Hiring Contract and Gig Economy Workers

When you have an immediate staffing need, or need skills for special projects, hiring contract or gig workers can be the way to go.

Imagine a hiring environment where there were more job openings than there were people to fill them. Well, according to a recent Bureau of Labor statistics, you don’t have to imagine it—we’re living in it right now. And, it’s the first time that it’s ever happened in the two decades since the Labor Department started tracking employment statistics.

What does it mean?

  • It’s a reminder of just how strong the economy is right now.
  • It illustrates how much control certain workers have over their professional destinies—whether they want to jump ship, align purpose and profession, advocate for new workplace perks like flexible work options, or even step away from full-time work and launch a freelance gig.

Why Hire Contract Workers?

Our earlier article about the gig economy explored ways you can tailor recruiting efforts to help attract freelance or contract workers. But why should you hire contract workers in the first place? And what steps can you take to stay compliant with wage & labor laws? We’ll address these and other issues below.

Hiring contract workers can help you fulfill immediate needs, or prepare for pending projects, especially when you’re dealing with staffing shortages because of retention issues. Read our recent Spotlight, “Improve Employee Retention” for insights into many of the things that employees and contract workers crave, including workplace flexibility and autonomy.

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Meet Staffing Needs with Contract Workers

A booming economy aside, not everything is easy for businesses and organizations.

Strong demand can drive even stronger competition. In an effort to keep up and stay ahead, you need the right mix of talented employees. However, when job seekers have the luxury of being fickle, and when employees know they can increase their salaries with a new job elsewhere, it’s hard to maintain traction.

To battle this reality, many organizations are putting more resources toward retention, including the way they onboard, train, mentor, and prepare employees for advancement.

Still, even this isn’t always enough to be able to press pause on your recruiting machine. That’s where contract employees, or even temporary workers through staffing agencies, come into play.

Is now the right time to hire contract workers? Here are some key points to consider:

1. There are more contract professionals to choose from than ever before. 

The gig economy is on the rise. In the U.S., the number of contract workers has grown by 56% in the last decade, and 16% of the country’s workforce is engaged in contract work as their main profession. These workers can help you meet staffing needs, whether it’s to help fill an immediate gap, or to support a manager’s efforts as she plans to take on pending projects.

2. Hiring contract, W-9 workers can be more streamlined than hiring W-4 employees.

When you hire a W-4 employee, there are a number of obligations related to payroll taxes, wage & labor laws, and benefits that companies must adhere to. However, in the vast majority of cases, these obligations do not apply to contract workers. For the most part, contract workers will take care of their own health benefits, along with self-employment taxes—unless they are under contract with a staffing agency.

While the perks of hiring a contract worker might sound great, there are other details to consider before you open up certain jobs to your freelance pool:

3. Be sure you classify contract workers correctly.

Various state and federal agencies use different frameworks when it comes to classifying contract workers. What’s more, there’s no single rule on the books that specifically spells out whether a worker is a contractor, or a W-4 employee.

To help minimize any compliance-related risks, here are some questions to consider as you determine the status of different workers:

  • How long have they worked for you?
  • What are the terms of their contract?
  • Is it an open-ended work partnership, or does their contract have a limited duration?
  • If you have a contract in place, does it include language related to perks or benefits, such as health insurance, a pension plan, stock options, or vacation pay?
  • How much freedom do they have when it comes to how, where, and when they do their job?
  • Do they need to be on-site the majority of the time?

You may want to consult the Department of Labor’s Fact Sheet 13 for more information.

When it comes to classifying a worker as an independent contractor, doing so should be a legitimate business decision, and not an effort to avoid paying things like payroll taxes, unemployment benefits, or health insurance.

  • When you misclassify a worker as a contractor, it can leave you susceptible to a number of liabilities, including tax consequences, benefits obligations, workers’ comp and more.
  • A misclassified worker can even file and win a claim for unemployment compensation.

On the HR side, you can help avoid these situations by making sure that contracts and hiring literature specifically spell out the parameters of the professional relationship, and establish that the worker is indeed an independent contractor/freelancer. 

While freelancing is nothing new, hiring contract workers may be new for you. As you consider hiring one or more contract workers, be mindful of the details in order to protect your organization and get the most out of the professional relationship. After all, today’s freelancer might become tomorrow’s organizational leader.

Building a dedicated and successful workforce starts with recruiting, and folds into retention. myStaffingPro’s applicant tracking software can help you stay organized during every phase of hiring. Contact a representative today.