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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.
What Are the Main Types of Contingent Workers?
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 as an LLC or sole proprietorship. They issue invoices, collect payments, and are responsible for self-employment taxes.
Freelancers
Freelancers perform project or task-based work for compensation. They are most often hired or retained by the hiring party as an independent contractor.
Consultants
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.
Temporary Workers
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
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
Agency contractors are supplied, managed, and compensated by a staffing agency. Fees are paid by the hiring party to the agency following successful placement of each contractor.
How do agency contractors differ from independent contractors?
Agency contractors are sourced, managed, and paid by a staffing agency, which creates an employer-employee relationship between the agency and the worker rather than between the worker and the client company. Independent contractors, by contrast, are 1099 workers who contract directly with the hiring party and are not classified as employees of any intermediary.
Gig Worker
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.
Frequently Asked Questions
What is the difference between a 1099 worker and a W-2 contingent worker?
A 1099 worker is self-employed, responsible for their own tax withholding, and typically bills a hiring party directly or invoices as an independent contractor. A W-2 contingent worker, such as an agency contractor, is employed by an intermediary like a staffing agency, which handles payroll and tax withholding while placing them temporarily with a client organization.
What is worker misclassification, and what are the risks of getting it wrong?
Worker misclassification happens when a company treats a worker as an independent contractor (1099) when the working relationship actually meets the legal criteria for employment, or vice versa. The risks include back taxes, unpaid overtime, benefits liability, and penalties from agencies like the IRS or Department of Labor, along with potential lawsuits from the misclassified worker. Companies that engage a high volume of contingent labor across multiple worker types face greater exposure, since classification rules vary by role, state, and how much control the company exercises over the work.
What is co-employment risk, and how does it apply to contingent labor?
Co-employment risk arises when a company exercises enough control over a contingent worker, such as an agency contractor, that it could be legally considered a joint employer alongside the staffing agency. This matters because joint employer status can create shared liability for wage and hour violations, benefits obligations, and workplace claims that would otherwise sit solely with the staffing agency. Companies typically manage this risk by keeping clear boundaries around supervision, training, and performance management for agency-supplied workers, and by relying on the staffing agency to handle direct employment functions.
When should a company use contingent workers instead of hiring permanent staff?
Contingent workers make sense for project-based needs, short-term skills gaps, seasonal demand, and specialized expertise that doesn't justify a permanent headcount addition. Permanent hiring is generally the better fit when the role represents ongoing, core work that requires long-term institutional knowledge and team continuity. Many organizations use a mix of both, engaging contingent talent to offset skills shortages and gain fast access to expertise while reserving permanent hires for sustained business functions.
How do companies manage contingent workforce compliance?
Compliance management starts with correctly classifying each worker type, since misclassifying a 1099 worker as a W-2 employee, or the reverse, creates tax and legal exposure. Companies typically address this through clear worker classification policies, standardized contracts or Statements of Work, and either an internal compliance function or a third-party provider, such as a staffing agency or Contingent Workforce Management (CWM) partner, to track worker status, payment terms, and tax reporting across a mixed workforce.
Is contingent workforce management different for large enterprises versus mid-market companies?
Large enterprises often manage contingent labor at a scale that requires a Vendor Management System and dedicated internal program staff to track multiple staffing agencies and worker types. Mid-market companies typically need the same visibility and compliance oversight but without the internal resources to build a program from scratch, which is why many rely on a Contingent Workforce Management provider built specifically for that scale. LevelUP HCS's CWM solution, for example, is structured as a mid-market offering, with each program designed to flex to a client's specific goals rather than following a rigid enterprise template.
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 HCS’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.
