what's the difference between permanent and contingent workers?

There are many benefits to be gained from employing contingent workers, such as:

• Achieving a higher level of agility and responsiveness in your workforce management
• Filling short-term or unforeseen gaps in your labor force
• Meeting seasonal increases in customer demand
• Accessing niche or project-specific skills that aren't available in your permanent workforce
• Avoiding the cost and admin involved in permanent hiring

There are many benefits to be gained from employing contingent workers, such as:

• Achieving a higher level of agility and responsiveness in your workforce management
• Filling short-term or unforeseen gaps in your labor force
• Meeting seasonal increases in customer demand
• Accessing niche or project-specific skills that aren't available in your permanent workforce
• Avoiding the cost and admin involved in permanent hiring

But before getting caught up in the details of how your organization could use and benefit from contingent workers, it's important to ensure you fully understand what this term means and what the process of employing contingent staff involves.

In this blog post, we'll take a detailed look at the definition of a contingent worker, how they're distinguishable from permanent employees, and steps you can take to optimize the management of this portion of your workforce.

what is a contingent worker?

The Society for Human Resource Management defines contingent workers as people brought in to do jobs that are 'short term or temporary, including workers from temporary employment agencies, on-call workers, independent contractors and seasonal workers'.

According to Staffing Industry Analysts (SIA), the term 'contingent working' can be used to describe employment arrangements that differ from permanent, direct wage and salary-based work. SIA notes that one of the key points of differentiation between contingent workers and regular employees is that the former usually have an 'explicitly defined or limited tenure'.

The term 'contingent worker' is often used as a catch-all description encompassing various employment models, including:

• Independent contractors
• Freelancers
• Consultants
• Temporary employees appointed via a third party, such as a staffing agency

These workers make up a considerable proportion of the wider labor force in many countries and play a crucial role in how many organizations function.

A SIA report published in August 2021 showed there were 51.5 million contingent workers in the US in 2020, which meant they accounted for more than a third (35%) of the country's total workforce. These workers also generated US$1.3 trillion (€1.1 trillion) in revenue.

According to Eurostat data, temporary employees made up nearly 11% of the total workforce across the EU's 27 countries in 2020. The proportion was higher than average in nations such as Spain (20.1%), Portugal (15%), Croatia (13%) and Sweden (12.1%).

contingent workers vs traditional employees

The clearest difference between a contingent worker and a regular employee relates to time. Someone you employ on a contingent basis will only be with your organization for a limited period and for a specific purpose, such as to fill gaps in your workforce or provide project-specific capabilities. 

Traditional employees are hired on a permanent basis and receive contracts that outline their legal rights, such as:

• How much they will be paid each month
• Their agreed working hours
• Holiday pay
• Sick pay
• Redundancy pay
• Their notice period

Contingent workers give you more agility and flexibility. Hiring people on a temporary basis means you don't have to make long-term commitments such as paying an annual salary, providing benefits and offering redundancy packages when you're forced to make layoffs.

Taxation is another key area of difference between traditional and contingent workers. When you recruit a permanent worker, you take on the responsibility of adding them to your payroll, making sure they're being paid correctly and that the right amount of tax is being deducted from their wages. These concerns are significantly reduced when you use contingent labor.

If you go down the route of partnering with a staffing agency to source and manage your contingent workers, the agency can take on a lot of the responsibility for admin and paperwork, including overseeing contracts and taxation. Fully independent consultants, contractors and freelancers are responsible for managing their own tax affairs and making sure they pay the right amount.

Understanding the nuances of using contingent labor will also help you prepare for some of the risks that might come with this approach. It's possible that people who are only working with you for a short time won't have a deep understanding of your organization and your company culture, for example. They could also be less committed to helping you achieve your long-term goals than employees who have worked for you for many years and want to build a lasting, fulfilling career with your organization.

are contingent workers becoming more important?

It could be argued that temporary labor, project-based workers, contractors and freelancers have a more significant part to play in the world of work than ever before. The enormous impact of COVID-19 on businesses, workplaces and HR underlined the need for flexibility when employers are faced with unpredictable and volatile circumstances. You can never be certain about what the future holds, so you need to be ready to adapt at short notice.

Contingent labor is also highly relevant with regards to  the shift away from traditional, '9-to-5' working patterns and towards more flexible models.

There have been many signals of businesses' increasing willingness to try new, more agile workforce strategies in recent years. In February 2021, Salesforce claimed 'the 9-to-5 workday is dead' when it announced a new system providing options for employees to work remotely, in the office, or to take a hybrid approach combining the two. The company said it wanted to 'go forward with agility, creativity and a beginner's mind'.

This focus on flexibility and adaptability is also evident in many employers' recruitment and workforce management methods. In the Randstad Sourceright 2021 Talent Trends Report, more than three-quarters (77%) of the firms surveyed said their talent strategies are now more focused on workforce agility than ever before.

Mike Smith, global CEO of Randstad Sourceright, said: 'Flexibility will be critical to accommodate rapidly shifting market conditions. Right now we're witnessing an unprecedented push by companies, which are tapping into more contingent talent in response to economic fluidity. Flexible labor is increasingly viewed as a powerful way to address critical skills deficiencies, cost efficiencies and rapid access to agile resources.'

The gradual transition to new business models and less rigid ways of working can also be seen in the growth of the gig economy. Research cited by the World Economic Forum showed that, while gig economy platforms still make up only 1% to 3% of total employment, this is an expanding segment. Mastercard has predicted global transactions in this space will grow by 17% a year to approximately $455 billion by 2023.

If your business is looking to take a more agile approach to its workforce, there are various benefits you can gain through flexible staffing and greater use of contingent labor, such as:

• Close control over your human resources, so you have the right number of workers available at the right times
• Accessing specialist skills when they're required, such as web design expertise when you want to redesign or relaunch your website
• Reduced training, onboarding and overtime costs

To maximize these benefits, it's important to have a strategy to manage your contingent workforce, and to look into how expert HR advice and agency support could help you find the right approach for your business.

contingent workforce best practices

Here are some examples of positive practices that could help your business benefit from contingent labor:

be agile and responsive

It's vital to ensure your approach to flexible staffing can be adapted and tailored to your needs at any given time. Acquiring specific skills to support business expansion is likely to require a different strategy to filling short-term gaps in your frontline workforce, for example.

understand the market

To acquire the talent and capabilities you need from the contingent labor market, you need to understand what these workers are looking for. Make sure you do your research and get expert insights into what really matters to candidates. This will help you build a compelling employee value proposition.

don't overlook onboarding

A strong onboarding process is crucial if you want permanent employees to make the best possible start in their role, and the same applies to contingent workers. As well as ticking off basic tasks like ensuring people have all the information, system access and equipment they need to get on with their jobs, effective onboarding helps workers to feel comfortable in your organization.

work with a staffing agency

Adhering to positive practices becomes much easier when you have the support of an HR and staffing specialist. The right partner can help with jobs like tracking trends in the contingent labor market, selecting the best workers to meet your needs and delivering a positive employee experience.

It's also important to be aware that hiring contingent workers brings certain legal responsibilities. If you don't feel entirely comfortable in this area, the best course of action is to get help from an experienced HR company.

To learn more about how your business can get the best out of your flexible workforce, download our guide to attracting contingent talent.