Advantages and Disadvantages of Engaging Contingent Labor

Editors Note: The World Economic Forum recently published the Future of Jobs Survey.  From the companies who responded, 61% are likely to engage new, temporary staff with skills relevant to new technologies; 64% are likely to outsource some business functions to external contractors. With this in mind, nextSource is re-posting one our most popular blog articles (originally published in October 2015) to help you determine if engaging contingent labor is right for your organization. Enjoy! 

So you’re the person responsible for HR at a small to moderate size business (an SMB in the parlance of the times) and you’re growing. But you’re not sure if the growth will be sustained or if it will be halting and unsteady. Or perhaps you have seasonal peak periods to accommodate. So you’re considering initiating a contingent workforce strategy for your organization. You’ve read the articles in Entrepreneur, Inc., Fortune and others extolling the growth of contingent labor as a part of the overall workforce. But is this strategy right for you? Here’s a simple primer to help you weigh some of the potential benefits and downsides of contingent labor.

BENEFITS

Cost Savings – Most obviously, the use of contingent workers, particularly to offset peak business volume times, helps an SMB avoid hiring to accommodate busy periods only to wind up overstaffed when business reverts to regular levels. Further, contingent workers typically get their benefits such as vacation time, holiday pay, sick leave, and health insurance from the staffing supplier, so your company doesn’t have to absorb those costs. Moreover, when you engage independent contractors you avoid withholding payroll taxes, paying social security and Medicare taxes, and unemployment contributions.

Eased Administrative Burden – When you engage contingent workers, administrative burdens such as routine employment documentation and other administrative tasks are handled by the staffing supplier and/or Managed Service Provider. You also eliminate the time-consuming tasks associated with seeking and reviewing employment applications, interviewing job candidates, and preparing tax-withholding forms. Outsourcing these activities gives your team more time to focus on the critical, strategic objectives of your business.

Improved Recruiting Capabilities – Contingent labor can be very useful as a sourcing tool, enabling your company to evaluate a worker’s performance on the job as a temp. The top performers can be offered full-time positions after being tested in real-life conditions. Engaging a contingent worker permits you to “try before you buy,” learning if a worker holds the skills, work ethic, and attitude you seek in your full-time hires.

DOWNSIDES

Training Difficulties – It can be challenging to provide extensive training to contingent labor, particularly when workers are engaged to address times of extreme business volume. Even when peak seasonality is not the reason for engaging contract labor, training for contingents is often different than that for full-time employees, particularly when there is sensitive intellectual property to protect.

Transiency and Dependability Issues – Contingent workers are sometimes perceived (rightly or wrongly) as less dependable. The implication is that a temp worker is more inclined to leave their temporary assignment when a full-time offer presents itself, which can leave the employer in the lurch. (See our recent blog on “ghosting” and how to address this challenge.)

Legal and Compliance Issues – Numerous high profile worker classification cases have seen employers on the hook for significant fines for misclassification, co-employment and joint-employment related claims. Managing a contingent workforce requires an HR practitioner to be well-versed in the often complex and conflicting rules and regulations for utilizing non-employee labor. Recent IRS and OSHA crackdowns prove that there is a significant risk if the contingent workforce isn’t properly classified, adding a layer of complexity to the choice of whether or not to use contingent labor. To learn more about employee classification, check out our compliance services page. For the SMB, there are plenty of good reasons to consider using contingent labor. However, it is recommended that they do so with the expert guidance of a proven provider of contingent workforce solutions provider like nextSource.