Contingent Workforce
Encyclopedia
A contingent workforce is 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 contractor
s or consultants. Contingent Workforce Management (CWM) is the strategic approach to managing
an organization's contingent workforce in a way that it reduces the company's cost in the management of contingent employees and mitigates the company's risk in employing them.
s, employees of contract companies, workers who are on call, and temporary workers.
has had a large impact on the growth in using contingent labor. Globalization contributes to rapid growth in industries, increased outsourcing, and a need for flexibility and agility to remain competitive. By engaging contract workers, organizations are able to be agile and save costs. The contingent workforce acts as a variable workforce for companies to select from to perform specific projects or complete specialized projects. Also as organizations make efforts to be more agile and to quickly respond to change in order to be more competitive, they turn to the contingent workforce to have on-demand access to professionals and experts. Organizations also see the opportunity to reduce benefits and retirement costs by engaging the contingent workforce. However, there is risk involved in avoiding these costs if an employee is improperly classified as a contingent worker. Using the contingent workforce is also cost-effective in that using contingent labor allows for adjustments to employment levels and employment costs depending on what kind of expertise and labor is need and at what time it is needed.
Trends in the contingent workforce are also impacted by the economy. A study conducted by the MPS Group shows the relationship between the contingent labor cycle and the state of the economy. In a bullish economy, the demand for contingent labor is strong. This is most likely because organizations are trying to grow with the economy, and using contingent workers allows them to work with experts when needed, without the long-term costs of hiring them.
A knowledge-driven economy also contributes to the growth in the use of the contingent workforce because organizations rely more on their specific and expert knowledge and expertise. As demand increases for highly-skilled and knowledgeable people, the expertise of contract workers becomes more attractive.
The business trends behind the up-tick in contingent work are inexorable. Some retired employees with valuable skills may seek reentry to the workforce as outside consultants in their area of specialty. Two of the largest and most-talented segments of the U.S. workforce, retiring baby boomers and Generation Xers, are foregoing full-time employment as W-2 workers and opting to work as 'contingents'. Multi-earner families where one partner has company-funded employee benefits make it possible for the other partner to work freelance. With business expenses fully deductible, a self-employed consultant with 1099 income and proper planning can have a lower effective tax rate than a worker with W-2 income. Businesses are motivated to draw upon an experienced and valuable pool of workforce talent, which in turn may be cost-effective and beneficial to both parties.
CWO is a toolkit that has evolved to handle the non-W-2 business wave. As contingent workers continue to grow at a double-digit annual pace as a percentage of the overall workforce, companies are feeling an ever greater need to have tools to manage this quickly-growing phenomenon. Capturing and managing data that allows managers to see and control their entire contingent and full-time workforces is a complex task that is now possible with contingent workforce management or CWO tools.
Independent contractor
An independent contractor is a natural person, business, or corporation that provides goods or services to another entity under terms specified in a contract or within a verbal agreement. Unlike an employee, an independent contractor does not work regularly for an employer but works as and when...
s or consultants. Contingent Workforce Management (CWM) is the strategic approach to managing
Management
Management in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively...
an organization's contingent workforce in a way that it reduces the company's cost in the management of contingent employees and mitigates the company's risk in employing them.
Trends
According to the US Bureau of Labor Statistics (BLS), the nontraditional workforce includes "multiple job holders, contingent and part-time workers, and people in alternative work arrangements." These workers currently represent a substantial portion of the U.S. workforce, and "nearly four out of five employers, in establishments of all sizes and industries, use some form of nontraditional staffing." "People in alternative work arrangements" includes independent contractorIndependent contractor
An independent contractor is a natural person, business, or corporation that provides goods or services to another entity under terms specified in a contract or within a verbal agreement. Unlike an employee, an independent contractor does not work regularly for an employer but works as and when...
s, employees of contract companies, workers who are on call, and temporary workers.
Drivers of growth
Among several other contributing factors, globalizationGlobalization
Globalization refers to the increasingly global relationships of culture, people and economic activity. Most often, it refers to economics: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import...
has had a large impact on the growth in using contingent labor. Globalization contributes to rapid growth in industries, increased outsourcing, and a need for flexibility and agility to remain competitive. By engaging contract workers, organizations are able to be agile and save costs. The contingent workforce acts as a variable workforce for companies to select from to perform specific projects or complete specialized projects. Also as organizations make efforts to be more agile and to quickly respond to change in order to be more competitive, they turn to the contingent workforce to have on-demand access to professionals and experts. Organizations also see the opportunity to reduce benefits and retirement costs by engaging the contingent workforce. However, there is risk involved in avoiding these costs if an employee is improperly classified as a contingent worker. Using the contingent workforce is also cost-effective in that using contingent labor allows for adjustments to employment levels and employment costs depending on what kind of expertise and labor is need and at what time it is needed.
Trends in the contingent workforce are also impacted by the economy. A study conducted by the MPS Group shows the relationship between the contingent labor cycle and the state of the economy. In a bullish economy, the demand for contingent labor is strong. This is most likely because organizations are trying to grow with the economy, and using contingent workers allows them to work with experts when needed, without the long-term costs of hiring them.
A knowledge-driven economy also contributes to the growth in the use of the contingent workforce because organizations rely more on their specific and expert knowledge and expertise. As demand increases for highly-skilled and knowledgeable people, the expertise of contract workers becomes more attractive.
Advantages and Disadvantages of using Contingent Workers
| Advantages | Disadvantages |
|---|---|
| Flexibility in type and amount of labor resources | Loyalty to employer or company |
| Save costs in benefits and tax | Disturbs organizations core morale and culture |
| Immediate access to expertise not present internally | Training costs |
| Savings in long-term compensation costs |
Contingent workforce outsourcing
Contingent Workforce Outsourcing (CWO) denotes a provider who facilitates clients' ability to aggregate and track spending, billing, and performance of more than one type of non-W-2 worker. This includes traditional temps and independent contractors and consultants.The business trends behind the up-tick in contingent work are inexorable. Some retired employees with valuable skills may seek reentry to the workforce as outside consultants in their area of specialty. Two of the largest and most-talented segments of the U.S. workforce, retiring baby boomers and Generation Xers, are foregoing full-time employment as W-2 workers and opting to work as 'contingents'. Multi-earner families where one partner has company-funded employee benefits make it possible for the other partner to work freelance. With business expenses fully deductible, a self-employed consultant with 1099 income and proper planning can have a lower effective tax rate than a worker with W-2 income. Businesses are motivated to draw upon an experienced and valuable pool of workforce talent, which in turn may be cost-effective and beneficial to both parties.
CWO is a toolkit that has evolved to handle the non-W-2 business wave. As contingent workers continue to grow at a double-digit annual pace as a percentage of the overall workforce, companies are feeling an ever greater need to have tools to manage this quickly-growing phenomenon. Capturing and managing data that allows managers to see and control their entire contingent and full-time workforces is a complex task that is now possible with contingent workforce management or CWO tools.
See also
- PermatempPermatempA permatemp is an employee whose status is somewhere between a temporary employee and a permanent employee. The word is a portmanteau of the words permanent and temporary.There are two types of permatemp employment relationships...
(An employee whose status is somewhere between a temporary employee and a permanent employee.) - Independent contractorIndependent contractorAn independent contractor is a natural person, business, or corporation that provides goods or services to another entity under terms specified in a contract or within a verbal agreement. Unlike an employee, an independent contractor does not work regularly for an employer but works as and when...
(A person or business which provides goods or services to another entity under a contract.) - IRS ReclassificationIRS reclassificationIRS reclassification as an employee occurs where persons claimed as independent contractors are recategorized by the Internal Revenue Service , or by state tax authorities, as W-2 employees. The reclassification can result in the imposition of fines, penalties, and back-taxes for which the...
(Independent contractors recategorized by the IRS or by state tax authorities as W-2 employees.) - Human Resource ManagementHuman resource managementHuman Resource Management is the management of an organization's employees. While human resource management is sometimes referred to as a "soft" management skill, effective practice within an organization requires a strategic focus to ensure that people resources can facilitate the achievement of...
- WorkforceWorkforceThe workforce is the labour pool in employment. It is generally used to describe those working for a single company or industry, but can also apply to a geographic region like a city, country, state, etc. The term generally excludes the employers or management, and implies those involved in...
- Human CapitalHuman capitalHuman capitalis the stock of competencies, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value. It is the attributes gained by a worker through education and experience...
External links
- Human Capital Institute on Contingent Workforce Management - uses term contingent workforce but not defined