You’ve likely heard of the contingent workforce, though perhaps under other names like freelancers, gig workers, and contract workers. Today’s organizations increasingly leverage this flexible talent pool via tools such as vendor management systems (VMSs) to access specialized skills, reduce costs, and adapt to evolving business needs. However, navigating the intricacies of managing a contingent workforce can be challenging without a firm grasp of the key concepts involved.
This guide is here to equip you with the basic knowledge you need to begin your contingent workforce journey.
A contingent workforce is a pool of non-employee workers who provide their services to an organization on a temporary, project-based, or on-demand basis. This includes individuals like freelancers, independent contractors, consultants, and temporary workers. These people offer their specialized skills and expertise to the organization without being formally employed, meaning they aren’t on the company payroll and don’t receive the same benefits as permanent employees.
Organizations can engage with a contingent workforce directly or through staffing agencies, consulting firms, or VMSs.
Some common types of contingent worker include:
It’s important to note that the terms “independent contractor” and “freelancer” are sometimes used interchangeably, but freelancers primarily seek shorter, more task-oriented projects, while independent contractors tend to pursue longer-term engagements. Additionally, temporary workers are sometimes directly employed by companies, especially for seasonal positions like those in tourist areas experiencing increased staffing needs during the summer.
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Leveraging a pool of contingent workers offers significant advantages for organizations, such as:
Hiring contingent workers often proves more affordable than hiring full-time employees. This translates to cost savings on benefits, payroll taxes, and extensive onboarding procedures. Further, companies only pay contingent workers for the specific skills and duration required.
A contingent workforce allows businesses to adapt their workforce size dynamically based on project needs and market fluctuations. This flexibility ensures they can scale up or down quickly without the commitment of permanent employees.
Contingent workers possess specialized skills, including hard-to-find ones. This provides companies with access to expertise they might lack in their core team, filling crucial gaps for specific tasks.
Due to minimal onboarding and training requirements compared to full-time hires, contingent workers can accelerate project completion timelines.
The flexibility of a contingent workforce can help protect the jobs of permanent employees during fluctuations in workload.
Contingent workforce management encompasses the strategic oversight of non-permanent workers within an organization. It involves the entire lifecycle of managing this labor pool, from recruitment and onboarding to performance monitoring and compliance. The ultimate goal is to access specialized skills, optimize costs, and achieve greater flexibility in scaling the workforce to meet changing business demands.
SOWs are legally binding agreements commonly used when engaging different types of contingent workers. They serve as a roadmap for a project between two parties, outlining the project’s scope, including specific tasks, deliverables, deadlines, costs, and any other relevant information. By ensuring clear expectations, SOWs minimize misunderstandings and promote successful project execution.
A VMS is a platform designed to streamline the entire lifecycle of an organization’s contingent workforce. The core functionality of VMS software includes automating and centralizing various processes, from sourcing and engaging workers to managing contracts, timekeeping, invoicing, and reporting. This centralized system provides program managers with a comprehensive view of their contingent workforce, allowing them to optimize cost, efficiency, quality, and risk management.
Implementing a VMS offers these key benefits:
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MSP providers act as an extension of your company’s procurement or human resources (HR) team, taking over the entire contingent worker lifecycle.
A program provider’s responsibilities include finding qualified candidates, coordinating interview processes, overseeing the hiring and onboarding experience, and managing the administrative tasks associated with invoicing, payment processing, and data-driven program analysis. Further, these providers can offer expert guidance regarding compliance with local regulations, encompassing areas such as taxation and worker security.
The key benefits of engaging with an MSP provider include:
SMS is a hybrid program offered by VectorVMS that empowers clients to maintain control and ownership over their contingent workforce program while gaining access to a pool of specialized services and contingent staffing experts.
You have full control over how involved VectorVMS is with your system and processes. Clients can choose from a catalog of services to select the specific tasks and areas where they require expert assistance. This ranges from day-to-day administrative tasks to strategic guidance leveraging the provider’s industry experience and knowledge.
The key benefits of the SMS approach include:
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In the U.S., the law mandates that companies must accurately classify their workers as employees or independent contractors, with significant penalties for misclassification. This is particularly crucial for contingent workforce management, as the category of “independent contractor” defined by the U.S. Department of Labor encompasses many types of contingent employees described above.
In January 2024, the Department of Labor finalized a rule clarifying worker classification under the Fair Labor Standards Act (FLSA). This update introduced a six-factor “economic reality test” to help businesses accurately classify their workers. Recognizing the importance of proper classification, we’ve created a helpful resource based on these six factors to guide you through assessing your worker situation: View the resource here.
Nikki Williams – Marketing Brand Manager
Nikki Williams is responsible for marketing strategy and implementation for VectorVMS. In her role, she helps contingent workforce professionals discover the value of a vendor management solutions through blogs, webinars, conferences, and more. Her goal is to ensure these professionals can quickly find answers to their questions about VMS technology. Nikki has more than 10 years of experience as a marketing professional for technology, including human resources technologies as well as leadership and organizational development services. Connect with her on LinkedIn.