The term "contingent worker" covers a variety of situations. The fundamental commonality involves the presumption of a limited-term business relationship between worker and the organization that pays for the work. Although certain contingent workers qualify as employees, many don't. A contingent worker who receives payment through a payroll system that includes tax withholdings has employee status. For other contingent workers, the term "employee" inaccurately reflects the contingent worker's employment status. More accurate descriptions for such an individual are "subcontractor," "worker," "laborer," "entrepreneur" or "self-employed businessperson," among others.
Certain contingent workers work for temporary agencies or employee leasing firms. Employees who work on a seasonal basis for a business that has a limited season — such as a greenhouse, farm stand or amusement park — illustrate another type of contingent worker. Employees who work on a seasonal basis for a company that operates year-round but has seasonal peak workloads, such as a retail store or the post office during the Christmas season, provide another example of contingent workers. Other government agencies at state or local levels also have seasonal peaks at other times of the year, such as the Internal Revenue Service or state revenue agencies. Migrant workers who travel to harvest crops also qualify as contingent workers. Self-employed individuals, such as freelancers, also exemplify a type of contingent worker.
Contingent workers working through temporary agencies typically have a set structure of hours during a specific assignment. Seasonal workers also typically have structured work hours, although in the case of government employment, they may earn paid leave time and have the opportunity to take days off within their normally scheduled work times. Self-employed individuals most commonly set their own hours, although exceptions can occur when the work necessitates coordinating schedules with clients or customers. Examples of self-employed circumstances requiring coordination with customers include a consultant giving a lecture, or a self-employed physician who must adhere to a patient appointment schedule.
Temporary agencies and employee leasing firms must issue paychecks within a specified time after work performed, including all tax-related administrative tasks. Seasonal workers also receive paychecks directly from an employer or, in the case of a government agency, sometimes from a different government agency that oversees payroll matters. Self-employed individuals may receive payment based on a by-project rate, by-word or by-page rate, or based on an hourly rate. For project-based rates, self-employed contingent workers often charge a percentage of the payment even to begin the work, with additional payments due upon delivery of specific milestones such as completion of each third, quarter or half of the project. Certain contingent work, such as seasonal migrant work or telephone book delivery, pays at day’s end each day.
For a hiring organization to legitimately classify workers as contingent workers, the employment relationship must pass a majority of specific tests defined by such governmental entities as the Internal Revenue Service. For example, whether the contingent worker or hiring organization controls when, where and how the work gets done factors into legal contingent-worker status. Contingent workers also must have the potential to work for multiple clients. Even a long-term relationship through a third-party employer such as a temporary agency can negate the legality of contingent worker status and result in fines and a legal requirement that the organization contracting for the work performed bring the individual on board as an employee without contracting through a third-party employer.