Ever-increasing labor costs have led a growing number of companies to make more extensive use of contingent and temporary workers. Once limited to basic office temps, contingent workers are now becoming a vital part of the workforce landscape throughout all functions of modern organizations. These independent contractors, while helping keep labor costs in check, come with a significant administrative and compliance burden that leaves many HR departments scratching their heads, wondering how to effectively engage and manage them.

When CareerBuilder looked into contingent workforce trends, it discovered that no fewer than 40% of employers were planning to hire independent contractors in 2013 (source). Deloitte notes that large companies estimate that as much as 30% of their procurement dollars are spent on contingent workers (source). Because the federal government doesn’t gather data specific to the contingent workforce, it’s hard to estimate just how many independent contractors are out there. The last time the government did count, back in 2006, the number stood at 42.6 million or 30% of the workforce. A 2010 study by Intuit estimated that by 2020 that number will grow to 40% or 60 million (source).

Part of the problem is deciding how to define the contingent workforce. It can include an astonishing array of different types of workers, but most think of it as those who are either self-employed independent contractors or temporary workers. The Bureau of Labor statistics simply says that “Contingent workers are defined as those who do not have an explicit or implicit contract for long-term employment” (source).

Although the rise of the contingent workforce was well underway years ago, the Great Recession definitely gave the movement a significant boost. Companies simply had to find ways to get work done while controlling labor costs. The recovery has been slow enough to keep the contingent workforce strategies in place. Companies are seeing no compelling reason to do otherwise. This helps explain why temporary employment is one of the only rapidly-growing segments of the labor market (source).

While the increase in contingent workers has clear benefits for companies trying to control labor costs, it can create a series of real headaches for HR departments. The administrative burden in dealing with contract workers is significant, and comes with a host compliance risks as well. More laws are being passed that crack down on companies that misclassify workers, and government agencies are conducting many more employer audits than they used to do. The Department of Labor is concerned that contingent workers don’t enjoy the same levels of compensation, benefits or protections that regular permanent employees enjoy (source).

Companies need to know how to protect themselves while enjoying the benefits of utilizing contingent workers. At a minimum, companies should have the following items on their HR agenda regarding contingent workers:

• Understand how to correctly classify employees of different types.
• Streamline the contract worker payment process.
• Develop a risk management plan specifically focused on contingent workers and compliance risks.
• Engage in best practices for minimizing the administrative burden associated with the use of contingent workers.
• Establish a contingent workforce strategy.

The rise of the contingent workforce holds both great promise and serious challenges for the modern organization. It’s all too easy to get caught up in hiring and using contingent workers without thinking through how to deal with the challenges. Stay tuned for additional articles on this topic that will help you and your company make the most of its contingent workers.

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