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Contingent Worker Meaning: Contingent vs Contractor vs Direct Hire

Working relationships tend to vary depending on how workers are hired. What positions are they hired for? On what kind of basis are they hired? What are their responsibilities in the positions they are slotted in? There are 3 key factors that determine how workers will serve a business. The first one is their relationship with the company in need of their services. The second is the duration of their engagement. The third is the schedule they work. The worker relationship is the most important of the three. Here are 3 basic types of worker relationships.

Contingent Worker

A contingent worker is an employee who doesn’t have a specific contract that defines long-term employment with a company. Instead, this worker’s relationship is based on more short-term needs. Employees in this role can work for as long as a company needs them to. A contingent worker’s job may be temporary while a specific task is performed, or you could have workers who reported that they don’t expect to have their jobs much longer.

Contingent workers are normally provided by a staffing firm to the company for which work is performed and are typically employees of the staffing firm. These workers are freelancers who might work under a contract in a specified amount of time, or they might provide consulting services as needed. Instead of receiving a regularly scheduled salary, contingent workers receive payments or commissions for their completed work. Working for themselves, contingent workers simply can’t be told how to complete a project. Contingent workers have flexibility in how they can complete a task.

Salespeople are widely considered to be contingent workers. People who work on construction sites, those who set up phone and internet networks for new businesses, or those who only work during specific seasons can also be viewed as contingent workers.

Contingent workers play an important role in the overall growth of a company. Companies that want to improve their overall output may hire these kinds of workers to expand their labor force. It also serves as a money-saving tactic on the company’s part to tap into the contingent workforce, especially on expenses associated with direct exits on contracted workers, training new employees, and lost productivity. Timing is everything for a company, and the company can save time by not hiring employees for skills that may not be useful in the next 6 to 12 months.

One major advantage of being a contingent worker is that you get opportunities to build your skills professionally. You will most likely work on a wide variety of projects from many different companies. These projects will enable you to perform your job, make use of your current skills, and add more over time. Obtaining more experience only adds to a contingent worker’s resume and will make that worker more marketable when applying for jobs.

Contractor

A contractor is an independent entity that agrees to furnish a certain number of goods, material, equipment, personnel, or services that meet or exceed stated requirements or specifications, at a price that is mutually agreed on within a specific time frame. Independent contractors are workers who submit their own invoices for services provided. They are completely independent, meaning that they are not employees of a company, neither are they employees of a staffing firm.

Unlike employees, independent contractors don’t work regularly for an employer but work as required. These types of workers are usually paid on a freelance basis. Contractors often work through a limited company or franchise, which either they themselves own, or they operate through an umbrella company. Examples of occupations where arrangements for independent contractors are common include accountants, actors, artists, authors, gardeners, lawyers, or security guards.

Since they are rarely connected to any employer, independent contractors are free to make their own rules of business, which is limited only by bargaining power. Typically developing a large network of clients, the loss of a contractor or two often has a negative effect on a company. Independent contractors simply love being their own bosses as they don’t have to worry about answering to any supervisors.

One key drawback to being an independent contractor relates to the Internal Revenue Service. If contractors report more than $10,000 of earnings, the IRS is likely to question the independence of such workers and investigate the company that issued the Form 1099. Worker’s compensation and unemployment insurance are not guaranteed to independent contractors, but they are allowed to make Individual Retirement Account contributions.

Direct Hire

The Direct Hire process, also known as Direct Placement, a staffing agency will add permanent staff directly to another company’s payroll. While direct hire recruiting tasks are handled by the staffing agency, the prospective hire goes right to the client’s payroll once an offer is made and accepted.

Direct hire is ideal when clients have a long-term need. Workers that are directly hired are usually in permanent, full-time positions that have benefits attached to them. Direct hire employees are eligible for company benefits such as worker’s compensation and unemployment insurance. These permanent hires will need to be onboarded and trained, and will most likely require ongoing training as their role develops. These workers are considered to be more of an investment than a brief stopgap.

While they have certain guarantees and perks being directly connected to a company, permanent employees must follow the standards and guidelines of the business, including showing up when and where they are expected, attending meetings and events that are mandatory, and generally being a part of the team. Permanent employees are also an asset to have in a company. While it costs more to maintain them, these workers can also bring in more long-term value.

Whereas companies are having to spend time and money to cycle through independent contractors, they will save some time and money with permanent hires. Bosses can spare themselves of much stress if they can directly hire one employee to fill a single position and do the work that several contractors were hired to do. Direct hire roles require skills that are in high demand in the job market. Examples of direct hire occupations include managers, executives, and employees with unique skills such as technological skills.

Conclusion

The advantages that a contingent workforce has compared to that of contractual employees include that a company doesn’t have to collect and pay quarterly taxes from paychecks. Only an IRS Form 1099 tax document is needed to be made at the end of the year for payments to contingent workers when the year’s payments are $600 or higher. Employers are provided great flexibility when they deal with contingent workers. They can hire and let go of these workers and independent contractors whenever necessary, without worrying about firings, layoffs, or severance packages.

While contingent workers reduce the need for staffing in some areas, the employer lacks control over these workers. Because contingent workers manage themselves, a company only has monetary control over them. Work hours cannot be set for contingent workers, and they cannot be treated as permanent employees. Companies that use contingent workers also put themselves at an increased risk of spilling information. This information includes organizational knowledge, trade secrets, and intellectual property, all of which can be exposed by contingent workers who move on to work for competitors.

Author Biography

Keith Miller has over 25 years experience as a CEO and serial entrepreneur. As an entreprenuer, he has founded several multi-million dollar companies. As a writer, Keith’s work has been mentioned in CIO Magazine, Workable, BizTech, and The Charlotte Observer. If you have any questions about the content of this blog post, then please send our content editing team a message here.

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