What is a contingent worker

A contingent worker is a non-permanent professional hired for short-term, project-based, or on-demand work. Unlike traditional employees, contingent workers operate independently and are not tied to a company’s payroll. Instead, they bring their expertise to specific tasks or projects without long-term commitment.

Common examples of contingent workers include

• Freelancers
• Consultants
• Gig workers
• Independent contractors/contract workers
• Temporary workers/temporary employees

Contingent worker vs. employee: What are the differences?

The primary difference between contingent workers and permanent employees lies in their employment relationship and benefits. Contingent workers are not bound by full-time employment contracts, nor are they on the company’s payroll. Instead, they work independently, often under a specific agreement for a set project or duration.

Unlike employees, contingent workers:

• Are typically self-employed or hired through a third party.
• Do not receive standard employment benefits like paid time off or health insurance.
• Have greater control over how, where, and when they work.
• Handle their own tax responsibilities in most cases.

Here’s a breakdown of the key differences:

Advantages of hiring contingent workers

Using contingent workers allows companies to expand their talent pool and increase operational efficiency without inflating hiring budgets.

• Cost savings: For most companies, hiring contingent workers is more cost-effective than hiring traditional employees. In the United States, employers only have to pay for the work completed by the worker they hire. Contingent workers are not entitled to employment benefits such as healthcare, sick days, or paid time off. Also, employers don’t have to pay for the worker’s payroll taxes, such as Social Security, as contingent employees pay their own taxes
• Flexibility: Hiring contingent workers on a temporary basis allows your company to respond to fluctuating business needs without having to complete onboarding and training for each new hire. If your business experiences a sudden increase in demand and faces a temporary worker shortage as a result, you can bring on contingent workers to support your staff
• Access to expertise: Aside from financial benefits, this hiring method can give companies a competitive advantage as it enables them to leverage the expertise of workers outside their standard workforce. If your company has a specific project requiring specialized skills, outsourcing the task to a contingent worker can give you the expertise you need without the cost of hiring a full-time employee

Disadvantages of hiring contingent workers

The working relationship between an employer and a contingent worker is quite different compared to their relationship with a part-time or full-time employee.

• Lack of control: When you hire a contingent worker, you don’t have the same level of control over their work as you do with an employee. You only control the outcome of their work, and they control their pricing, process, equipment, and schedule
• Tax risks: Treating a worker as a contingent worker when they should be classified as an employee may be considered misclassification, which can result in fines, penalties, and a damaged reputation
• Poor company culture: If you fill your workforce with majority contingent workers, the company may end up feeling like a revolving door of short-term hires, which makes building a strong company culture difficult. Instead, contingent workers should be hired on a strategic basis

Examples of contingent workers

Contingent labor is an integral par of the gig economy and the modern workforce strategies. It provides businesses with on-demand expertise across various industries. They are often hired for their specialized skills, flexibility, or ability to meet short-term demands without the commitment of full-time employment. Here are some examples of how contingent workers contribute across different fields:

• Software developers and IT specialists: Freelance software engineers, web developers, and IT technicians work on projects such as app development, system integrations, or troubleshooting specific tech challenges.
• Creative professionals: Including graphic designers, photographers, video editors, illustrators, musicians, and writers who contribute to projects like advertisements, publications, or brand campaigns on a freelance basis.
• Translation and localization experts: Translators, interpreters, and professionals at language service providers (LSPs) help businesses expand into global markets by localizing content, ensuring cultural and linguistic accuracy.
• AI data labeling experts: Professionals in AI data labeling companies contribute by annotating and preparing datasets that train machine learning models, often performing highly specialized and repetitive tasks efficiently.
• Healthcare and wellness providers: Temporary physical therapists, nurses, and wellness consultants address staffing gaps during peak periods or for special programs.
• Legal and compliance consultants: Independent legal advisors and compliance experts help businesses navigate regulatory requirements, particularly during expansion or restructuring.

How to hire contingent workers

You can hire contingent workers through a staffing agency or by posting job ads on social media platforms and job boards. The job description should clearly state the position is contingent work and that candidates will not be hired on a permanent basis. Before publishing your job ad, research your local employment laws and labor force regulations to ensure you’re hiring compliantly.

Define your needs

Begin by clearly outlining the specific role you need to fill. Determine the tasks, responsibilities, and objectives of the position. Specify the skills, experience, and qualifications required, as well

as the expected duration of the engagement—whether it's project-based, short-term, or ongoing.

Understand legal considerations

Familiarize yourself with the legal distinctions between employees and independent contractors to ensure compliance with labor laws and tax regulations. Misclassification can lead to legal penalties, so it's crucial to classify workers correctly. Consulting a legal expert can help you navigate these complexities.

Establish clear agreements

Once you've selected a candidate, draft a clear contract that outlines:

• Scope of work: Define duties, deliverables, and deadlines.
• Payment terms: Agree on rates, payment schedules, and invoicing procedures.
• Confidentiality and IP rights: Include clauses to protect your company's sensitive information and intellectual property.
• Termination conditions: Specify how either party can end the agreement.

A well-defined contract helps prevent misunderstandings and sets expectations for both parties.

Onboard and integrate

Provide the contingent worker with the necessary resources, tools, and information to perform their tasks effectively. Communicate your company's policies, quality standards, and communication protocols. Integrate them with your team as appropriate to enhance collaboration.

Manage the working relationship

Maintain open communication and offer support throughout the engagement. Set milestones to monitor progress and provide feedback to ensure the work meets your standards. Address any issues promptly to keep the project on track.

Ensure compliance and proper classification

Consider engaging an Agent of Record (AOR) to handle compliance, contracts, and payments for independent contractors, ensuring adherence to legal requirements. For international hires or more complex situations, an Employer of Record (EOR) can act as the legal employer on your behalf, managing payroll, taxes, benefits, and compliance with local employment laws.

Want to avoid potentially misclassifying your current and future workers? Take our quiz and see if you are at risk of misclassification.

What is contingent workforce management?

Contingent workforce management refers to the process of hiring and managing non-permanent workers like freelancers, contractors, consultants, and temporary staff at scale. It covers everything from finding and onboarding workers to handling contracts, engagement, payments, and compliance. This often involves using tools that simplify tasks like negotiating terms, processing invoices, and ensuring legal and regulatory requirements are met.

Effortlessly hire and manage contingent workers with Deel

Deel takes the complexity out of contingent workforce management, giving you more time to focus on your business. From contracts to payments, everything is handled in one sleek platform designed to simplify your use of contingent workers. With just a few clicks, you can:

• Generate localized contracts tailored to regional labor laws.
• Onboard workers quickly by automating document collection and compliance checks.
• Pay contractors seamlessly in 120+ currencies with Deel’s automated payment system.
• Stay compliant with real-time updates on local labor and tax regulations.

Ready to see how Deel can transform your contingent workforce management? Book a demo a talk to our experts today.