Why Treating Your Contractors Like Permanent Hires Will Help Your Business

  • Post author:

By Russ Banham


Rapid growth in the contingent workforce — a category comprising a wide range of nonsalaried, freelance specialists and independent contractors — is compelling many businesses to rethink how to integrate these individuals into company culture.

Motivating them may be enlightened self-interest.

“Oftentimes, nonsalaried employees — like contract workers — are treated as second-class citizens, which is certainly no way to ensure workforce cohesiveness, engagement and productivity,” said economic anthropologist Cecile Alper-Leroux, vice president of human capital management innovation at Ultimate Software. “Employers must treat all workers with inclusiveness, making them feel they’re as much a part of the organization’s success as their full-time equivalents.”

Today’s Gig Economy

Much has been written about the importance of a company’s culture, mission and value proposition to engaging employees in their tasks. Yet many businesses fail to carry these same messages forward to contingent workers, despite the tremendous growth in the number of these nonsalaried employees.

According to the most recent estimates by the U.S. Government Accountability Office, contingent workers make up 40.4 percent of the domestic workforce . GAO defines this group as independent contractors who provide a service or product; part-time, self-employed or contract company workers; agency temps; and on-demand laborers who rotate in and out of companies as needed.

Companies may hire contingent workers for diverse reasons, such as to staff a short-term project. Or they may want to avoid contributing to Social Security, unemployment insurance and workers’ compensation. They also may want to save money on healthcare, sick leave, overtime and paid vacation time. These expenses can add up to as much as 1.4 times the salary of a full-time employee, according to the MIT Sloan School of Management.

A Unified Workforce

“We used to call this the extended workforce, but that no longer describes the breadth of the phenomenon,” said Josh Bersin, founder and principal of HR consulting firm Bersin by Deloitte.

Over time, contingent workers have come to represent more than 4 in 10 employees. Freelance specialists and contract workers now perform creative tasks, IT jobs, and even sales and marketing responsibilities.

They have been called part of the “total workforce.” But even this moniker falls short.

“A much better description is the unified workforce, as companies today have such an extraordinary diversity of people in their employ, in terms of their racial makeup, sexual preference, gender definition, age and type of employment,” said Alper-Leroux. “They also have younger full-time employees who tend not to stay with the organization for the entirety of their careers.”

Indeed, the median job tenure for workers ages 20 to 24 is shorter than 16 months, according to the Bureau of Labor Statistics. People between the ages of 25 and 34 stick around for nearly three years. And all other full-time employees work around five years or longer.

“With so many people cycling in and out of the organization — both salaried and nonsalaried workers — the line between all types of employees is blurring,” Alper-Leroux said.

Know Thy Neighbor

The lines may be blurring between different types of workers, but not their treatment.

“Many independent contractors get a cursory view of the hiring entity, as opposed to a full-time employee who is brought in for training to learn the company’s history, meet the senior executives, hear about its mission and understand the culture,” Alper-Leroux said.

This differential treatment comes at a cost.

“Each contingent worker touches your product, customers and business processes in some way, with positive or negative effects,” Bersin said. “It is crucial to the organization’s success that business leaders understand how all their workers are treated.”

He described as “positive” the example of a client in the pharmaceutical industry that contracts out 40 percent of its research and development.

“They have days where they bring in [contractors] to share what they’re working on with the full-time employees,” Bersin said. “Everyone gets to know each other better and feel more connected to the company.”

Bridging The Divide

Such efforts are in the minority. Deloitte’s 2016 Global Human Capital Trends report indicates that, in a survey of 7,000 companies, more than 70 percent reported difficulty with integrating various types of workers into a unified workforce.

One reason is murky employment law. The Fair Labor Standards Act doesn’t specify the differences between full-time and part-time employment. Neither do the National Labor Relations Board, the Civil Rights Act, and the Employee Retirement Income Security Act, according to the U.S. Department of Labor. Each of these statutes draws the lines differently between full-time employees and independent contractors. The language is often “vague or circular … leaving them open to a broad range of interpretations,” the department stated.

Much clearer is the liability for employers that misclassify worker types in regard to employee benefits and salaried compensation. A wide range of penalties may be imposed, and the benefit plan may be disqualified.

“It’s great to have an integrated approach to the workforce, but management must also address the employment liability risks,” said Beth Roekle, president of North American operations for the staffing firm Advantage xPO.

“My advice is, if you’re going to invite nonsalaried workers to the company picnic, then pay them to come to the event,” Roekle said. “This way the distinctions are clearer from an employment law standpoint.”

Despite these challenges, Alper-Leroux said an inclusive strategy for all types of workers is simply the right thing to do.

 All people need to be treated with dignity and respect for their contributions ,” she said. “This is what real leadership is about.”

Russ Banham is a veteran business journalist and author who writes frequently about human capital issues.

Leave a Reply