What Is a Contingent Worker?
The contingent workforce lexicon is extensive and can be confusing to workers and employers alike. In general, “contingent labor” is an umbrella term used to describe workers who provide services to a company but who aren’t considered permanent employees of that company. Contingent workers are typically engaged for a specific task or project, or for a specific time frame.
Many of us have heard of independent contractors, 1099s, freelancers, consultants, temps, contractors, gig workers, and so on as examples of contingent labor. While these terms describe workers who fall outside the traditional scope of a traditional W-2 employee, there are key differences when it comes to:
- The relationship between the worker and the company or person who employs them: Employers may engage with contingent workers directly, or through a third party such as a staffing agency or consulting business.
- Who pays them: Does the contingent worker bill the hiring party directly, or are they on the payroll of an intermediary such as a staffing agency?
- The basis on which they are paid: Is the worker paid an hourly wage or a retainer fee? Alternatively, are they compensated based on a fixed deliverable or milestone?
- Taxation and income reporting responsibilities: Does the contingent worker receive a Form W-2 or are they a 1099 worker? Are they subject to tax withholding?
With that in mind, this article breaks down some common terminology used to describe the contingent workforce.
1099 and Self-Employed Workers
Independent contractors, freelancers, and some consultants are self-employed workers acquired on a project or time-bound basis or on a retainer. They are not subject to tax withholding and are responsible for making their own income tax payments. These workers report their income on a 1099 form and may be referred to as 1099s or 1099 workers.
Independent Contractors (IC)
An independent contractor is any self-employed professional who performs project-based work on a contract basis for an employer. Independent contractors may provide their services as freelancers, self-employed consultants, or through a single-member business entity such an LLC or sole proprietorship. They issue invoices, collect payments, and are responsible for self-employment taxes.
Freelancers perform project or task-based work for compensation. They are most often hired or retained by the hiring party as an independent contractor.
A consultant evaluates a business’ needs and offers professional advice in a specific field. They typically work for a company for a short period of time.
Consultants may be supplied, managed, and compensated by a consulting agency or they may be self-employed and sourced directly by the hiring party. In this case, they may bill the employer hourly or charge a fixed price based on a pre-determined deliverable or milestone. The latter is often the case in an SOW consulting arrangement, in which the consultant performs services according to a Statement of Work—a document that outlines the requirements and expected deliverables of a consulting project.
A temporary worker, or temp, is any employee who performs services for an organization with the expectation that there will be a discrete beginning and end. Temporary employees can be hired directly by an organization, or through a staffing agency.
Contractors work on specific projects or deliver a particular service laid out in a contract. According to Staffing Industry Analysts, temporary worker and contractor may be used interchangeably when describing a contingent resource.
Agency contractors are supplied, managed, and compensated by a staffing agency. Fees are paid by the hiring party to the agency following successful the placement of each contractor.
How Do Agency Contractors and Independent Contractors Differ?
The main difference between agency and independent contractors is that the former may be classified as W-2 employees on a contract basis, while the latter are considered 1099 workers. Agency contractors are hired by a staffing agency before being placed in an employer’s organization temporarily. As such, in the case of an agency contractor, an employer-employee relationship exists between the staffing agency and contractor.
A gig worker isn't a classification of worker, but describes how a worker was acquired. Gig workers encompass a wide range of contingent talent—including freelancers, temporary workers, and consultants. Typically, gig workers are enlisted through online talent platforms such as Fiverr, Upwork, TaskRabbit, Uber, and DoorDash. They may be compensated hourly or following the completion of a task or discrete project such as designing a website or translating a document.
Flexibility now dominates the way we speak about the future of work. Companies are increasingly expanding their use of contingent labor in large numbers to offset skills shortages, leverage instant expertise, increase innovation, and gain a strategic advantage in a competitive talent market.
In order to effectively manage the various types of contingent labor, leaders need to have complete clarity around the types of labor being managed. LevelUP’s Contingent Workforce Management solution is an all-in-one service that sources, hires, and manages your contingent workforce, taking the complexity and risk out of working with a wide range of contingent talent types. As a mid-market provider, every program is designed to be flexible to address each client’s goals and concerns. Click here to find out more about our Contingent Workforce Management (CWM) solution offerings.