What Is a Contingent Worker, and Why Should It Matter to Business Leaders?

What is a contingent worker? Unless you are a specialist in the contingent workforce management domain, this question may seem puzzling. Or it may seem to have a pat, albeit incorrect, answer (such as, “It’s temporary staffing. Our procurement function has been managing that for decades.”).

However, the true extent to which organizations leverage contingent workers (also called external workers or non-employees) goes far beyond what is visible and managed in most organizations’ contingent workforce management programs today.

This status quo in most organizations is problematic for a number of reasons that include, incomplete visibility into and control over spend on the majority of contingent workers; sub-optimized, non- strategic contingent workforce use-cases; and the increasing threat that competitors start to get this right. It is therefore essential that senior business executives understand their contingent workforce (that may not be visible in their organizations’ reporting systems today) and know why it matters.

What is the definition of a contingent worker?

Simply put, a contingent worker is any worker who performs work for a company on a limited basis, but is not a statutory employee of that company. Some examples of contingent workers include:

• A staffing agency temp or crew working in warehousing
• A self-employed data architect working on a project in IT
• A demand generation specialist being payrolled by a 3rd party employer of record
• A graphics design freelancer engaged on Upwork, Fiverr, et al
• A member of a team of engineering consultants working under a contract between the company and an engineering services firm and specific statement of work (SOW)

How large is the contingent workforce?

According to a Staffing Industry Analysts (SIA) report, The US Gig Economy 2022 Edition - Market Estimates and Features of the US Contingent Workforce, the total number of full-time-equivalent (FTE) contingent workers in the U.S. was 33 million in 2021. This equated to nearly $1.7 trillion of total spend on contingent workers engaged by businesses and workers serving consumers (e.g., through a platform or directly)

We subscribe to Staffing Industry Analysts’ RSS feed. Staffing Industry Analysts (SIA) is the global advisor on staffing and workforce solutions. The company’s proprietary research covers all categories of employed and non-employed work including temporary staffing, independent contracting and other types of contingent labor. For more information on SIA, please visit the SIA website: www.staffingindustry.com.

SIA estimates U.S. businesses spent upwards of $1.1 trillion on their engagement contingent workforce in 2021, of which temporary staffing accounted for about 14%. In effect, while the temporary agency workforce continues to be the dominant focus of current contingent workforce management programs, it represents just a fraction of the total contingent workforce engaged by businesses today. That means that the majority of contingent workers are not nearly as visible or “under management” as are agency temps, leaving large gaps in businesses’ ability to control workforce costs, mitigate risks/liabilities and optimize talent utilization.

Why should it matter to business leaders?

Here are some reasons why senior business leaders should become focused on their contingent workers and how they are now being or will be managed in the next 5 years:

1. Contingent workforce spend is already significant and growing – more than meets the eye

As noted above, U.S. businesses spent an estimated $1.1 trillion on contingent workforce in 2021, 14% of which was staffing agency temps. The remaining 86% ($968 billion) that organizations spend is on what might be called a “shadow workforce.” This includes workers engaged as independent contractors or sole proprietors, other contract workers payrolled by an employer-of-record , or workers deployed under the master service agreements/SOWs by the providers of a range of services, including business consulting, IT management, facilities maintenance, company transportation and more.

While contingent workforce spend overall is growing, some parts are growing faster than others. According to the Everest Group’s “Contingent Workforce (Staffing) State of the Market Report 2021: Disrupt or Get Disrupted,” different segments of contingent spend were growing at different rates over the years 2019 and 2020 (through the pandemic crater), with spend under management on independent contractors and workers deployed under contract/SOW outpacing temporary staffing by a significant number of basis points.

At the same time, the mix of types of contingent work has been changing. For example, business spend on skilled, higher cost contingent workforce has been skyrocketing. According to SIA’s “US Staffing Industry Forecast: September 2022 Update,” spend in “professional”/skilled staffing categories (e.g., IT, healthcare, engineering, finance, etc.) is now over twice the spend in “commercial”/lower skilled staffing categories (industrial, office/clerical, etc.). What’s more, over the past 5 years, commercial staffing spend grew 15%, while professional staffing spend increased 78%!

Clearly, given the magnitude and complexity of contingent workforce spend, the limited visibility and control over the spend across the entire contingent workforce category should spur interest, if not a sense urgency, for business leaders.

2. There are enormous benefits to an expanded, more encompassing view of contingent workforce management

Business leaders need to realize that the focus of their current contingent workforce management programs may only be the tip of the iceberg. Therefore, expanding the scope of today’s characteristically narrow programs can translate into:

• More visibility and spend under management
• Greater scope of cost control and optimization
• Improved ability to source talent and skill sets (more candidates, more markets)
• New ability to optimize optional ways of sourcing and engaging different types of contingent talent

This enlarged view of and approach to contingent workforce management is a transformational process that will be different for different organizations and will gradually unfold (and evolve) over some years into the future.

3. The future will be about business agility through integrated workforce management

All of the ROI-driven aims and outcomes discussed above will be addressed by pursuing this workforce transformation. But as greater business agility becomes a competitive imperative, business leaders must also set their sights on the more strategic and integrated role that the contingent workforce can begin to play in navigating dynamic and complex business conditions.

• The drive for greater business agility will entail more use of contingent workers (not within a traditional staff augmentation silo and set of processes), but combined and orchestrated with permanent workers and managed as an agile integrated workforce.
• Accomplishing this requires previously unavailable data and advanced analytics – what we call Total Talent intelligence -- the basis for integrated workforce planning, optimization and management enabled on a for-purpose digital platform.

There are plenty of strong reasons why the contingent workforce should matter to business leaders, now more than ever. How organizations engage and manage talent is changing, spurred on by the COVID pandemic economic and labor market impacts (and followed by a global economy in turmoil). Business leaders are beginning to look at their contingent workforces in a new light, discovering that many have only had their eyes on the tip of the iceberg. This is a necessary realization, and it is coming at just the right moment when new workforce management models and platform solutions are ready to rise to the challenge.

For more on contingent workforce management, check out the following resources:

The Emerging Backbone of Contingent Workforce Management Success:

Talent Intelligence as a Strategic Advantage

Report: Searching for a 'New Normal' in the Contingent Labor Market

5 Key C-Suite Implications of the Contingent Workforce

If you’re interested in learning more about how Magnit is helping organizations implement winning contingent workforce programs globally, please contact a Magnit representative at info@magnitglobal.com.

Disclaimer: The content in this blog post is for informational purposes only and cannot be construed as specific legal advice or as a substitute for legal advice. The blog post reflects the opinion of Magnit and is not to be construed as legal solutions and positions. Contact an attorney for specific advice and guidance for specific issues or questions.