave, or paid vacation time.