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Everything You Didn’t Know About the Contingent Workforce

There’s a revolution taking place in the world of work.

There was once a time when the goal was landing a full-time job where workers could climb the ladder as far as they could go. Then came the time when the average worker held 10 different jobs before the age of 40. Today, although holding down a full-time job is still appealing to most people, a rapidly increasing number of individuals are deciding when and where they want to work. They are members of the contingent workforce, and their view of work is having a huge impact on the world’s economy.

What is the contingent workforce?

The contingent workforce is comprised of anyone hired on an as-needed basis. This includes freelancers, independent contractors, and workers who are hired as temporary employees provided by a staffing agency. This workforce is made up of freelancers who have an expertise that is in demand, individuals who live outside of major job centers, millennials who see contingent work as the future of work, the unemployed and under-employed, and international freelancers seeking to tap into the American job market.

It’s a common misconception that the contingent workforce is entirely made up of low-paid, unskilled workers. To the contrary, companies are also engaging highly skilled professionals, 25 percent of whom are working full time as independents and earning more than $100,000 a year.

The contingent workforce is large and growing

From the supply side, it’s an understatement to say that the contingent workforce is large and growing. In 2010 it was predicted that as much as 40 percent of the U.S. workforce would be a part of the contingent labor pool by 2020. We are on our way to reach that level. Today, there are 41 million contingent workers who represent about 31% of the U.S. workforce.

The demand side is growing rapidly as well. It’s estimated that nearly 45 percent of the average company’s workforce was made up of contingent workers in 2017. And, 51 percent of respondents to a survey of corporate HR decision makers said that their need for contingent workers will keep growing.

According to a 2017 survey, 74 percent of companies plan to contract with more contingent workers while 28 percent actually plan to hire a greater number of contingent workers than full-time employees by 2020. Nearly half of respondents reported that they expect to accelerate their contingent worker hiring rate by 30 percent or more.

The impact of online platforms

Online platforms, such as WorkMarket, WeGoLook, UpworkFreelancer, and Fiverr, that enable organizations to find, hire, and pay contingent workers are growing to keep up with the surge of contingent workers. In fact, Upwork estimates that they have 9.7 million registered freelancers. With millions of jobs posted annually, their freelancers earn more than $1 billion each year.

Upwork, arguably the leading platform, boasts that a number of Fortune 500 enterprises have shifted their contingent workforce to them, saving both time and money. On their roster they list Airbnb, Dropbox, GE, and Samsung who collectively posted more than 30,000 projects on the platform in 2017.

As online talent platforms grow in scale, they will become more effective at connecting small and large companies to the contingent workforce around the world. These platforms could add $2.7 trillion, or 2.0 percent, to global GDP by 2025, while increasing employment by 72 million full-time-equivalent positions.

Advantages of engaging contingent workers

There are many advantages to engaging contingent workers. First, there is the unprecedented access to expertise, allowing companies to fill skills gaps. It’s easier for them to find the exact talent they need and quickly bring that talent on board to get a project completed. Working with contingent workers is even more attractive when you add in the significant administrative cost savings.

“Traditional staffing models no longer fulfill many of our business needs,” said Cathleen Nilson, Head of Finance Innovation and On Demand Talent at Samsung. “Remaining competitive today means being agile, getting projects done in days or weeks, not months. In 2017, using the Upwork platform, we’ve achieved 58 percent administrative time savings and a six times faster talent onboarding process compared to the Managed Service Provider (MSP) model, with 52 percent cost savings. I really believe this is the future of work. Given the proven operational excellence, we will continue to expand On-Demand Talent platform usage in 2018.”

In addition to operational cost savings, companies also save by not having to pay workers a salary. Not only does this eliminate payroll taxes, the company doesn’t have to provide benefits that can be as high as 30 percent of an employee’s total compensation. Instead, payments to contingent workers are off the balance sheet entirely and are deductible expenses.

As staffing solutions go, no other option gives enterprises the level of flexibility and agility than the contingent workforce. Essentially, contingent workers are available on demand. They empower an enterprise to quickly and efficiently scale staffing up or down to meet shifts in demand and changing business circumstances.

Challenges with engaging contingent workers

The biggest challenge to engaging the contingent workforce is whether the worker can be classified as an employee. If, in the eyes of the law, the workers are actually employees, then the employer will face fines and penalties as well as having to pay the taxes owing for each person who is now considered an employee.

Here are some of the ways to identify a contingent worker:

  1. They are contracted for a specific project or period of time
  2. They decide when and where to work
  3. They determine how to do the work
  4. They negotiate and set their own rates
  5. They typically provide their own tools and equipment
  6. They are responsible for the costs and expenses associated with the work

A drawback to using a contingent worker is that the company lacks the control it has over employees. Contingent workers set their own hours and do things their own way. This way of working is not suitable to the needs of every company.

That said, there are many task-based platforms that allow for robust tracking and time management of contingent workers. If a contingent worker has specific task to complete by specific deadlines, then this challenge can be alleviated.

Finally, there is the challenge of integrating contingent workers with the company’s full-time workforce. From an HR perspective, it can be difficult fitting the worker into the company’s culture. If they are working remotely, managers have to make sure that the worker is a part of the team.

Final thoughts

The contingent workforce presents a range of opportunities for both workers and companies alike. Although it remains to be seen how well companies adapt to this new way of working, access to on-demand talent and significant cost savings make engaging the contingent workforce extremely attractive.