Today's workforce is no longer just made up of full-time employees. Companies are increasingly bringing in independent contractors, consultants, or sales reps to help with peak seasons or tackle one-off projects.

These talents, hired for temporary or project-based needs, are considered contingent workers.

2023 Ceridian’s survey, which polled over 2,000 director-level and above leaders around the world, revealed that 80% of companies had contingents on their team, and 65% of companies plan to leverage contingent workers even more.

If you're looking to understand the concept of contingent workers at a strategic level and explore how to fit them into your workforce strategy, this guide is here to help. I put together what you need to know about the contingent workforce and best practices for hiring and managing them.

What are Contingent Workers? (+ Examples)

Contingent workers are professionals who lend their expertise to organizations on a temporary or project-specific basis. 

Also known as independent contractors, freelancers, or 1099 workers, these individuals are not permanent employees but form a crucial part of the modern workforce, given the rise of the gig economy and fluid workforce.

You might leverage contingent workers for various roles, from IT services and retail support to creative professionals and consultants. They operate under specific contractual agreements, often defining the scope and duration of their work. For example:

• IT Support Technician: When your company’s network suddenly crashes, and you have no IT specialist, or your in-house team is swamped, an IT support technician can come in on a short-term contract to quickly troubleshoot and restore your systems.
• Freelance Graphic Designer: Let’s say you’re launching a new product and need some eye-catching visuals but don’t have an in-house designer. A freelance graphic designer can step in to create everything from logos to promotional materials, working with you just for this project.
• Field Service Engineer: If you’ve just invested in new, complex equipment like telecommunications gear or medical devices, you’ll likely need a field service engineer. They’re the experts who install, maintain, or repair this specialized equipment on an as-needed basis.
• Retail Merchandiser: During the holiday season or a big sale, retail stores might need additional help, and you can hire temporary merchandisers to ensure smooth operation and maximized sales during peak shopping hours.
• Content Writer/Copywriter: Imagine you’re ramping up your content marketing but don’t have the bandwidth internally. You can easily look for freelancers or gig workers to produce engaging blog posts, website content, or marketing copy per briefs. 
• Marketing Consultant: If your marketing campaigns aren’t hitting the mark or you’re planning a big product launch, a marketing consultant can offer fresh insights and strategies. They come in, assess the situation, and help you refine your approach for better results.

And many more depending on your industry and company’s nature. 

Contingent workers are those who can bring specialized skills to the table when you need them; therefore, you can address specific challenges without committing to full-time hires.

Types of Contingent Workers

Unlike the distinction between 1099 contractors vs. W-2 employees, which primarily highlights tax implications, contingent workers refer to a wide array of everyone who is not your permanent hire. 

Here are different types of contingent workers and their characteristics:

Freelancers and Independent Contractors

Freelancers and independent contractors are self-employed professionals who provide services on a project or contract basis. 

They work based on briefs and deliver outcomes as agreed. They usually operate as their own business entities. And they offer specialized skills without the commitment of full-time employment. Key points to consider are:

1. They have autonomy over their work methods and schedules.
2. You pay them a flat fee or project rate without tax deductions. They're responsible for their own taxes and benefits.
3. For any freelancers or independent contractors you pay $600 or more during the tax year, you’re required to issue a Form 1099-NEC unless you hire them through Fiverr or Upwork.
4. They're ideal for accessing specialized expertise, such as software development, writing, or design.

Temporary Employees

Temporary employees are hired for specific periods to fulfill short-term needs. They can be sourced through staffing agencies or hired directly. Here's what you need to know:

1. They have an employer-employee relationship, albeit for a limited duration.
2. They're entitled to certain rights, like minimum wage and safe working conditions.
3. They're suitable for industries with cyclical demands, such as retail or hospitality.
4. If sourced through a staffing agency, the agency typically manages payroll, tax withholdings, and benefits administration. However, if hired directly, you must take on these responsibilities.
5. You or the staffing agency need to withhold payroll taxes and issue a W-2 form for them at the end of the year.

Temporary employees often work full-time or part-time alongside your permanent team members, with the only difference being the time-bound nature of their projects. Hence, there is a potential management issue of making them feel left out if you do not invest enough in their engagement and alignment.

Statement of Work (SOW) Consultants

SOW consultants are engaged for specific projects with predefined deliverables and timelines. They offer a flexible approach to project-based work. Consider these points:

1. The SOW outlines the scope of work, including tasks, responsibilities, and the extent of the consultant’s involvement.
2. They can work under different pricing models, such as a fixed-price (a set amount for the entire project) or time-and-materials (based on hours worked and materials used), depending on how well-defined the project is and whether the tasks are straightforward or might change as the work progresses.
3. SOW consultants are often brought in for their specialized knowledge and skills, which are not readily available within the organization. This makes them valuable for high-stakes projects that require a specific set of competencies.
4. They are typically classified as independent contractors and fall under the 1099 category.

Compliance and Legal Considerations of Hiring Contingent Workers

Engaging contingent workers can offer flexibility and specialized expertise, but it also comes with a unique set of compliance and legal challenges. 

To ensure smooth operations and minimize risks, it's crucial to address the following key areas when integrating contingent talents into your workforce:

Employee Misclassification

One of the most significant risks when hiring contingent workers is misclassification because not all contingent workers are classified as independent contractors. 

Some, like temporary employees, have a clear employer-employee relationship, while others, such as freelancers, maintain more independence.

The criteria for classifying workers vary by jurisdiction but generally hinge on the level of control the employer has over the worker, the nature of the work, and the worker’s independence. 

As you may already be aware, misclassification, even within the contingent workforce, can lead to significant legal and financial consequences, including back taxes, penalties, and interest. 

This is particularly relevant when dealing with varying levels of control, independence, and the specific nature of the work being performed. Proper classification is essential to staying compliant with labor laws and avoiding potential complications.

Tax Implications and Processing

Navigating tax obligations is another critical aspect of managing contingent workers, as the tax treatment varies depending on how these workers are classified. 

For independent contractors and freelancers, the responsibility for tax payments, including income tax, Social Security, and Medicare, falls primarily on the gig workers. As an employer, your role involves issuing a Form 1099-NEC for any contractor who is paid $600 or more during the tax year, ensuring compliance with IRS reporting requirements.

On the other hand, for temporary employees, you’re responsible for withholding payroll taxes, including federal income tax, Social Security, and Medicare, as well as issuing a W-2 form at year-end. 

This distinction underscores the importance of accurate classification and careful processing, as missteps can lead to audits, penalties, and other financial risks. For a quick check on the correct employment status of your contingent workers, Deel, a global compliance and payroll service provider, offers a useful tool here to help you assess the risk of misclassification.

Labor Laws and Employment Regulations

Contingent workers, though not on the permanent payroll, are still entitled to certain legal protections under labor laws. This includes minimum wage requirements, safe working conditions, and non-discriminatory practices. 

Depending on the jurisdiction, you need to comply with specific regulations related to working hours, overtime pay, and worker’s compensation. 

These challenges become even more complex when engaging cross-border talent, as laws and regulations can vary significantly across states, regions, and countries. 

That’s why it’s a smart move to consult with legal experts when you’re unsure about the labor laws in your target hire area. Or, if you want to take the guesswork out of it, consider global employment solutions like Employer of Record (EOR) services, which handle all the legal stuff for you and ensure your company is staying compliant.

Intellectual Property Protection

When engaging with specialized talent like contractors or SOW consultants, ensuring the protection of your company's intellectual property (IP) is critical.

The ownership of work produced by contingent workers can often be overlooked or inadequately addressed in contracts, especially when it’s your first time working with contingent workers, and you’re creating new contracts for them. 

It’s essential to include clear and detailed IP clauses in the contract. These clauses should explicitly define who owns the work created during the project and include a method for the automatic transfer of IP rights to your company, typically upon creation or payment. 

Additionally, implementing Non-Disclosure Agreements (NDAs) is crucial when dealing with sensitive information, ensuring that proprietary knowledge and trade secrets are protected and not shared outside of the project or organization.

Strategies for Hiring and Managing Contingent Workers

Clearly Define Roles and Expectations

When engaging with contingent workers, it is crucial to clearly define their jobs, tasks, or expected outcomes from the outset to ensure that their work aligns with your expectations. As contingent workers are engaged in specific tasks or projects, make sure to:

• Outline Specific Deliverables: Clearly articulate what you expect the contingent worker to accomplish, including turnaround time and performance metrics.
• Detail Scope and Responsibilities: Provide a clear scope of work that delineates the roles' tasks, responsibilities, and boundaries to avoid misunderstandings or scope creep.
• Set Communication Protocols: Establish how and when the contingent worker should report progress, communicate issues, or seek guidance, ensuring that they stay aligned with project goals.

By defining these elements upfront, you ensure that the contingent worker knows exactly what’s expected, leading to better performance and smoother collaboration.

Leverage Specialized Talent Platforms

Specialized talent platforms are a powerful resource for sourcing skilled contingent workers quickly and efficiently. These platforms allow you to tap into a vast pool of freelancers, contractors, and gig workers across different industries and skill levels. 

For example, Upwork and Fiverr are well-suited for finding freelancers across a wide range of skills, while Toptal and Pro5 focus on connecting you with top-tier, pre-vetted talents in competitive industries.

If you need to manage many project-based talents, you may want to consider contractor management software to streamline management processes, including contracts, payments, and performance tracking.

Build a Talent Pool for Quick Access

Building and maintaining a talent pool of reliable project-based talents can give your organization a significant edge, especially when you need to scale quickly or fill niche roles. Here are some suggestions:

• Stay in touch with high-performing contingent workers, offering them future opportunities and incentives to work with you again.
• Regular communication and providing feedback can help maintain a positive relationship.
• Keep an organized database of past and potential contingent workers, including details like their skill sets, availability, and past performance. This allows you to quickly access the right talent when the need arises.

Modern recruitment CRMs like Gem, Phenom, and Beamery offer helpful features for collecting potential talent profiles, identifying matching opportunities, and automatically nurturing the talent pool.

And this shouldn’t be limited to external contributors alone. As SHRM Chair Edie Goldberg told us in our conversation:

“I think it's recognizing and letting people lean into their strengths and not making them take on work that drains them. Managerial work is the bane of their existence. If we can look at work and parse it out so that people can lean into their skills, expertise, passions, or interests, then maybe we can think about doing that work differently.” - Edie Goldberg, SHRM Foundation

Sometimes, the best candidates for emerging or newly-formed projects are within your existing workforce. Your internal employees may already have the skills or potential you need, and considering them for these roles not only saves time and resources but also contributes to engagement and retention rate—the concept Edie described as “The Inside Gig:”

“It just so happens that I have eight semesters of advanced statistical training, and I happen to be a deep expert in research. So, I could very easily have worked on a project in this other part of the organization, but never was I ever considered for any of that work, even though research was my first love, because I didn't work in that part of the business. But I could have had value. And when they needed to get a project done, and they perhaps didn't have anybody in my office that could do that work, they could have leveraged me.” - Edie Goldberg, SHRM Foundation

Hire through EORs for No-Hassle Compliance and Risks

Consider working with an Employer of Record (EOR) service to streamline the hiring process and ensure compliance with local labor laws. EORs handle legal and administrative tasks, allowing you to focus on core business activities while minimizing risks associated with worker classification and intellectual property rights.

Cisco, a global company with a substantial contingent workforce of over 50,000 across 95 countries, highlights the importance of ensuring legal compliance and managing risks associated with its contingent labor.

Cisco's transforming approach includes consulting with a cross-functional steering committee that involves representatives from finance, HR, IT, and operations to oversee the management of this workforce and ensure that all compliance and legal-right issues are properly addressed. 

The steering committee plays a crucial role in establishing policies that help the company navigate globally disparate labor laws and support its broader strategic goals:

“With the backing of the steering committee both for policies that keep the company out of legal trouble (like adhering to globally disparate labor laws)... Cisco’s contingent workforce strategy ensures that legal compliance is maintained across 95 countries.”

Having specialized technology systems to manage the contingent workforce effectively is critical to their strategy. Bram Daly, Director of Contingent Workforce Strategy and Programs at Cisco, pointed out the challenges of relying on outdated and inconsistent contract management processes, noting:

“We are taking away managers pulling out a contract in their email that’s four years old. Those are the kinds of things that cause problems: where clauses are wrong because it’s some old thing. It’s just a lot of sloppiness going away, because you take that away and give them a fluid, quick, automated process.”

You don’t have to be at Cisco’s scale to enjoy the convenient, streamlined, and compliance-ensured process for handling a contingent workforce. 

For example, Deel offers an integrated, automated platform to manage the legal and logistical employment aspects for various types of employees across 150 countries. Engaging with EOR platforms like this also gives you access to well-versed experts who are ready to assist you with arising issues when hiring globally.

Align Contingent Workforce with Organizational Culture

One significant problem highlighted in the article “Managing External Contributors in Workforce Ecosystems” by MIT Sloan Management Review and Deloitte is that many companies struggle to integrate contingent workers into their organizational culture.

This is often due to legal restrictions (co-employment status or jurisdiction differences) or a lack of coordinated policies. And misalignment can lead to a disjointed workforce, where contingent workers feel excluded, resulting in reduced engagement and productivity.

Patricia Hanaway, who was the Vice President of Global Contingent Workforce Strategy at Cisco and spearheaded the project to manage their large contingent workforce, put it:

“I think values are huge. And what I mean by values is that contingent workers should get paid the same as employees. Contingent workers should have the same benefits.”

Start simply by involving contingent workers in company activities and recognizing their contributions just like you would for your full-time team. Get them aligned with your company’s objectives and updates.

If you’re hiring through agencies, make sure they’re on the same page when it comes to prioritizing diversity and equity during hiring processes.

Final Thoughts

As the workforce continues to evolve, contingent workers play an increasingly vital role in helping organizations stay agile, access specialized skills, and meet fluctuating demands. 

Successfully integrating these professionals into your business strategy requires more than just hiring them for temporary tasks; it demands a thoughtful approach that considers legal compliance, clear communication, and alignment with your organizational culture to ensure the best possible outcomes you expect.

I hope this guide provides you with helpful information to maximize the potential of contingent workers while fostering a cohesive, productive, and legally sound work environment. 

Remember, in today’s competitive landscape, your ability to effectively manage a diverse and dynamic workforce is part of the secrets to staying ahead in the future of work.