Why More Companies Are Using Contract Workers to Fill in the Gaps
The tight labor market has supercharged the gig economy, as companies seek out alternate ways to fill open positions and ongoing skills gaps.
Research published by Wiley in January 2023 found 69% of companies suffer from a substantial skills gap. To correct this, 41% of the HR professionals surveyed said they use contractors.
The situation isn't confined to the United States, either. It is happening at scale, around the world.
For instance, contract vacancies in the UK increased by double digits in 2022, according to APSCo, while permanent job openings dropped by the same proportion.
So, what's fueling this growing interest worldwide? We've asked experts, who cited three critical advantages for business.
Advantage 1: Agility
If the pandemic has taught any lesson to corporate leaders, it's the need for agility. And now, HR leaders are bringing the concept to their recruitment strategy.
Ravi Swaminathan, CEO and co-founder of TaskHuman, said companies are working around the labor challenges by building agility and turning to gig workers to fill open positions.
Contract workers are particularly useful, Swaminathan said, for shorter term projects, like testing a new software or overhauling a website, for instance. They allow core full-time employees to tend to key tasks while delegating one-off projects to contractors.
Plus, contract workers provide a very narrow, often specialized set of skills that can be difficult to find elsewhere. Most individuals who are heavily trained in one field prefer to do focus work, rather than take on full-time positions that most often require them to also spend time on clerical or administrative tasks. Tapping into this skilled workforce allows companies to access top-level skills they would otherwise not have access to.
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Advantage 2: Scalability
In the current economic environment, companies are struggling to grow, despite sustained high demand. The problem is labor availability.
To help them deliver on demand and grow their business, leaders are expanding their talent search well beyond their usual geographic area.
"An increased number of companies are looking to fill these roles by hiring from outside of the US," said Jacqueline Samira, founder and CEO of Howdy.
While Samira said the change in hiring behavior is primarily driven by talent availability, along with growing remote work technologies, by sourcing contractors from around the globe, employers also increase their chances of finding the right set of skills for the job, she said — and often at the right price.
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Advantage 3: Cost
Having a contingent workforce has a very appealing cost advantage for companies — particularly at a time when organizations are trying to do more (or the same) with less.
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On one hand, employers don't have to manage employment taxes, health insurance coverage, retirement benefits and many other such expenses as they would for their full-time workers.
On the other, organizations can pay contractors for the exact number of hours worked to accomplish a specific goal, and free core employees from tasks that eat away at their productivity.
The cost advantage is clear, said Miles Everson, CEO of MBO Partners. So clear that MBO Partners' research shows the trend of hiring contract workers is expected to grow significantly still in the coming years.
"Over the next five years, almost 8 out of 10 corporations (77%) expect their use of contingent labor [contract workers] to increase substantially (33%) or increase somewhat (44%)," Everson said, citing his company's research.
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The Risks Associated With Hiring Contract Workers
Despite the benefits, there are important considerations to building a contingent workforce.
Companies must properly manage compliance and business requirements, Everson said, as misclassification consequences can be a significant issue. A time-consuming audit can be triggered by a contractor who files for unemployment, a whistleblower who reports misclassification or a worker who completes and files an SS-8 form.
For that reason, hiring firms must thoroughly understand federal, state and local government laws, as contract work regulations differs state-to-state — and even more so when hiring outside of the country. Only through proper planning can you protect your business.
If a firm is found non-compliant with local laws, it can also face significant fines, Samira said, though, she adds, there are also substantial risks for the contractors themselves, like tax liabilities and job precarity.
Companies seeking to go the contract worker route may want to consult experts in labor laws first to determine if this course of action is right for them.
About the Author
Kaya Ismail is a business software journalist and commentator with years of experience in the CMS industry.