While researching my new book, Humanity Works: Merging Technologies and People for the Workforce of the Future, I learned that many companies do not understand what the growth of contract work means for their organizations and don’t realize how essential it is to make an informed and strategic decision about how to leverage these workers.
The contract workforce is defined as “a provisional group of workers who work for an organization on a non-permanent basis, also known as freelancers, independent professionals, temporary contract workers, independent contractors or consultants.”
A 2017 CareerBuilder study found that the number of contract workers has more than doubled in the last decade. According to the study, 51% of employers planned to hire temporary or contract workers in 2017. Additionally, 63% of employers revealed plans to transition some temporary or contract workers into permanent roles, up from 58% just a year earlier. This indicates that many contract workers represent quality hires who do such a good job that companies want to bring them on permanently.
Most organizations of a certain size have at least some contract workers, and if you don’t consider expanding this population as part of your talent management strategy, you are missing an opportunity to get ahead of your competition, more quickly achieve your business objectives and fuel your organization’s growth.
Mastering The Legalities
As a modern, 21st-century organization, how do you decide whether to engage contract workers — and in what capacity? The first piece involves understanding what a contract worker is and what it isn’t. There are clear differences between full-time employees and contractors, and organizations that misclassify workers are subject to large penalties. In many countries, a person is considered company-employed if the following statements are true:
They are employed by one company and are a long-term, integral part of the business.
• They use company tools and resources.
• They receive company training.
• They are required to adhere to company policies.
• They receive hourly compensation or a salary and the employer withholds taxes.
• They are eligible for benefits.
On the other hand, a person is considered a contract employee if the following statements are true:
• They are employed on a per-project basis.
• They are employed by many other companies or individuals.
• They use their own tools and resources to complete work tasks.
• They do not receive company training.
• There is no supervision on their work hours or requirements.
• They receive compensation per project and the employer does not withhold taxes.
• They are not eligible for benefits.
The Pros And Cons Of Contract Workers
Next, you should examine the benefits and drawbacks associated with bringing contract workers on board. Let’s address the significant pros first.
Contract workers are cheaper. There’s no getting around this. Even if you pay your contract workers more per hour, the expenses for full-timers, which usually include benefits, taxes, insurance, office space, training and equipment, often increase payroll by 25% or more in my experience.
You can staff on demand. If you can’t predict your workload, hiring contract workers is far less risky because you can bring them on for a short period of time or even for a single project you need to complete. Unlike full-time employees, they won’t be subject to layoffs if business goes south and, because they are already schooled in the area in which you need help, they can ramp up to full productivity quickly.
It lowers your risk of getting sued. In most countries, full-timers can bring litigation against employers for everything from overtime violations to sexual harassment, but contract workers are not offered the same protections.
Despite these advantages, building and maintaining a large contract workforce is no easy feat. In particular:
Your culture of stability will be harder to maintain. By its very nature, a contract workforce is fluid, and inevitably your workers will go in and out through a constantly revolving door. It may be difficult to build a strong culture bolstered by trustworthy employee relationships when the people involved are always different. It is also tougher to onboard contractors with the same consistent messages you deliver to full-timers and ensure that they are properly equipped to represent your company.
You can’t dictate the rules. Employees are usually subject to clear performance expectations, and if you want them to do a job in a certain way, as the employer it’s your prerogative to ask. But contract workers have a lot more freedom and may even retain copyright over their intellectual property unless your agreement stipulates otherwise.
The government might investigate. It’s in the interest of most governments to classify workers as full-timers rather than contract workers because the former ensures that more money flows into their coffers in the form of taxes and insurance. Organizations with extensive contract workforces should be prepared to be thoroughly investigated and be required to prove that independent professionals do indeed meet the definition of contract workers.
The good news is you can mitigate these concerns by carefully preparing a strategy for your contract workforce rather than just hiring workers haphazardly. Hopefully the guidance here will get you started thinking about the core issues, and you can then engage your powers that be and/or a contract workforce consultancy to begin the development of a consistent, legal and fiscally responsible program.