The composition of the American workforce has been changing and will continue to evolve.  While regular employment used to be almost the only classification of workers, now more and more in today’s gig economy people are hired as temporary employees or independent contractors.

According to the latest job report from the Bureau of Labor Statistics, almost 157 million employees are participating in the workforce. This includes 27 million part-time employees (those who work fewer than 35 hours per week), 4.7 million of which are “involuntary part-time” workers—those who would like to work full time but cannot find open positions. Unemployment rose slightly in this report to 3.9 percent with about six million people actively looking for employment while there were 6.9 million job openings nationwide.  

Shifting job trends, employment costs and employee availability have required companies to look for alternative ways to fill open positions and meet work demands. Two of the more popular options are hiring temporary employees and using independent contractors. Both have pros and cons to consider.


Temporary Employees (“Temps”):

Temporary employees fill a need in the workforce that regular employees cannot. Companies use temporary employees for several reasons including:

  • to fill a short-term need (i.e., sudden or occasional increased client demands)
  • to assist regular employees who are under work stress
  • to complete a specific project (i.e., to scan hard-copy records into electronic storage)
  • to “try out” a person before hiring full time
  • to meet seasonal demands (i.e., salespeople just for the Christmas shopping season)
  • to cover a regular employee who is out on extended leave (i.e., medical or maternity leave)
  • to reduce employment commitments in an uncertain economy
  • to avoid the costs associated with regular employees (i.e., benefits, insurance)

According to a report by the American Staffing Association, three million temporary/contract employees are placed by staffing companies each week and more than 15 million temporary/contract employees are hired by staffing companies each year. Workers may choose temp work to give them flexibility, as a stepping stone to find a permanent position or out of necessity. 

Employers who hire temps should be alert to two issues:

Do not keep a temp for too long. Retaining a temp for a long time with no intention to terminate their services or bring them on as a regular employee may be seen as avoiding mandated employment obligations. While extending a temp beyond the initial project deadline is fine, do not infinitely employ a temp without converting to regular employment at some point. If they are good, hire them so they won’t leave to temp for someone else who can provide them stability.

Do not blindly trust the staffing agency you use. Implement practices such as doing reference checks on a new staffing agency and viewing all paystubs the agency issues to your temps to make sure everything is handled correctly. If the agency is not processing payroll correctly, you could be found liable for back wages and taxes.


Independent Contractors

Companies may choose to hire independent contractors for several of the same reasons they would a temp: staffing flexibility, reduced employment costs or to meet a temporary need.  Independent contractors can also fill a specific, more regular role that the company may not need full time, such as marketing, IT support, HR or bookkeeping.

The CPA Practice Advisor explains that small businesses hire independent contractors more often than regular employees. Since small companies must be more streamlined in their operations and are more impacted by client demand and budget fluctuations, independent contractors give them a way to fill part-time or occasional workforce needs without the expense of hiring a regular employee.

Many people are choosing to leave the regular workforce and work for themselves as an independent contractor. The trend of self-employment is increasing with expectations of 42 million people working as self-employed independent contractors by 2020 as compared to 126 million regularly-employed workers by that year. That means that one-third of the workforce will be classified as independent contractors in the next year or two.

Two cautions apply to independent contractors:

Do not misclassify true “employees” as “independent contractors.” Various federal and state agencies (including the IRS and DOL) have different standards and “tests” for independent contractors. Here are a few of the questions used to demonstrate the true “independence” of a contractor (this list is not all inclusive):

  • Does the person control his /her work hours, methods, tools, etc.?
  • Can the person work independently without oversight or supervision from company management?
  • Can the person work for other companies or clients doing similar work?
  • Is the person given expectations they can meet however they wish or does the company dictate every procedure?
  • Is the person expected to follow company policies such as attendance and progressive discipline?
  • Can the person gain a profit or suffer a loss from the work arrangement?

Do not be surprised by an audit of the relationship. Utilizing independent contractors can create increased exposure to federal and state government audits. These agencies focus on companies with independent contractors to make sure they are not misclassifying workers to avoid paying taxes, minimum wage and overtime, as well as not providing required benefits such as health and workers’ comp insurance.

Regardless of the makeup of your workforce, it is important to remember there are regulations to follow for all types of workers, and the penalties for employee misclassification or failing to follow those regulations can be costly.


States Rule

The new year brings with it six state-related employment changes to watch for in 2019.

Minimum wage increases. While the federal minimum wage has remained $7.25/hour since 2009, 29 states have or will have minimum wage rates higher than that. Twenty states (Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Maine, Maryland, Massachusetts, Minnesota, Missouri, Montana, New Jersey, New York, Ohio, Rhode Island, South Dakota, Vermont and Washington) and the District of Columbia will increase the minimum wage rates this year. Many cities and counties have also implemented higher minimum wage rates, so the highest rate would apply.

 Predictive scheduling. Laws focused on employers in retail, food service and hospitality industries have recently gone into effect in Oregon and several cities and are in the legislative forecast in at least 12 other states. These predictive scheduling laws require advanced notice when posting a schedule (ranging from 48 hours to two weeks depending on state law) and restrict or ban employers from scheduling on-call shifts and adding pay incentives for these shifts.

Salary history. In the effort to create more gender equality for wages, three states (California, Connecticut and Hawaii) are joining six others in enacting laws preventing employers from asking about an applicant’s previous compensation history. Addressing some forms of compensation such as benefits and bonuses, as well as how to handle if an applicant offers the information varies based on specific state law.

Sexual harassment prevention training. Several states have recently passed laws creating or revising the requirements for sexual harassment prevention training to be conducted regularly, usually annually. Among states that recently enacted new or changed requirements are California, Delaware and New York.

Earned sick time. Recent laws in Michigan, Minnesota, New Jersey and Texas implemented or expanded the requirement for providing sick time to employees but vary as to whether the mandated sick leave is paid or unpaid. Other states (Arizona, California, Connecticut, Massachusetts, Maryland, Oregon and Vermont) as well as some cities and counties already have a mandatory sick time law with differences as to how much time is allowed and the reasons for taking the time.

 Legalized marijuana. While some states (Michigan, Montana and Utah) passed laws legalizing medicinal and/or recreational use, the impact extends into the workplace as it may change how employees react to a positive employment drug test. None of these laws change employers’ ability to prohibit employees from being under the influence at work as with alcohol or other prescribed drugs.


Paige McAllister, SPHR, is a contributor for Affinity HR Group, Inc., PPAI’s affiliated human resources partner. Affinity HR Group specializes in providing human resources assistance to associations such as PPAI and their member companies.