The composition of the American workforce has been changing
and will continue to evolve. Whereas
regular employment used to be almost the only classification of worker, now
more and more in the “gig economy” people are hired as temporary employees or
According to the latest job report
from the Bureau of Labor Statistics, almost 157 million employees were
participating in the workforce. This
includes 27 million part-time employees (those who work less than 35 hours per
week), 4.7 million who are “involuntary part-time” as they would like to but
cannot find full-time employment. Unemployment rose slightly to 3.9% with about
6 million people actively looking for employment while there were 6.9 million
Shifting job trends, employment costs, and employee
availability have required companies to look for alternative ways to fill open
positions and meet work demands. Two of
the more popular options are hiring temporary employees or independent
contractors. Both have pros and cons to
Temporary employees fill a need in the workforce that
regular employees cannot. Companies use
temporary employees for several reasons including:
· to fill a short-term need (i.e., sudden or
occasional increased client demands),
· to assist regular employees who are under work
· to complete a specific project (i.e., to scan
hard-copy records into electronic storage),
· to “try out” a person before hiring full-time,
· to meet seasonal demands (i.e., sales people
just for Christmas shopping season),
· to cover a regular employee out on extended
· to reduce employment commitments in an uncertain
· to avoid the costs associated with regular
employees (i.e., benefits, insurance).
According to a report
by the American Staffing Association, 3 million temporary / contract employees
are placed by staffing companies each week and over 15 million temporary /
contract employees are hired by staffing companies each year. Workers may choose to be placed as temps to
give them flexibility, may believe it is a good way to find a regular job
(which it can be), or may sign up as temps out of necessity.
· Do not keep a temp for too long – Retaining a
temp for a long time with no intention to terminate their services or bring
them on as a regular employee may be seen as avoiding mandated employment
obligations. While extending a temp
beyond the initial project deadline is fine, do not infinitely employ a temp
without converting to regular employment at some point. If they are good, hire them so they won’t
leave to temp for someone else who can provide them stability.
· Do not blindly trust the staffing agency you use
– Implement practices such as doing reference checks on a new staffing agency
and viewing all paystubs the agency issues to your temps to make sure
everything is handled correctly. If the agency is not processing payroll
correctly, you could be found liable for back wages and taxes.
Companies may choose to hire independent contractors for
several of the same reasons they would a temp: staffing flexibility, reduced
employment costs, or to meet a temporary need.
Independent contractors can also fill a specific, more regular role that
the company may not need full-time, such as marketing, IT support, HR, or
Practice Advisor explains that small businesses hire independent
contractors more than regular employees. Since small companies must be more streamlined
in their operations and are more impacted by client demand and budget
fluctuations, independent contractors give them a way to fill part-time or
occasional workforce needs without the expense of hiring a regular employee.
Many people are choosing to leave the regular workforce and work
for themselves as an independent contractor.
of self-employment is increasing with expectations of 42 million people
working as self-employed independent contractors by 2020 as compared to 126
million regularly-employed workers. That
means 1/3 of the workforce will be classified as independent contractors in the
next year or two.
· Do not misclassify true “employees” as
“independent contractors” – Various federal and state agencies (including the IRS
have different standards and “tests” for independent contractors. A few areas of consideration to demonstrate
the true “independence” of a contractor include (list not all-inclusive):
o Does the person control his /her work hours,
methods, tools, etc.?
o Can the person work independently without
oversight or supervision from company management?
o Can the person work for other companies /
clients doing similar work?
o Is the person given expectations and can meet
them however they wish or does the company dictate every procedure?
o Is the person expected to follow company
policies such as attendance and progressive discipline?
o Can the person gain a profit or suffer a loss
from the work arrangement?
· Do not be surprised by an audit of the
relationship – Utilizing independent contractors can create increased exposure
to federal and state government audits.
These agencies focus on companies with independent contractors to make
sure they are not misclassifying workers in order to avoid paying taxes,
minimum wage, and overtime, as well as not providing required benefits such as
health and workers’ comp insurance.
Regardless of the makeup of your workforce, it is important
to remember there are regulations to follow for all types of workers, and the
penalties for employee misclassification or failing to follow those regulations
can be very costly. Of course, if you
have any questions, don’t hesitate to contact us at Affinity HR Group – your HR
partner and resource.
McAllister, SPHR, HR Compliance – Affinity HR Group, Inc.