Whether you need temp workers, independent contractors, freelancers or consultants, navigating the legal and compliance requirements for taking on such workers can be tricky, and any missteps could be potentially costly.

More employers are turning to these nonemployee hires, who have become a critical part of the workforce and provide life lines for some industries experiencing the worst of the tight labor market.

These workers, mostly hired through temp agencies or contract firms, are defined by the U.S. Bureau of Labor and Statistics as “alternative-employment arrangements.” Some work through their own corporations, like this columnist, who is as an independent contractor for The Wall Street Journal. They can also range from a person hired to create a single video for a company website to the nurses filling in at the local hospital while several full-timers are out sick. 

The National Labor Relations Board is considering returning to an Obama-era standard that would make it more difficult for workers to be classified as independent contractors and allow for a broader definition of an employee, which could expose companies to more union organizing and put them on the hook for added benefits costs.

In New York, proposed legislation could expand protections granted under a 2017 New York City law to make it easier for freelancers and independent contractors to seek and recover payment for work. Regardless of possible legal requirements, experts say on-demand pay should be thought of as a perk that gives employers a hiring edge in the tough competition for talent and amid Americans’ increased focus on money.

Things to keep in mind when hiring contract and temp workers:

Understand the costs: Independent contractors may cost more per hour, but ultimately could be less expensive than full-time employees if you aren’t giving them health insurance or other benefits. But you will have to budget for the added expense of training and providing the right equipment for them to carry out their duties. It is also important to have an idea of length of engagement as well as your budget, and ability, for extending a contract.

Design your program: Designating a person or team to make policies for hiring independent contractors is critical to avoid the “passing the buck” problem that can come up in the hiring process.  “Typically, [it] is the role of a procurement or vendor management team, with input from a range of departmental stakeholders,” said Bhushan Sethi, the joint global leader of people and organization at PricewaterhouseCoopers in New York. You will also need to manage compliance concerns without slowing down overall sourcing and onboarding time, he added.

Get hiring help: Anis Baig is head of talent equity, attraction and insights at MassMutual. To address his company’s high demand for project-based contractors with specific skills, Mr. Baig partnered with an outside provider. “After careful consideration and due diligence, we teamed up with a third party that aligned best with our objectives to centralize independent contractor staffing needs and classify them appropriately,” he said.

Increase leader visibility: Most leaders have limited insight into the comings and goings of their contract workforce. “While investments have been made in contingent workforce technology, data integrity challenges remain–resulting in some firms being unable to confirm which contractors have system or physical building access or work authorization,” Mr. Sethi said. Haphazard management of external talent can cause considerable damage to the organization and brand, he said.

Also, 62% of the 10,000 respondents said that the most appropriate way to describe ride-hailing drivers is as independent contractors, while just 35% see them as employees. The study found that roughly half of Americans prefer the status quo regarding government regulation of gig economy companies and don’t wish to see changes to independent contractor laws.

🎥 WATCH: As some workers return to the office and others remain remote, Microsoft's Jared Spataro explores how companies can ensure that productivity and engagement remain high, while also looking ahead to how the metaverse could change the future of work.

A record number of Americans quit their jobs last year, most of them feeling empowered to seek higher pay or better schedules, or to take a break after a grueling two years of working in a global pandemic. There's another reason, less recognized, for why some workers have quit: They can’t get enough hours from their employers to make up a full-time job.

Hiring cushion: Because of unpredictable demand and high turnover, some employers are overhiring by as much as 40%, according to John Gulnac of employment agency Adecco USA Inc., and then trimming hours or shedding workers after they have a better sense of their real needs. Many companies are also hiring quicker and onboarding larger groups of new employees than in the past, part of the hedge against the inevitability that some won’t stay on.

Crowded out: For workers, the instability can mean they aren’t earning enough and may have to cobble together full-time pay with two or three jobs. Frustrated with being denied requests for more hours while their employer continues to add new workers, they could be likelier to contribute to the hire-quit cycle in search of more secure work. And as employers have raised pay, certain positions that were understaffed are drawing a wider pool of candidates, which has also cut into hours.

A say in scheduling: Various state and city laws in recent years have been aimed at giving more protections to hourly workers, such as longer notice for work schedules and requirements for employers to offer existing employees added hours before hiring more people. Employers are looking at ways to give employees more hours, and more control over scheduling their work time with options like “open shifts” that allow interested employees to volunteer for certain hours.

Getting Rid of the Misnomer: The Risks Behind the Term '1099 Employee' (National Law Review)

Women Fighting to Protect Freelance Jobs Aren’t ‘Hysterical’ (Philadelphia Inquirer)

Part-Time, Temp Hiring Boom Opens Door to Compliance Pitfalls (Bloomberg Law)

5 Must-Haves in Your Independent Contractor Agreement (Forbes)

📅 March 8 The WSJ is launching a new podcast about the changing workplace. Each week, host Tess Vigeland will talk to Journal reporters, experts and workers about what’s happening–and how to navigate it. The first episode drops on March 8. Subscribe and listen to the trailer here.

Alexandra Levit is a business and workplace author and speaker. She is the weekly columnist anchoring The Workplace Report. Yogita Patel curated and edited this newsletter.

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