Best Practices for Contingent Workforce Management

Manage Your Contingent Workforce Legally and Responsibly

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Is everyone in your office an official employee of your company? Chances are, the answer to that is no. For instance, it's quite common to have a janitorial company come in at night to clean. If you're implementing new software, you may have consultants in your office. And, some companies—like Google—have almost as many contractors, temps, and vendors as they do employees, according to an internal document obtained by The New York Times.

But how do you manage a contingent workforce? Whether you have a temporary employee covering for someone on maternity leave or thousands of temporary employees needed for seasonal customer service, you need to be aware of the best practices for contingent workforce management.  

Know the Law About Contingent Workforce Management 

Choosing to make someone a contractor instead of an employee isn't just a matter of preference. The Fair Labor Standards Act details some of the laws regarding who is and who is not an employee. Contractors must:

  • Work independently. If you control their schedule, how they accomplish work, where they work, and buy their equipment, they are employees.
  • Have financial control. Contractors choose how many people or companies they work for. They are free to make contracts with other employers—even your competitors. (You can, of course, prevent them from sharing confidential information with a non-disclosure agreement.) Contractors take on their own profit/loss risk. 
  • Not provide key business functions. A bakery that hires an IT person to come in and set up their network has hired a contractor. IT is not the bakery's core function. But, a bakery that employs a baker as a contractor would have a much more difficult time proving that this person was not an employee. Baking is a core function of the bakery, so bakers are employees.

If there is any question as to whether someone is a legal contractor, double-check with your employment lawyer.

What about Temporary Employees in Contingent Workforce Management? 

Temporary workers can come in different forms, and it's not a clearly defined word. Many temps com from employment agencies, with 0.9% of workers coming from temp agencies in 2017. These people are employees of the employment agency, and the agency pays their employment taxes and provides benefits (if applicable). You pay the employment agency—not the temporary employee directly.

You can also have temporary workers that report directly to your company. These are employees, but with the knowledge that their jobs are temporary and will end.

How to Manage Your Contingent Workforce

Now that you know what temporary employees and contractors are, it's time to learn about managing them. Some of the best practices of contingent workforce management may seem harsh, but you need to comply with federal, state, and local laws when you manage a contingent workforce.

  • Don't offer benefits. As soon as you do offer benefits, that person can claim employee status. That means you must pay the employer side of FICA and withhold taxes, and you may face fines from the government for misclassification.
  • Don't invite contingent workers to the company Christmas party. They aren't employees. Remember: if you treat them as equals with your employees, they can claim they are employees.
  • Treat them with respect. Don't use phrases like, "The temp will do that for you." The temp has a name. Use it.
  • Limit discipline. For a temp that reports to a temporary agency, you can give feedback at the moment about the work they are producing, but if there is a significant performance issue or a behavior issue, you need to bring the problem to the employment agency. If you put a temp on a performance improvement plan, it looks like you are the boss, not the temp agency. Contractors are generally their own bosses, and so, while you can say, "Your performance is not satisfactory," you shouldn't coach them through the improvement process. Again, that shows too much control from a non-employer.
  • You can keep contractors longer. In the bakery example above, it's okay to keep the same IT person for 20 years—as long as they meet all of the other criteria. If they are working 40 hours for you, they’re an employee. If they have six different clients, control their own work schedule, and have profit and loss possibilities in their business, then it's okay. They’re a legitimate contractor.

In a 2017 survey by the Bureau of Labor Statistics, over 21 million people worked as contingent workers in the United States. The survey also identified workers who have various alternative work arrangements including independent contractors, on-call workers, temporary help agency workers, and workers provided by contract firms.

Bottom Line

It's essential to understand how contingent workforce management should be handled. You want to keep all of your contingent workforce assigned definitions of employment legal to make sure that you don’t have any blurred lines between contractors and employees, or between temporary workers and regular workers.

Article Sources

  1. Fortune. "Inside Google’s Shadow Workforce of Contract Laborers — Many Don’t Have Health Insurance," Accessed Nov. 6, 2019.

  2. Department of Labor. "Misclassification of Employees as Independent Contractors," Accessed Nov. 6, 2019. 

  3. Bureau of Labor Statistics. "Independent contractors made up 6.9 percent of employment in May 2017," Accessed Nov. 6, 2019. 

  4. Internal Revenue Service. "Independent Contractor (Self-Employed) or Employee?" Accessed Nov. 6, 2019. 

  5. Internal Revenue Service. "Understanding Employee vs. Contractor Designation," Accessed Nov. 6, 2019. 

  6. SHRM. "Navigating Employment Law in the Gig Economy," Accessed Nov. 6, 2019. 

  7. Bureau of Labor Statistics. "Contingent and Alternative Employment Arrangements Summary," Accessed Nov. 6, 2019.