The rise of the contingent workforce has signaled an evolution in the way we do business. Suddenly specific skills can be acquired as needed, where and when they are required. The inherent possibilities of a contingent workforce are generally mutually beneficial. They balance the changing needs of companies with the desires of many in the workforce.
More than 40% of workers in the United States are engaged in alternative work arrangements, such as contingent, part-time, or gig work—a figure that has risen 36% in the past five years. It’s estimated that by 2020, contingent workers will make up 40% of the average company’s global workforce.
Managing the advantages of securing skilled labor on demand with the multitude of associated legalities is a complex, deepening need for competitive organizations today. As a substantial part of processing payroll deals with taxes, benefits, social contributions, and other considerations that are dependent on employee classification as well as the physical location of both company and worker, it’s no surprise that payroll teams are feeling the weight of that complexity.
Today’s Contingent Workers
Contingent workers consist of contractors, freelancers, temporary workers, taskers, on-call staff, and gig workers. The modern workforce is flush with skilled talent seeking an alternative to the traditional full-time employment offering that just a few years ago was considered standard. Shifting personal priorities and cultural expectations have led workers to seek flexible, term-based employment that makes the most of their primary skills while maintaining their independence, which nicely complements the business needs of modern companies.
In an uncertain economy, companies benefit from shifting fixed labor costs to more variable arrangements to gain greater control over spending. Hiring contingent workers also tends to save overhead, onboarding, and even training costs. It may reduce or eliminate the amounts employers would pay in taxes and benefits for full-time employees.
The value of using contingent workers extends well beyond cost savings. Within the gig economy, companies can find precise or unique skillsets that may be needed for a single project or set duration, whether to augment their existing workforce or amplify their capacity for a time. Often contingent workers require less training and are available to start work quickly, if not immediately.
Payroll Considerations
When processing payroll for contingent workers, it can appear that the challenges outweigh the benefits. Before we begin looking at how deductions and regulations can vary by location, we must define the worker’s employment status, a distinction that’s important for both company and worker.
Each contingent worker should be assessed as an individual case to determine if they are truly a contractor or if they would be considered an employee by applicable government bodies. Misclassification can be a costly error that is nearly as easy to overlook as it is to avoid. As compliance regulations continue to become more complex, the correct classification of workers is a critical step in good management of your contingent labor.
Payments can present another challenge, as contingent workers may be more likely to be paid through accounts payable than payroll. Payment amounts can vary far more than with standard payroll, as can pay dates and consistency. Plus, depending on the volume of contingent workers, their hours, and how they are managed, getting an accurate headcount at any one time can be difficult.
These challenges are exacerbated by the idea of mobile and international workers. Classifications can vary greatly across states, countries, and regions, as can expectations around compensation and contract terms, as well as required social contributions and taxes. If you’re planning to engage contingent workers in other markets, set aside adequate time to learn the distinctions between employees and contractors, and your specific responsibilities and requirements for each.
Managing the Future
Fortunately, integration technology and advanced payroll systems are available to help organizations manage their contingent workforces. Companies using centralized human capital management (HCM) and payroll solutions benefit from having more complete, accurate data on all types of workers as well as greater visibility into that data. Those with integrated systems can save themselves time by accessing their data all at once—particularly if their financial or accounting systems are also linked.
Technology allows for greater flexibility around payments than in the past. Pay cards, mobile payments, and multicurrency deposits are replacing paychecks and even direct deposits in many regions. While at first these alternative payment types, and the initial complexity involved in facilitating them, may seem challenging or even unnecessary, they enable greater mobility and flexibility for workers and improve the agility of companies seeking to hire them. An additional key benefit of these new payment types is heightened security and the improved compliance that goes along with that.
The gig economy is growing. The challenge to organizations seeking the competitive edge that contingent labor can provide is to understand and facilitate proper, flexible, compliant payment of those workers. And the solution to that challenge is likely to be found within a knowledgeable payroll team using a centralized, data-driven payroll solution.
Paul Bartlett is the CEO of CloudPay, a managed global payroll and payments solution for multinational organizations. A global business expert, Bartlett has deep experience helping companies improve the efficiency and scalability of their operations using technology and services. As CloudPay’s CEO, Bartlett spearheads corporate innovation and product development initiatives focused on automating client workflows and minimizing manual practices. Throughout his career, Bartlett has helped organizations address strategic and operational challenges as they navigated different growth phases and scaled their operations. In addition to CloudPay, Bartlett has served as a partner of Rho Ventures since 2007, focusing on investments in SaaS, software-related services, and new media. He holds an MBA from Stanford University’s Graduate School of Business and an undergraduate degree from Princeton University.