The world of work is undergoing rapid transformation, driven by technological advancement, changing employee preferences and evolving business models. One of the most powerful currents in this tide of change is the rise of gig workers, also known as contingent workers, freelancers or contractors.
Business owners and HR professionals must align their workforce strategies to accommodate this fundamental shift in the very nature of employment. In this article, we’ll explore the rise of contingent workers, the benefits and challenges they present for human resources services and how HR strategies can be adapted to effectively manage and integrate the growing contingent workforce.
How many participate in the contingent workforce?
According to the McKinsey & Co. American Opportunity Survey, 36 percent of all respondents identified as independent workers. If that figure is applied to the entire U.S. workforce, that means there could be as many as 58 million Americans participating in some form of gig work. This number includes anyone who worked as a temp, freelancer, consultant, tutor, rideshare driver, delivery driver or independent contract worker. Some of the respondents also had full-time jobs but used gig work for supplemental income.
The Gig Economy: A New Frontier
Why are participants in the contingent workforce called gig workers? In the 1920s, jazz musicians began to use the term “gig” as shorthand for an engagement to perform. Today’s gig economy, characterized by short-term contracts, freelance work and temporary engagements, has been steadily growing in prominence over the past decade. This shift is being driven by powerful forces, including the following:
1. Talent Acquisition Technology
The digital age has enabled remote work, collaboration tools, virtual participation and online platforms that connect employers with freelance talent from around the world. Companies now have access to a vast pool of skilled individuals, while the contingent workforce can choose from a wider range of job opportunities.
Remote work has emptied the office buildings in major cities and has transformed the real estate markets in desirable locations to live and work. For human resources, talent acquisition technology includes writing job descriptions, job posting, recruiting compliance, automated resume review, background checks, skill testing and onboarding.
2. Service Automation
Companies like Uber, Instacart and DoorDash have automated the transactional elements of ridesharing, grocery shopping and food service, leaving only the physical execution of the service to be handled by a contingent workforce operating as independent contractors.
In the business models employed by these trailblazers, the emphasis is on customer interaction with the application, while the provider of the service does not actually employ the driver, grocery shopper or delivery server.
3. Changing Worker Preferences
Many of today’s workers, particularly in the Millennial and Gen Z age groups, are drawn to the flexibility and autonomy offered by contingent workforce trends. They seek the ability to control their work schedules, choose projects that align with their interests and avoid the traditional 9-to-5 office grind.
While it was once common to join a company and plan on rising through the ranks, today’s workers are just as likely to expect that their career growth may come through switching jobs or even changing industries. Finally, in response to the rising cost of housing, some contingent workers pursue a nomadic lifestyle that’s based around professions like travel nursing, content creation or remote consulting, allowing them to combine their paycheck with the freedom of travel.
4. Cost Savings (and Skill Upgrades) for Employers
Businesses can reduce overhead costs by hiring a contingent workforce instead of full-time employees. Businesses can also employ contingent workers to tap into specialized expertise only as needed. For example, a small company might hire a temporary chief financial officer to help with financial restructuring, bring in a marketing analyst to support a new product launch or reach out to a web expert to update its customer portal.
By aligning with contingent workforce trends, companies can add the impact of experienced professional talent without the commitment in benefits, office space or long-term obligation that would accompany a full-time hire.
5. Solutions to Economic Uncertainty
The economic instability witnessed in recent years, such as the global financial crisis of 2008 and the COVID-19 pandemic, has accelerated the adoption of gig work as individuals seek alternative income sources as a solution to reduced job security.
A study by the Bureau of Labor Statistics (BLS) found that over the past three decades, the number of workers who are not confident about keeping their job has steadily increased, among both blue-collar and white-collar professions. The same study showed that this lack of confidence also applied to worker expectations of how difficult it could be to find another job.
In their annual “Making Ends Meet” report, the Consumer Financial Protection Bureau reported that despite government programs for pandemic relief and pausing student loan payments, more families than ever are struggling to pay their bills. Even those with traditionally solid jobs like nurses or police officers find they need to earn something extra to meet the monthly budget. For many such families, solutions can be found in the contingent workforce.
Benefits of Embracing Contingent Workers
The rise of contingent workers offers several advantages to both businesses and workers. Let’s explore these benefits from both perspectives:
Contingent Workforce Benefits for Businesses
Reduced Labor Costs: Hiring contingent workers can significantly reduce labor costs. Companies can avoid expenses related to salaries, benefits and taxes associated with full-time employees.
Reduced Operating Costs: Companies like Uber and Instacart can provide transportation or delivery services while spending nothing on fuel, maintenance or insurance, all of which are provided by their contingent workforce of independent contract drivers.
Tactical Flexibility: Businesses can quickly adapt to changing market conditions by scaling their workforce up or down based as required by economic conditions. This agility is especially valuable in industries with fluctuating or seasonal demand.
Access to Specialized Skills: Contingent workers may possess niche skills and expertise that can be crucial for specific technical or financial projects. Companies can tap into this talent pool to meet temporary challenges that require specialized knowledge, such as a factory relocation, a product redesign or a public offering of stock.
Reduced Administrative Burden: Managing payroll, benefits and HR paperwork for full-time employees is often time-consuming. By adding the option to engage contingent workers or HR outsourcing providers, the administrative workload is typically lighter, allowing HR teams to focus on strategic initiatives.
Access to a Global Talent Pool: Online platforms and remote work capabilities enable businesses to globalize their talent acquisition strategies by expanding their options and balancing labor costs with product or service revenue.
Contingent Workforce Benefits for Workers
Flexibility and Autonomy: Contingent workers have greater control over their work schedules and can choose the projects they find most appealing. This autonomy can lead to improved work-life balance and job satisfaction.
Diverse Opportunities: Instead of working for just one employer, freelancers have the opportunity to work on a variety of projects and with different clients, enhancing their skill set and expanding their professional network.
Income Diversity: Gig work can serve as a supplemental income source or a way to diversify one’s earnings. This can provide financial stability and security in uncertain economic times.
Geographic Independence: Many gig jobs can be performed remotely, allowing workers to live and work from anywhere in the world. This can lead to a more fulfilling lifestyle for those who value location independence.
Entrepreneurial Opportunities: Gig work can be a steppingstone for individuals looking to launch their own businesses or pursue entrepreneurial endeavors. Many entrepreneurs have launched their business as a “side gig” while also working in a regular full-time job.
Challenges of Contingent Workforce Management
While the gig economy offers numerous benefits, it also presents challenges for HR professionals and business owners. Some of the most common challenges include:
1. Legal and Regulatory Compliance
Determining the appropriate classification of temporary workers, such as independent contractors vs. employees, is a complex legal issue. The precise difference between an employee and an independent contractor may depend on applicable federal and state laws. Misclassifying workers can lead to severe legal penalties and financial consequences, so HR teams must help ensure that they are on solid legal ground when hiring and managing a contingent workforce. The Bureau of Labor Statistics can provide insights, with resources such as its “What is an Employee?” guide. Businesses can also engage an HR services provider to offer help with payroll, worker classification, compliance and more.
2. Lack of Engagement and Loyalty
One of the important factors in workforce performance improvement is employee engagement, the sought-after sense of ownership in the company’s mission. Contingent workers may not feel the same level of loyalty or attachment to a company as full-time employees. This can affect their commitment to the organization’s mission and values. However, in a relationship that rewards both parties, a contingent worker can give and receive the same sense of appreciation and partnership as can be expected between the company and a valued supplier.
3. Communication and Collaboration
Managing a remote contingent workforce can be challenging in terms of communication, collaboration and team cohesion. A contract engineer in China or India will be sleeping while their North American teammates are in the middle of their day. Language and culture barriers can inhibit the efficient flow of work products and all other communications. HR teams must find effective ways to treat contingent workers equitably and to keep them engaged and aligned with company goals.
4. Benefits and Well-being
Contingent workers do not receive access to traditional employee benefits like health insurance, retirement plans and paid time off. This can lead to concerns about their financial security and overall well-being, which can translate into performance issues or lack of long-term commitment.
5. Talent Management and Retention
Attracting and retaining top talent in the gig economy can be competitive. HR professionals must devise strategies to make their organization stand out as an attractive option for contingent workers. In most cases, the first consideration is competitive pay. Beyond pay rates, contract workers, like all independent suppliers or vendors, are looking for clients who are easy to work with and who pay invoices promptly.
Adapting HR Strategies for the Gig Economy
To successfully navigate the rise of the contingent workforce, HR professionals and business owners must adapt their strategies and practices to recognize the independent perspective of contingent workers. Here are some key considerations:
1. Clear Classification and Compliance
Avoid legal pitfalls by accurately classifying temporary workers as either independent contractors or employees, based on regulatory criteria. Consult with legal advisors to ensure compliance with labor laws and regulations for your state, county and industry, especially when creating a new category of contingent work.
2. Robust Onboarding and Training
Despite their short-term engagements, contingent workers should receive proper onboarding and training to understand the company’s culture, values and project expectations. Provide clear descriptions of desired work and examples of successful project output to make it clear what the company wants.
3. Effective Communication Tools
Invest in communication and collaboration tools that facilitate seamless interactions between in-house employees and contingent workers. Regular check-ins, virtual meetings, quality audits and project management platforms can help bridge the gap.
4. Performance Evaluation and Feedback
Implement performance evaluation and management systems that allow contingent workers to receive constructive feedback on their work. Recognize and reward exceptional performance to foster loyalty and engagement. Modest rewards can include writing an enthusiastic review that the freelancer can use to market their services. For exceptional contributions, members of the company’s contingent workforce may be as deserving of a bonus as their permanent employees.
5. Benefits and Well-being
Explore options for providing temporary workers with low-cost or no-cost access to benefits, such as health insurance, retirement plans, training and development opportunities and paid time off. Consider offering these benefits as part of a total compensation package to particularly valuable contingent workers.
6. Talent Attraction and Retention
To attract top gig talent, promote your organization as an appealing destination for freelancers and independent contractors. Showcase the interesting projects, professional development opportunities and flexible work arrangements your company offers.
7. Data-Driven Decision Making
Utilize HR data analytics to track the performance of gig workers and the impact of contingent workforce strategies on your organization. Use this data to make informed decisions and to refine your contingent human resource strategy.
8. Establish a Talent Pool
Maintain a contingent workforce database of skilled performers who have previously collaborated with your organization. This can streamline the hiring process for future projects and reduce the time and effort required to find suitable candidates.
9. Focus on Inclusivity and Diversity
Embrace diversity and inclusivity in your contingent workforce. By tapping into a wide range of backgrounds and perspectives, you can enhance creativity and innovation throughout the organization. DEI principles and strategies that guide the development of the full-time workforce should also apply to the contingent workforce.
10. Continuous Learning and Adaptation
The gig economy is dynamic and ever-changing. Human resources professionals must stay informed about industry trends, regulations and best practices to continually adapt their strategies to meet new challenges.
A Fundamental Shift in the Nature of Employment
The rise of the gig economy and the contingent workforce represents a fundamental shift in the nature of employment. To ride the top of this new wave, HR leaders and business owners must embrace the opportunities and challenges that come with contingent workforce management.
By implementing a contingent workforce strategy that prioritizes legal compliance, effective communication and the well-being of temporary workers, organizations can more successfully integrate contingent workers into their operations and remain competitive in the rapidly changing world of work.
Partner with Higginbotham for Success in the Contingent Workforce Era
The evolving landscape of employment presents not just challenges but also untapped opportunities. Managing a contingent workforce necessitates nuanced strategies that consider compliance, engagement and effective resource management.
Higginbotham offers HR outsourcing and consulting services that can help your organization navigate the complexities of human resources in today’s gig economy. With our assistance, you can focus on your core business objectives while we help guide you through HR challenges. Contact Higginbotham today and discover how our team can help your business adapt to this new era of work.