Contingent Workforce 101 – Some Fundamentals


Here at the nextSource blog, we often focus on providing simplified, easy-to-digest explanations of some of the latest, advanced processes and technologies being adopted by innovators in the human capital management industry. Today, though, we’re going to return to basics, because we know not all organizations are advanced in their workforce management know-how and understanding. As more and more small and mid-sized businesses begin to embrace the strategies used by larger enterprises, there is a lot of educating we can be doing to help newer entrants understand fundamental industry terms, processes and practices. This post will focus on simple definitions of worker classifications and the services offered by solution providers to manage each worker type.

Temporary Workers and the EOR

Temps, supplemental staff, however they’re referred to, temporary workers are W-2 wage earning employees brought in by an organization to supplement their permanent workforce. Whether to meet seasonal peak demand or ramp up for impermanent activities like expansions, special events or product launches, temps must be compensated and taxed the same way as their permanent counterparts. To avoid the extra administrative legwork, some hiring organizations engage employer of record (EOR) providers. The EOR provider assumes the role and responsibilities typically shouldered by the employer, of providing payroll processing, benefits administration, tax reporting etc. In effect, the EOR becomes the employer of the temporary worker and then assigns these resources to work for your organization. This frees the organization from having to dedicate time and resources to managing the temp workforce and largely releases them from liabilities which are transferred to the EOR.

Staffing Agency Workers and the MSP

Mid-sized companies utilizing sufficient levels of contingent workers often turn to a staffing agency (or multiple staffing agencies) to deliver regular volumes of temp labor. Monitoring/managing performance, price, legal compliance and other facets of all the agencies delivering staffing resources to your organization can be a full-time job. For companies in this situation, a Managed Service Provider (MSP) solution is a useful service. MSP service providers like nextSource act as the management company for all the staffing companies serving your contingent workforce. The worker is the employee of the staffing company with their W-2 and benefits, but the MSP makes sure the staffing agencies are properly mitigating risk, operating in cost effective fashion, and performing at their contractually obligated service levels. Again, this service frees your organization from significant time and effort required to ensure optimal results from contingent workforce engagements.

Independent Contractors and Compliance Services

Using independent contractors (ICs) is very useful when your company needs more specialized, highly skilled workers but doesn’t need them full-time. ICs are not wage-earning employees like temp workers and do not earn benefits through their engagements. ICs are NOT employees of the IC compliance company or of your company. They are self-employed contractors who your company hires to fulfill a business function. The IRS has very strict regulations surrounding proper IC classification to dissuade companies from claiming workers are ICs as a means to avoid paying their benefits like worker’s comp, unemployment insurance and medical benefits. Improper IC classification can lead to costly fines and penalties. And it can be confusing to determine what constitutes a true IC. Compliance services like the ones provided by nextSource determine if an independent contractor is truly a business (to be reported via 1099 for tax purposes) and manage the business-to-business relationship between the ICs and the client.

SOW/Project Workers

Like the IC solution, statement of work (SOW) resources are often teams of consultants or companies hired by your organization to complete a defined project. Like ICs, these workers are not your employees, nor are they employees of the SOW management solution provider. An SOW solution service like the one offered by nextSource monitors and manages the oversight of the project to ensure contractual obligations and milestones are met. (And if not, why not?) The SOW service is there to help manage the execution of the statement of work.

If you have more questions about any of these worker types and/or the solutions nextSource offers to help you leverage these contingent resources, call today for a consultation.

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