Bringing on contingent workers can be a wise decision for many employers, but a number of issues need to be considered when deciding whether contingent staff makes sense. Here are some matters to bear in mind:
- Duration of employment. Contingent workers may be covered by federal and state family and medical leave laws if they work enough hours in a 12-month period. Also, individuals who work 1,000 hours in a pension plan year could be considered eligible regular employees under the Employee Retirement Income Security Act, making the employer liable for employee benefits.
- Benefits eligibility. Poorly drafted employee handbooks and benefit plans could lead to contingent workers being found eligible for benefits. Employers must clearly define the eligibility criteria for benefit plans and the categories of workers who are excluded. In handbooks and benefit plans, avoid using vague terms like “full-time workers,” which could be interpreted broadly by a court. Instead, use narrow descriptors like “direct employees of [employer] who receive a paycheck from [employer.]” Also consider inserting language in the benefit plan stating that exclusions will apply even if a court or other authority finds the contingent workers to be employees.
- “Threshold” issues. Consider whether contingent workers will count toward your threshold number of employees for various laws. Obligations under several federal and state laws are triggered when a certain number of employees is reached. Some of these laws clearly state that contingent workers count toward that number, but others are unclear.
- Morale problems. The potential exists for tension between permanent and contingent staff. In an atmosphere of job insecurity and dislocation, regular employees may perceive temporaries as a threat to their jobs, and contingents might feel ostracized or cold-shouldered by regular workers.
- Productivity deficit. No matter what the job is, contingent workers require a certain amount of on-site training and orientation. Therefore, the presence of newcomers may reduce productivity because the contingent workers might not stay long enough to reach optimum output. Also, disruption may occur if permanent workers have to be pulled off their jobs to train and orient temporary workers. Caution: Putting contingents in a customer service role may be especially problematic. Will they have the necessary knowledge to respond to customer inquiries adequately? And with all the coming and going, will those workers share the same commitment or loyalty to the company and customers as the core workforce?
- The goal is to save labor costs, but a contingent worker whose productivity is lower than a permanent worker’s may not be a bargain since training costs may not be paid back and, though you avoid directly paying taxes and benefits, remember that at least some of those costs are passed along in the form of the vendor’s fee. When using contingents, absenteeism costs are minimized since you pay only for time worked, but the costs of incomplete work also should be factored in to account for instances when temps, who are in the middle of interviewing elsewhere for full-time jobs, don’t show up or have to leave early.
- Staffing vendors usually line up a new position and reassign a temporary worker at the end of the contracted-for time period even if your project isn’t finished. When a contingent worker doesn’t stay for the entire assignment, the training/orientation process has to be repeated.
- Permanent hires. If you decide to hire a temp for a full-time position, you may have to absorb a liquidation or buyout fee (also known as a penalty or conversion charge).
So Are Contingents the Right Choice?
According to human resources expert Mary M. Fitzer of MMF Consulting Services in West Springfield, Massachusetts, three points are pivotal in determining whether contingent workers fit your business strategy:
- Business planning. Do a feasibility study of each department’s staffing trends and requirements. If you expect modest or flat growth, you can maintain a stable employee base, but if you’re going through rapid peaks and valleys or facing ever-changing circumstances, contingent staffing can be effective.
- Management systems. Consider whether you have clear communication channels to convey company policies and performance standards to contingent staff. Can you use those channels to reasonably blend contingent workers into your regular work teams with the appropriate level of cooperation?
- Cost structure. Look at whether you really will save money. Is it more expensive to do the job in-house, now and in the future? The rationale should be based on one of two mandates: either eliminating the expense of hiring regular employees for short-term work or being able to jettison altogether the functions your company may not be good at (for example, operating the cafeteria, maintaining the physical plant or security force, doing payroll or quarterly/year-end financial accounting). The big issue revolves around the cost of interim expertise versus carrying people for the longer term.