EOR

Independent Contractor vs. Contingent Worker: Whom to Hire and When?

Mayank Bhutoria
11
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The traditional 9-to-5 workday is fast becoming a relic of the past. According to McKinsey's 2022 American Opportunity Survey, a staggering 36% of the U.S. workforce—amounting to nearly 58 million individuals—are embracing the freedom of independent work. This marks a significant uptick from just five years ago, when only 27% identified as independent workers.

For today’s employers, terms like "contingent workers," "contractors," and "core employees" are more than just buzzwords—they're the building blocks of your organizational structure. Each category serves a unique function and carries its own set of implications, shaping not just individual roles but the dynamics of your organization.

This article serves as your comprehensive guide to unraveling the complexities of these employment classifications. We'll delve deep into the nuanced differences between contingent workers and contractors and how these distinctions can redefine your approach to talent management. 

Who is a contract worker?

A contract worker is an individual or entity that enters into a formal agreement with a company to provide specialized services for a specific period or project. The terms of employment, scope of work, and payment schedules are usually well-defined in a legal contract. 

Contract workers often possess specialized skills and are paid based on project milestones or upon contract completion. They are not considered employees of the company, which means they are responsible for their own taxes and benefits.

Who is a contingent worker?

A contingent worker is someone who works for an organization on a temporary or non-permanent basis. Unlike contract workers, they typically do not have a long-term contract that outlines the duration of their employment. 

Contingent workers can include freelancers, part-time employees, and temporary staff. They are often paid hourly or per task and may work on multiple projects for different companies simultaneously. Employers have the flexibility to terminate their services without many legal complications.

Key differences between a contractor and a contingent worker

Criteria Contingent Worker Contractor
Employment Duration Short-term, temporary Defined by contract, often long-term
Tax Requirements Employer may withhold taxes Self-responsible for taxes
Legal Contract Usually not required Formal legal contract is common
Benefits Generally not provided Not provided by the employer
Scope of Work Flexible, can change Defined in the contract
Termination Easier, fewer legal obligations Defined by contract terms
Payment Structure Hourly or per task Milestone-based or project completion
Employer Control Limited Very limited
Skill Level General Specialized
Employment Status Not considered an employee Not considered an employee

When to hire a contingent worker vs an independent contractor?

When you're looking to bring someone on board for a specific project or task, you have two main options: a contingent worker or a contractor. Here's how to decide between the two:

Contingent worker

  • Short-term needs: Ideal for tasks that don't require long-term commitment.
  • Flexibility: You can easily let them go without legal complications, as there's usually no employment contract.
  • Broad skillset: Good for general tasks that don't require specialized skills.
  • Payment: Typically paid hourly or per task.

For example, you hire a freelance graphic designer to create some visual elements for the website. They work short-term, and you pay them per task or hourly. There's usually no long-term commitment, and you can easily terminate the relationship without legal complications.

Contractor

  • Specialized skills: Hire a contractor when you need specialized skills for a project.
  • Defined scope: Contractors work on a project basis with a clear scope and timeline.
  • Contractual obligations: There's a legal contract defining the terms, making it less flexible to terminate.
  • Payment: Usually paid based on project milestones.

For example, you hire a web development agency with specialized skills to build your entire website. They work based on a well-defined project scope and timeline; you pay them based on project milestones. A legal contract outlines the terms and conditions, making it less flexible to terminate their services.

What are the challenges involved in hiring contract & contingent workers?

The modern workforce is increasingly diverse, comprising full-time employees, part-time workers, contractors, and contingent workers. While this diversity offers flexibility and specialized skills, it also comes with its own set of challenges. Let’s explore the common challenges faced by employers in hiring contract and contingent workers: 

  • Tax complexity: Contractors and contingent workers often have different tax requirements, complicating the employer's tax reporting obligations.
  • Legal distinctions: The terms "contractor" and "contingent worker" are sometimes used interchangeably, but they have different legal implications. Misclassification can lead to legal issues.
  • Invoice management: Independent contractors usually submit their own invoices, adding an extra layer of administrative work for the employer.
  • Limited control: Employers have less control over contractors and contingent workers, affecting the quality and timeliness of work.
  • Cultural fit: These workers may not be fully integrated into the company culture, impacting team dynamics.
  • Short-term engagement: The temporary nature of their employment may not be ideal for long-term projects.
  • Confidentiality risks: Handling sensitive company information can be risky with non-permanent workers.

How does Gloroots simplify hiring contractors and contingent workers?

Navigating the complexities of hiring contractors and contingent workers can be daunting for employers. Gloroots simplifies this process, offering a seamless, efficient, and compliant solution. Here's how partnering with Gloroots can benefit you at each stage of the hiring process:

Streamlining the onboarding process

  1. Centralized onboarding: Say goodbye to fragmented onboarding processes. With Gloroots, you can centralize all your contractor onboarding activities, making it easier to manage and track.
  2. Accelerated contract generation: Time is of the essence in the competitive talent market. Gloroots' automated contract generation speeds up your hiring process, ensuring you don't lose out on top talent.
  3. Simplified user experience: The platform's user-friendly interface requires just six clicks to generate a contract, saving you time and minimizing the risk of human error.
  4. Real-time onboarding insights: Stay updated with real-time insights into your onboarding pipeline, enabling quicker decision-making and more effective management.
  5. Enhanced workforce planning: Improve your workforce planning by categorizing contractors based on their onboarding status or joining date.

Making contract signing a breeze

  1. Compliance made easy: Gloroots ensures you remain compliant with international regulations by offering automated contract templates.
  2. Automated payroll: Free up your HR team from the tedious task of manual payroll calculations, allowing them to focus on more strategic initiatives.
  3. Financial simplification: Make your financial tracking effortless by consolidating all contractor-related expenses into one easy-to-manage invoice.
  4. Multi-currency payments: Save both time and transaction fees by making bulk payments in multiple currencies in a single transaction.
  5. Optimal exchange rates: Maximize your financial efficiency by leveraging Gloroots' optimal exchange rates.

Ensuring timely payments and transparency

  1. Simplified global payments: Streamline your global payment process, ensuring timely payments and enhancing contractor satisfaction.
  2. Resource visibility: Maintain full control and transparency over your finances with Gloroots' detailed monthly reports.
  3. Compliance assurance: Stay informed and compliant by understanding your tax and social security obligations.
  4. Transparent FX rates: No hidden costs—Gloroots provides complete transparency on the FX rates used for payments.
  5. Detailed EOR fees: We offer a detailed breakdown of Gloroots EOR fees. Plan your budget better by understanding the full cost structure of EOR services.

Gloroots is a strategic partner in your international hiring journey. So why wait? 

Book a call today to explore our services.

FAQs

1. Which one is more beneficial for an employer - contract or contingent worker?

The choice between hiring a contract worker and a contingent worker largely depends on your specific business needs, project scope, and compliance requirements. A contract worker would be more beneficial if you require specialized skills for an extended period and are willing to invest in a longer-term relationship. On the other hand, if you need quick, specialized help for short-term projects, a contingent worker would be more suitable.

2. Why is hiring contractors or contingent workers an excellent hiring strategy?

Hiring contractors or contingent workers offers several strategic advantages:

  • Flexibility: Easily adapt to workload fluctuations without the overheads of full-time employees.
  • Cost-efficiency: Save benefits, taxes, and other long-term employee costs.
  • Specialized skills: Access a broader talent pool with specialized skills you may not need in the long term.
  • Speed: Faster hiring processes mean you can get the talent you need when you need it.
  • Global reach: Easier to engage talent from different geographical locations, allowing for a more diverse workforce.

3. What factors must you consider when engaging a contingent worker or a contractor?

When engaging a contingent worker or contractor, consider the following:

  • Scope of work: Clearly define the project scope, deliverables, and timelines.
  • Compliance: Ensure you understand the legal and tax implications in both your and the worker's countries.
  • Costs: Be clear about the total cost of engagement, including fees, taxes, and any other potential charges.
  • Contract terms: Ensure all terms, including payment schedules, confidentiality, and non-compete clauses, are clearly outlined.
  • Performance metrics: Set measurable KPIs to evaluate the worker's performance.
  • Exit strategy: Have a clear termination process in place, including the handover of work and final payments.

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