A Contractor By Any Other Name
A contingent worker may be called a seasonal or interim worker. And, the two most common types of contingent workers, contractors and temporary employees, are terms that are sometimes used interchangeably. A recruiter shouldn’t make that mistake. And, each classification offers distinct advantages and disadvantages. Let’s take a closer look at the options.
Let’s Tackle the Titles
Contractors are typically hired through a third-party (staffing) firm or directly by your company. The second type of contractor is often called independent or 1099 contractors. 1099 refers to the tax forms that independent contractors receive in order to report their income to the IRS.
Contractors are not employees and they are not on your company’s payroll. Third-party contractors are paid by their employer, the staffing firm. Independent contractors are paid when they submit invoices to your company. Additionally, contractors are not eligible for benefits through your company.
A temporary employee is hired and paid via your company’s payroll. Temporary employees can be exempt or non-exempt based on the Fair Labor Standards Act (FLSA) rules. The FLSA lays out “duties” tests to provide employers guidance on exemptions: administrative, executive, and learned professional. Job responsibilities must meet the standards of one of the tests AND the salary test. As of January 2020, the FLSA set the minimum salary at $36,568 or $684 per week.
Let’s Talk Pros and Cons
There are distinct advantages and disadvantages of each type of contingent worker.
Hiring a third-party contractor through a staffing agency can save time because the firms have access to a large talent pool. This option can also mitigate risk because you can onboard and offboard contractors as needed. And, without new hire paperwork, many companies have abbreviated onboarding practices for contractors which means a contractor can start working more quickly than a new employee.
The biggest drawback of hiring through a staffing agency is the administrative fees. Fees of fifty percent or more can be added on to hourly rates. And, if you decide to hire the contractor as a full-time employee, you may be required to pay additional fees, sometimes called a buy-out fee. Another consideration is the contractor mindset. Contractors who work through agencies may work with more than one firm and I have experienced situations when a contractor leaves a project for a higher rate at another company. Additionally, reliance on a staffing agency will hinder an internal recruiter’s ability to build their knowledge of the market.
Independent contractors are often specialists who started small companies (often a LLC, or limited liability company) or sole proprietors. They provide specific expertise and they are usually hired on an hourly or project basis without additional fees paid or benefit eligibility. The relationship can look very similar to employees and companies should limit their contractor engagement to a defined time frame or project. And, companies should be sure not to engage in typical employee requirements such as requiring where and when to work. One of the disadvantages of hiring an independent contractor is that they often require contract creation and negotiations which can take valuable time to review and finalize before a contractor can begin working. Finally, independent contractor agreements should be carefully reviewed for work product ownership.
The two main benefits of hiring a temporary employee are the flexible timeframe (you can hire a temporary employee for the long term or short term) and the significant savings realized by hiring someone directly to your payroll without any mark-ups or buyout fees. As a recruiter, you also gain useful market insights that you would not have learned if hiring a contractor. And, finally, you may find that your temporary employee turns out to be the ideal full time, regular employee. The downside of hiring a temporary employee is the time it takes to source, interview, and hire a new employee compared to the speed of picking up the phone and calling a staffing firm.
Let’s Talk Strategies
Third-party contractors are hired through a staffing firm. And, staffing firms come in all shapes and sizes. Engaging a third party should start with a discussion about their success rate for the types of positions you need to hire. It’s important to understand if they can move at the pace of your business and be flexible as business needs necessitate.
If you have a standard contract template, start with your own contract. If not, take a good look at their contract and determine where you can negotiate. The terms and conditions of the contracts are a starting point for discussion and should be negotiated to be a win-win for both companies.
Independent contractors can be found through networks of former colleagues or professional associations. Working with former colleagues can be beneficial as they have an inside track to how work is done as long as the work assignment doesn’t blur the lines of employee and contractor.
In addition to referral networks, online platforms have popped up over the past few years that provide access to skilled professionals for a short-term need. Flexjobs, Fiverr, Upwork, and CloudPeeps are a few that have skilled professionals ready to partner with companies. Side note: there may be a fee to post jobs.
Sourcing strategies for temporary employees will be some configuration of sourcing channels used to hire regular, full-time employees (I use “regular” instead of “perm”, I don’t like the inference of a “perm” employee. Semantics? Maybe). There are only ten sourcing channels available at any time. They are staffing agencies, company career sites, referral programs, social media, job boards, associations, company ATS, current employees, career events, and networking.
Companies are trying to fill contingent worker openings as quickly as possible; it is beneficial to focus on those who are already familiar with your company. Email blasts using your applicant tracking system, optimizing your referral program, and posts on your company website should be a part of your strategy. And, as COVID-19 has impacted many capable and qualified folks, new sites are popping up on a regular basis that showcases companies who are currently hiring. Here’s one on LinkedIn: LinkedIn Now Hiring: https://www.linkedin.com/pulse/heres-whos-hiring-right-now-andrew-seaman/
Options are a good thing. It’s a valuable exercise to discuss the advantages and disadvantages of the different types of contingent workers and to be ready to offer guidance. By doing so, you ensure that your company follows DOL guidelines and meets business needs.
You can read more about general FLSA guidance or IRS information about the classification of employees and contractors.