Freelancers, gig workers, subcontractors and consultants along with casual and part-time employees, are all part of the contingent workforce that allows organisations to move away from permanent full-time staff.
- Contingent workers are liabilities that can be turned on and off. With gig workers, bosses turn a fixed cost to a variable one.
- For the company, there are benefits like low cost, flexibility, and being able to adapt to different types of projects.
It’s all about flexibility, cost control, focusing on crucial areas, and not getting locked when the future is unclear.
Companies need to be able to turn on and off most of the costs, as it has happened with in-house servers and office spaces.
Amazon Web Services (AWS) provides on-demand cloud computing platforms on a metered pay-as-you-go basis. It represents more than 60% of Amazon’s operating profit. Amazon and other major cloud platforms are benefiting from a continued shift of business computing from traditional data centres and in-house servers to the public cloud. Generally, companies had to invest in hardware (servers, switches, firewalls, load balancers, etc.), amortise and eventually replace. Now they pay-as-you-go.
Something similar happened with office spaces. Coworking spaces can alleviate the financial burden. Traditionally companies had to rent a leased office and sign a lengthy contract for empty office space (this is an upfront investment in decoration, the layout and furniture).
Despite personnel cannot be treated like hardware or the office space, businesses need to be more flexible and adaptable, and having contingent workers in roles or areas that are not key for the business makes all the sense. Companies are under pressure to reduce costs, which is converging with workers wanting more flexibility. The trend seems to go in one direction; 60% of employers plan to replace up to one-third of their permanent roles with contingent staff.
What is a contingent worker?
Freelancers, gig workers, subcontractors and consultants along with casual and part-time employees, are all part of the contingent workforce that allows organisations to move away from permanent full-time staff. The greater flexibility this offers to workers and employers needs to be weighed carefully against the pressure and risks it places on individuals who no longer have reliable sources of income.
Contingent workers are liabilities that can be turned on and off. With gig workers, bosses turn a fixed cost to a variable one. Nowadays, we see firms laying off thousands of employees. Those firms weren’t able to adjust their resources to current needs, so the only option they have is to let go part of the staff.
Technology and the tools of asynchronous working are encouraging greater use of contingent working. The primary purpose is to give flexibility and make companies less fragile to future shocks. One as you state is a lag built into the plan for a latent workforce that can be turned on and off much like AWS instances. Increasing remote workers can provide a level of contingency as well. Having a distributed workforce removes a central point of failure that an HQ provides and this trend is flying already. Shared responsibility is essential now.
Also, many companies are eliminating mid-management layers. Having groups that can configure for specific projects, break apart and reconfigure for the next project, can also build resiliency. Companies are moving from hiring individual talent to hiring squads.
Which are the tax implications?
This shift creates many tax-related, regulatory and immigration issues for the countries and the businesses. Right now, global tax systems are made for the traditional model and are outdated. They presume that every person is full time employed, which works for a company sitting in a single jurisdiction. Gig workers are complicating cross border taxes such as permanent establishment and transfer pricing. Companies need to get their arms around this quickly because countries are putting pressure on the company to have systems and documentation in place and established tracking systems to know how much tax needs to be paid in each jurisdiction.
Benefits and challenges of a contingent workforce
For the company, there are benefits like low cost, flexibility, responsiveness and being able to adapt to different types of projects. However, there are challenges like unreceptive work culture and high turnover, which could impact the performance of the company.
HR should have onboarding processes in place for contingent workers, so they get up to speed quickly, know the rest of the team and understand the organisation.
There is a big strategic risk of developing a poor work culture because contractors just focus on delivering the tasks and have no commitment to the long term strategy of the company. There is also the risk of poor retention of company knowledge.
