What is a Contingent Worker? | 101 Definition of Freelancing
You might be wondering, what is a contingent worker, exactly? Put simply, a contingent worker is just a more formal way of saying any of the following and more:
Contractor
Gig Worker
Don’t let complicated jargon confuse you. In today’s world, contingent workers make up around ⅓ of the workforce! In fact many of you who are reading this are most definitely considered contingent workers. Since the freelancing industry is so robust nowadays, let’s highlight some everyday instances. Everyday example roles of contingent workers include:
Uber/Lyft/Doordash/Instacart drivers - read our post about the 2022 mileage rate and how you can save on taxes as a driver!
TaskRabbit
Software Developer/Engineer
Web Designer
UI/UX Designer
Fractional CFOs
Just about any role can be done as a contingent worker
You might be thinking: can any worker be classified as a contingent worker? Let’s dive deeper and address some of the differences.
Contingent worker versus employee
There are some very stark differences between a contingent worker versus employee. The #1 biggest difference is that usually an employee is on payroll. What this means is that they are set up on a recurring pay schedule, usually bi-weekly, and generally their pay remains the same or stays consistent. In contrast, a contingent worker, or freelancer, can be paid by the number of hours they bill, or on a project basis. Here’s a quick summary:
| Type | Contingent Worker | Employee |
|---|---|---|
| Payroll | No recurring paycheck; paid by hours billed or project basis | Usually receives bi-weekly paychecks with taxes and other deductions withheld |
| Benefits | None; freelancers typically are not offered benefits like a health insurance plan, or retirement plans | Varied; generally employees receive decent options for subsidized health insurance plans, as well as some incentivized retirement plan with employer matching |
| Overall | Generally, freelancers will have a lot more freedom than their employee counterparts, and it’s possible to make more hourly, but the drawback is a lack of benefits and structure. | The employee has a very structured package where paychecks are regularly issued and the employee receives a comprehensive benefits package including health insurance and retirement options. |
What are the benefits of hiring contingent workers?
From the employer’s perspective, contingent workers can offer significant cost savings when compared to employees. This is because employers are not required to collect and pay taxes on a contingent worker, nor do they have to offer health insurance and other benefits. Translated financially, this means an employer can save on high-commitment costs like training and recruiting and administrative costs from managing payroll and human resources.
Another benefit of hiring contingent workers is the access to quick turnaround and flexibility. It may take a significant amount of time and resources to recruit and retain a full-time employee, but a contingent worker is generally more flexible and can offer quick support when there’s a sudden increase in workload or projects. Freelancers and gig workers also often have very specialized skill sets that you may not find in an employee, who may be more of a generalist.
You might be wondering then: if it only benefits employers…
Why do some workers choose to be contingent workers?
The life of freelancing can seem unstable, have less pay, and stressful. While these things can be true, freelancing is what you make of it. Sure, if you make little effort and don’t hone your practice, you can end up in an unstable, low-pay and stressful situation.
However, in many cases, freelancers can actually make more money, while working fewer hours. Not only that, but they have the ultimate luxury that employees do not have: freedom. Freelancers can choose what they work on, when they work, where they work, and how they work. In fact, employers can’t really tell you how to work on something, freelancers have more leverage.
Some other considerations when comparing a contingent worker versus employee are:
Taxes - contingent workers and freelancers have to be responsible for their own taxes. When they are paid, no taxes are withheld, which means the freelancer must keep track of their income and their tax liability
Structure - many individuals value a structure. This applies to receiving regular paychecks, having regular work peers and social interactions, contributing to your retirement on a regular basis, etc. As a freelancer, it’s much harder to access those things, as you are very much on your own and there’s no predetermined structure.
FAQs:
What is considered a contingent worker?
A contingent worker is someone who is not on payroll and hired to offer specialized support. That means they typically do not receive a recurring paycheck, health insurance, or other benefits. Contingent workers include other names like: freelancers, contractors, gig workers and they tend to have more freedom around the type of work they do, when/where they do it and how.
What is the role of a contingent worker?
Their roles are usually to offer specialized support and/or additional support for unexpected increased workload. Usually the project is well-defined and carried out int he short term. Overall, there is no singular role for a contingent worker. Contingent workers exist in all industries and specialties.
Is a contingent worker the same as a contractor?
In short, yes. Contingent worker is just another way to describe a contractor, freelancer, gig worker, and sometimes part-time worker. This means no taxes are collected and paid on behalf of the individual, no payroll, no benefits.
