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August 17, 2021 | HR Compliance | Posted by Ascentis Thought Leadership

Contingent Worker Compliance

Contingent worker compliance is an important matter to stay on top of if you plan on hiring independent talent for your business. In today’s world, temporary hiring for specialty work has become increasingly popular. Temporary hiring and staffing can be complicated enough without having to worry about the hurdles that come with maintaining compliance with contingent workers.

There are several benefits to using a contingent workforce instead of building a team of permanent employees, but you have to know how to do it right. Ensuring you comply with HR laws and other regulations surrounding your temporary workforce is important if you want to make the most out of contingent workers. Non-compliance can cost your business a lot of money, so you need to make sure you’re staying up-to-date with laws and regulations surrounding contingent workers.

At Ascentis, we’re dedicated to helping you find ways to grow your business and maintain compliance. You can find more information about contingent workers by taking a look at the US Bureau of Labor Statistics contingent worker FAQs. Otherwise, here’s what you need to know if you want to be compliant while hiring contingent workers.

What is a contingent worker?

Generally speaking, a contingent worker is categorized as an employee hired for a specific length of time via a staffing company or leasing agency. Opinions vary on whether or not employees such as independent contractors, freelance workers, part-time temp workers, and direct hires should be counted as contingent employees, especially since there are often different tax filing requirements for each of those segments. For the purposes of this post, we will consider any worker not classified as a full-time employee (FTE) under existing employment law to be a contingent worker.

Graphic explaining how contingent workers are employees hiring for a specific period of time through a staffing agency, such as freelance workers and direct hiresContingent workers and independent contractors represent an ever-growing segment of the American workforce. Going into 2020, roughly 43% of workers were classified as contingent employees, a number that likely only rose as employers adjusted their scheduling and hiring practices during the pandemic. Looking at factors like the rise of the so-called gig economy, the push for greater work-life balance by Millennial and Gen Z employees, and the flexibility necessitated by COVID-related safety measures, it seems evident that most businesses need to include contingent workers in their future plans.

Going into 2020, 43% of workers were classified as contingent workers.

One of the biggest hurdles for employers expanding their base of contingent labor is the extra layer of compliance considerations that come with it. The diversification of the modern workforce has created a complicated web of legal requirements that can be a challenge for employers accustomed to dealing with a mostly full-time workforce. Keeping track of the reporting, tax considerations, and employment law requirements for a workforce that includes full-time employees, contingent workers, independent contractors, freelancers, and other types of workers requires an organized strategy and the right technology for the job.

Contingent workforce management

There are several things you need to keep in mind if you want to get the most out of your contingent workforce. Contingent workforce compliance is important, but it’s also important to understand managing a contingent workforce. Employee talent management software can help with this, but it’s mostly about understanding what your obligations are as a business.

One of the most important things you should be aware of is when a worker should be classified as an employee vs. an independent contractor. There are strict rules that determine when you can hire a person as an independent contractor, and breaking those rules and misclassifying a worker can lead to major compliance issues. When you classify a worker as an independent contractor, that worker is responsible for paying a majority of their own taxes, providing their own benefits, and more. If you’re required to classify a worker as an employee, you’ll also be required to offer benefits and pay taxes for that worker.

There are several tools that can help with contingent workforce management, such as HRIS software and payroll software. Automating areas of your business, such as payroll and HR, can make it easy to remain compliant with your contingent workforce. 

At Ascentis, we can help you ensure you’re classifying your employees correctly to create an efficient contingent workforce. Our time and attendance software also allows you to track hours for independent contractors and other temporary employees, which makes it even easier to stay on top of contingent workforce management.

Benefits of contingent workers

A more contingent-based workforce offers a number of advantages for employers. Short-term contracts allow a business to more easily expand the workforce during times of peak need and reduce it during slower periods. Contingent workers generally do not receive benefits packages from the businesses to whom they are contracted, which creates substantial cost-cutting opportunities for employers. Staffing agencies can be a reliable source of employees for one-time projects that require skill sets missing from their full-time workforce.

Some benefits of contingent workers include:

Benefits of contingent workers include cost efficiency, flexibility, filling skills gaps, new perspectives, and ease of hiring.
  • Cost-efficient: In most cases, hiring a contingent worker is much more affordable than a full-time employee, meaning you can get work done at a fraction of the cost.
  • Flexible: Because contingent workers are contractors, they work on their own team, meaning they’re much more flexible than if they were full-time employees who could only work in the field outside of set hours.
  • Easy to hire: Hiring a full-time worker requires onboarding and time-consuming paperwork. On the other hand, hiring contingent workers is a much faster process and requires less time to onboard and fill out documents and forms.
  • Fill skills gaps: In some cases, a project may require a skilled professional, but your company doesn’t need that skilled professional full-time. By hiring contingent workers, you can fill skill gaps without the commitment of hiring full-time.
  • New perspectives: Working with contingent workers brings new perspectives because they come from different backgrounds with different knowledge bases. These new perspectives can help your company grow and be innovative.

Contingent worker laws

As an employer, it’s important to understand that there are certain legal rights that contingent workers have when they enter into an agreement with your company. Respecting these rights and adhering to the laws surrounding contingent workers is one of the most critical parts of contingent workforce management..

Contingent workers are entitled to federal and state wage standards, including minimum wage, overtime pay, and standard working hours. This means that you can’t force an independent contractor to work more than 8 hours a day or 40 hours a week without offering overtime pay. Just because a worker is temporary doesn’t mean they don’t have rights.

When you hire contingent workers, you’re also required to provide a safe work environment in accordance with Occupational Safety and Health Act (OSHA) rules. However, this only applies if a temporary employee is working at a physical worksite. This means that any temporary workers who aren’t working remotely need the same protection you offer your employees.

Contract laws for a particular region will also apply to a contingent worker. When a contingent worker or an employer breaks the terms of a contract, that person can be held liable for breaching an employment contract. Getting help from legal experts and utilizing HR recruiting software can help you simplify the hiring and management process for contingent workers.

What are the biggest contingent labor compliance concerns?

Proper classification is probably the most visible compliance concern for employers hiring contingent workers. Understanding who is and is not a contingent worker is vital for your human resources department and management team. Federal, state, and local employment laws include strict penalties for misclassifying full-time workers as contingent labor or independent contractors. That makes sense since improper classification can impact both the employee (via loss of protections related to overtime pay, FMLA accommodations, health care access, and other benefits) and the government (via decreased tax revenue and lower contributions to unemployment and workers’ compensations funds).

The complexity of contingent labor is especially challenging because even a well-meaning organization can easily make honest mistakes that prove costly in the long run. That confusion is only escalated by the fact that specific responsibilities often hinge on the source of the hire. For direct hires, for example, the employer is responsible for providing benefits and protections. If contingent workers are hired through a staffing agency or consulting company, on the other hand, they are the responsibility of the sourcing organization. 

Responsibilities for independent contractors and freelance workers, meanwhile, vary from state to state.

(One notable constant: providing workplace health and safety protections is always the responsibility of the employer, an especially important consideration in the era of COVID-19 concerns.)

Adding another layer of complexity, contingent workers are sometimes classified differently under different regulations. The Affordable Care Act, for instance, gives certain part-time and contingent employees the same classification as full-time employees. State and local laws may also mandate different handling of contingent workers based on the size of the company. All of this means that it is very possible for the same employee to be considered a contingent laborer under one law and an FTE under another.

The top contingent labor compliance concerns include proper classification, costly mistakes, varying responsibilities by state, and complex classification laws.

Clearly, staying compliant with employment laws focused on contingent labor takes a great deal of effort, knowledge, and coordination. Automating your human resources functions can go a long way toward mitigating risk related to scheduling, classification, and other key compliance issues. Compared to the financial and reputational risks that come with improper handling of contingent workers, a compliance-friendly HR software solution is a sound investment.

Learn more about the ways Ascentis HRIS software can help you better manage your contingent workforce and reduce the risk of non-compliance. We even have an easy-to-use mobile HR app that allows employees and managers to track time and attendance, manage payroll, improve workplace safety, and more.

With more than 35 years of experience in providing Software as a Service (SaaS) solutions, Ascentis thought leaders have become a respected source for insights, tips, and innovations in the Human Capital Management (HCM) space.