What Is a Contingent Worker?
The U.S. Department of Labor defines a contingent worker as “a temporary member of an organization who does not possess a contract for permanent employment.” This broad category includes a variety of roles:
- Part-time workers
- Contractors
- On-call workers
- Agency temporary workers
- Day laborers
- Leased employees
For the purpose of this article, we will refer to traditional, full-time employees as the "permanent" workforce.
The Growing Contingent Workforce Trend
According to the Government Accounting Office (GAO), the contingent workforce grew from 35.3% to 40.4% between 2006 and 2010. Projections suggest this number could climb as high as 50% by 2020.
Beyond Cost Savings: The Goal of Workforce Stabilization
While the increase in contingent labor is often linked to reducing labor costs, research indicates a more strategic driver: managing and maintaining the permanent workforce. Organizations are finding that using contingent labor to handle demand fluctuations provides stability for their permanent employees. This approach increases both productivity and retention.
Key Challenges in Managing Contingent Labor
The rise of the contingent workforce brings several challenges for employers:
- Increased interest from labor unions
- Application of Equal Employment Opportunity (EEO) law
- New legislative protections for contingent workers
- Limitations on the employment of independent contractors
- Promotion of codes of conduct for staffing agencies
- Questions about the overall cost-effectiveness
The Risk of Misclassification: The Microsoft Example
A significant issue is the proper classification of independent contractors. In a notable case, the IRS ruled in 1992 that Microsoft’s freelancers and temporary employees were not independent contractors, as they failed the IRS 20-factor test. The resulting lawsuit cost Microsoft $97 million and fundamentally changed how the company utilized its non-permanent workforce.
How External Providers Streamline Contingent Workforce Management
As the use of contingent labor grows, many companies are turning to external organizations to recruit and manage these workers. Providers like WorkMarket and Wonolo offer comprehensive HR services, including:
- Background checks
- Skill verification
- Payroll processing
- Employee performance ratings
These companies leverage smartphone apps and cloud services to manage their workforce efficiently and help client organizations integrate contingent workers.
Case Study: WorkMarket and Walgreens
WorkMarket partners with organizations to identify their specific talent needs. According to the company, this provides a "better, faster, cheaper approach" to hiring contingent workers. At Walgreens, WorkMarket supplies technicians to handle uncertain demand for repairs across 8,200 locations. These technicians work under the direction of a permanent employee, augmenting the full-time team during surge situations. The success of this model was supported by clear communication from senior management about the benefits of maintaining a stable permanent workforce.
Case Study: Wonolo's On-Demand Model
Wonolo operates on a model similar to Uber or Lyft, providing an on-demand workforce for businesses. After Wonolo performs background checks and verifies skills, employers can select workers from the Wonolo website. The platform’s app notifies workers of available positions, which they can accept instantly. Wonolo specializes in serving businesses with 15 to 10,000 employees and emphasizes the importance of management acceptance and communication for successful integration.
Best Practices for Managing and Retaining Contingent Workers
Just as with permanent employees, organizations must consider the costs of recruitment and training for contingent workers. High, unexpected turnover is just as damaging. To retain contingent workers, companies should apply similar principles as they do for permanent staff.
Cognitive theory explains that people seek information to understand their environment and their place within it. To retain contingent employees, focus on:
- Frequent, positive interaction: Encouraging interaction with permanent employees helps the contingent worker feel integrated into the company culture.
- Positive communication: Sharing company information reinforces a sense of belonging.
The more a contingent worker has positive interactions, the more they will identify with the organization, increasing the likelihood of retention.
Summary: A Strategic Approach to Contingent Labor
Organizations that hire contingent workers only to reduce costs are often not successful. The most effective strategy is to use contingent labor as a way to augment the permanent workforce. This creates a stable work environment that enhances performance and retention for all. Success hinges on clear communication from management regarding the reasons for and advantages of using a contingent workforce.