What Small-Business Owners Should Know about the Contingent Workforce

28. September 2015 06:34

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Dr. Deborah Osgood is the cofounder and CEO of the Knowledge Institute for Small Business Development (KISBD), which offers consulting, training, and development for small businesses and entrepreneurs. She is the recipient of numerous awards in small business development and leadership, and has worked with top private- and public-sector organizations, including Microsoft, IBM, Bank of America, Verizon, American Express, the US Department of Labor, and the US Small Business Administration.

We had the pleasure of talking to Dr. Deborah Osgood about the contingent workforce. She offers pointers on how small-business owners can take advantage of contingent workers and how contingent workers can appeal to small businesses. The interview below has been lightly edited for length and clarity.

First of all, how would you define the “contingent workforce?”

“Contingent” refers to the practice of more employers utilizing workers on a non-permanent basis. A September 2014 survey by the Freelancers Union revealed that 31 percent of today's workforce represents contingent labor, and this number is expected to jump to 40 percent by 2020. Six months later, the US Government Accountability Office reported that 40 percent of Americans are already working on a non-permanent, project basis.

When or why should a small-business owner consider tapping into this workforce?

There are a variety of factors that influence when to go with a contingent worker versus a more traditional, full-time employee. The first thing to consider is whether your need is temporary or longer term. For example, if a current employee goes on maternity / paternity leave or leaves to care for a family member, the need to fill the gap will likely be temporary.

If, on the other hand, your business is experiencing routine increases in business resulting in a lot of paid overtime, you may want to consider a contingent workforce strategy. Going with a non-permanent, project-based worker allows you to fill a seasonal increase and to try out a new worker before deciding if it's a good fit.

We've heard a lot about the Labor Department cracking down on employee misclassification lately. How can small businesses make sure they’re on the right side of the law?

The US Department of Labor Fair Labor Standards Act provides a framework to help determine whether a worker qualifies as an independent contractor or an employee. In general terms, this includes six key areas:

  1. The nature of the work relative to the overall business operation.
  2. The length of the working relationship.
  3. Who owns what in terms of facilities and / or equipment required to perform the work.
  4. The nature and degree of who controls the work performed, the standard of quality, the rate of compensation, and whether the worker works for other clients.
  5. The worker's profit / loss position in the relationship.
  6. The level of skill required to perform the work, and the extent to which the worker advertises themselves as available for contracting with other employers.

One way to support compliance is for the employer to require that the independent contractor provide proof that they are a registered business entity, such as a limited liability company (LLC), and that they possess their own business insurance, including Workers' Compensation Insurance.

For contingent workers, such as independent contractors, freelancers, and consultants, where are some of the challenges and opportunities?

According to the US Staffing Industry Forecast, the contingent workforce is projected to grow six percent in 2015, followed by five percent in 2016. These trends continue to represent challenges and tremendous opportunities for workers.

In terms of challenges, individuals need to learn and implement many of the traditional operational elements of a small business, such as registering as an LLC, securing business insurance, and managing their own payroll taxes and medical insurance.

In terms of opportunities, going contingent offers a broad range of benefits, such as maintaining quality of life goals while also attaining income objectives. There are a growing number of online platforms that are specifically designed to help freelancers connect with work gigs, such as…

Where, when, and how you do your work is also up for negotiation. It's not uncommon for a talented graphic designer or programmer to live in one country and work for multiple small businesses located across the globe.

What should they understand about small businesses to make themselves more attractive as a potential hire (either as a contractor or, down the road, as a full-timer)?

An independent contractor competing for work should ensure that they're helping the employer to remain compliant with applicable labor laws. That might mean marketing yourself upfront as having a registered business and insurance, as well as marketing your relevant skills, experience, and knowledge. You may want to employ some of the more common small business marketing practices, such as having your own website, participating in targeted social media arenas, and having business cards.

How can small businesses take advantage of contingent workers to make themselves more competitive with larger competitors?

Going contingent allows smaller businesses to test out which skills are needed for what amount of time to support growth objectives. The challenge is ensuring that you're attracting, recruiting, and retaining top talent without the process becoming so time-consuming that you lose sight of the bigger picture.

For more tips about managing the risks of project-based work, check out our freelancers blog series.

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