Contingent Workers: Guide for UK Employers

Employers are increasingly turning to more flexible arrangements to engage workers beyond the traditional permanent employment contract. Among the alternatives, using contingent workers may offer organisations a more agile and cost-effective solution to meeting specific skill needs without the long-term commitment of recruiting permanent employees.

A contingent worker is someone hired on a temporary, freelance or contract basis rather than as a permanent employee. These workers provide flexibility for businesses, allowing them to respond to demand fluctuations, access specialised skills or manage short-term projects without long-term employment commitments. Contingent workers can include agency staff, freelancers, consultants and contractors.

For UK employers, managing contingent workers requires careful consideration to ensure compliance with employment and tax regulations. Misclassification of workers as self-employed when they should be treated as employees can lead to legal and financial consequences. Employers must assess employment status accurately to determine entitlements such as holiday pay, sick leave and national insurance contributions.

Another important factor is ensuring that right to work checks are conducted correctly for all contingent workers, as failing to do so could result in penalties. Data security and confidentiality should also be addressed, especially when contingent workers have access to sensitive company information.

Well-drafted contractual agreements are essential to outline responsibilities, working arrangements, and expectations to avoid disputes.Regular reviews of workforce policies and supplier contracts can help businesses stay compliant with evolving regulations and minimise risks associated with using a contingent workforce.

 

What is a contingent worker?

 

Contingent workers are individuals who are not on the payroll, but instead provide independent services to an organisation. Contingent workers include independent contractors, freelancers, consultants, advisors or other outsourced workers hired on a per-job and non-permanent basis.

Unlike standard ‘temp’ workers, who in most cases require on-the-job training, contingent workers are typically highly skilled and trained for the specific job in question.

The contingent worker undertakes the work on a temporary basis, where their employment is contingent on the job for which they are hired. As such, they are not employees and the organisation has no responsibility to provide continuous, permanent work.

In some cases, the contingent worker may only be hired for a period of days, or a few short weeks or months, subject to the needs of the organisation at any given time. In other cases, the contingent worker may be hired on an indefinite basis for as long as the job takes to complete, albeit without a permanent contract of employment.

 

Types of contingent worker

 

There are different types of contingent worker, including:

 

Freelancers

Freelancers are self-employed individuals who provide services to multiple clients without being committed to a single employer. They typically work on a project-by-project basis and have control over their work schedule and methods. Freelancers are commonly found in creative, IT, and consultancy roles.

 

Contractors

Contractors are individuals or businesses engaged to provide specific services for a defined period under a contract for services. They often work through their own limited company or an umbrella company and are responsible for their own tax and national insurance contributions. Contractors are frequently used in industries such as construction, IT, and engineering.

 

Temporary Workers (Temps)

Temporary workers are typically hired through a recruitment agency to meet short-term business needs, such as covering staff absences or seasonal peaks. They remain employed by the agency, which handles payroll and statutory benefits, while the business directs their day-to-day activities.

 

Consultants

Consultants are experienced professionals who provide expert advice and strategic guidance in a particular field. They work independently or through consulting firms and are hired to improve processes, implement changes, or solve business challenges.

 

Gig Workers

Gig workers take on short-term, often task-based work through digital platforms or apps, such as ride-hailing, food delivery, or online freelancing. They have flexibility in choosing assignments but usually lack employment rights and benefits.

 

Outsourced Workers

These workers are employed by a third-party service provider that manages their employment and assigns them to client companies. This arrangement is common in areas such as customer service, IT support, and facilities management.

 

Contracts for contingent workers

 

A contract for services establishes the legal relationship between the business and the contingent worker, setting out the terms of engagement, payment arrangements and responsibilities.Well-drafted contracts should define obligations, set expectations, manage risk and ensure compliance with employment and tax regulations.

Employers must ensure that contracts clearly outline the scope of work, duration, fees and any deliverables expected from the contingent worker. Defining whether the individual is engaged as a genuinely self-employed contractor, agency worker or through an umbrella company can help to avoid any misclassification risks. Contracts should also include provisions for confidentiality, intellectual property rights and dispute resolution to protect business interests.

When drafting contracts, businesses should carefully assess the worker’s employment status to avoid unintentional liabilities. HMRC’s IR35 legislation must be considered, especially for contractors working through their own limited companies. If the engagement falls within IR35, the business may be responsible for deducting tax and National Insurance contributions. Employers should also consider the inclusion of termination clauses, ensuring they have flexibility to end engagements if business needs change.

Another important factor is the responsibility for health and safety, particularly if the worker is providing services on-site. Although contingent workers may not be entitled to the same rights as employees, businesses still have a duty of care to ensure a safe working environment.

Misclassification of contingent workers can lead to significant financial penalties, including backdated tax liabilities and potential claims for employment rights such as holiday pay, sick leave, and pensions. Businesses should ensure contracts do not inadvertently imply an employer-employee relationship, as this could undermine the intended self-employment status.

Employers should regularly review contracts to ensure they remain compliant with evolving legislation and meet business needs.

 

Employment status of a contingent worker

 

The employment status of a contingent worker is different to that of an employee.

An employee is hired under a fixed term or permanent ‘contract of employment’. This is also often referred to as a ‘contract of service’, which denotes an employer-employee relationship.

In contrast, a contingent worker is usually hired under a ‘contract for services’ or ‘consultancy agreement’, which details what the job is and how long the worker will be required to complete this. The worker then leaves the organisation on completion. The individual may be re-hired if the need arises at a later date, but each job will be treated as an entirely separate contractual agreement on each occasion.

The contingent worker is usually classed as ‘self-employed’ rather than ‘employed’, whereby they are running their own business for themselves and take responsibility for its success or failure. As such, a person is generally classed as a ‘contingent worker’ if:

 

• They have a contract for services where they agree a fixed price for their work with their customer or client based on bids or quotes
• They can decide what work they do and when, as well as where or how to do it, subject to completing this within an agreed contractual schedule and within other set parameters
• They do not get holiday, sick pay, or maternity/paternity pay, when they are not working
• They can usually hire someone else to do the work
• They are not under direct supervision when working, where the focus is not on how the work is completed but on the results
• They are responsible for fixing any unsatisfactory work in their own time
• They usually use their own money to buy business assets, cover running costs, and provide tools and equipment for their work
• They can work for more than one customer or client
• They submit invoices for the work they have done, where they are responsible for paying their own tax and National Insurance
• They cannot join the business’s pension scheme

 

The business’s procedures in relation to redundancy, and disciplinary and grievance matters, do not apply to contingency workers.

For example, a contingent worker might be an independent tax consultant or accountant. This skilled and trained individual can be hired during the tax season, with the sole purpose of completing the taxes for the organisation. Once the taxes are completed, the arrangement ends and they move on to another job with a different client.

Contingent workers are typically engaged through specialist recruitment agencies and outsourcing organisations.

 

Reclassification of contingent workers

 

Contingent workers can potentially be classified as ‘workers’ or ‘employees’ under UK employment law if their working arrangements reflect certain conditions, even if they were initially engaged as self-employed individuals or independent contractors. The actual nature of the working relationship, rather than the label used in the contract, determines their employment status.

If a contingent worker is subject to significant control over how, when, and where they perform their work, they may be considered an employee or worker rather than a genuinely self-employed contractor. Being integrated into the business, such as attending regular meetings or following company policies, can indicate an employment relationship.

If the employer is obliged to provide work and the contingent worker is expected to accept it, (known legally as mutuality of obligation), this suggests an ongoing obligation, which is characteristic of employee status. A self-employed individual, on the other hand, would typically have the right to refuse work.

A genuine contractor should have the ability to send a substitute to complete the work. If personal service is required and the worker cannot send a substitute, this points towards ‘worker’ or employee status.

Long-term, continuous engagement with a business, especially if there is no clear end date, may suggest that the contingent worker has become integrated into the workforce, increasing the risk of reclassification.

If a contingent worker is found to meet the legal criteria for ‘worker’ or ‘employee’ status, they could gain entitlements such as:

 

• Worker Status: Rights to national minimum wage, paid holiday, rest breaks, and protection from discrimination.
• Employee Status: Additional rights such as statutory sick pay, redundancy pay, unfair dismissal protection, and parental leave.

 

To mitigate risks, businesses should regularly review working arrangements and ensure contracts reflect the reality of the engagement. Seeking legal advice and conducting employment status assessments, such as those provided by HMRC’s IR35 tool, can help employers remain compliant and avoid potential liabilities.

 

Pros & cons of using contingent workers

 

A contingent workforce can benefit both your business and the individual worker in question in a number of different ways.

The contingent worker can be used to bridge any critical skills gaps on a temporary basis, increasing the flexibility and responsiveness of your workforce as and when needed. As such, the contingent worker can offer you greater workforce flexibility, allowing you to expand your labour force and improve your productivity output on demand, without accruing the costs traditionally associated with retaining permanent employees.

Contingent workers are not salaried, and are responsible for paying for their own taxes and national insurance contributions as they work for themselves, not for you. They are also not entitled to receive statutory or contractual benefits, where their rights and responsibilities are determined by the terms of the contract for services. Even though a contingent worker will often charge a higher rate than the pro rota equivalent for an employee, a business can still make significant savings, including savings on administrative costs associated with payroll.

Further, because contingent workers are usually highly skilled in what they do, you do not need to invest money and valuable time in attracting and recruiting the right person, or training them to do the job once they are hired – nor will you incur any additional costs in severance packages when the job is complete. You only need to pay contingent workers for the work that they do, thereby avoiding the cost of compensating a permanent employee by way of redundancy payments whose skills are no longer required.

You may also find that the productivity of a contingent worker is greater than that to be expected of a permanent employee, where the independent contractor will not only be looking to impress their customer or client with the highest standard of work, so as to encourage more work in the future, but also by completing the job in the most time efficient manner.

For the contingent worker, there are also several advantages of working on a self-employed basis, one the biggest being the opportunity to build on their experience and skillset with different customers or clients within various working environments. This also provides them with the flexibility to pick and choose who they work for, based on what best suits their skills and interests, and working this around any family or other commitments that they might have.

However, there are also challenges associated with using contingent workers. One potential issue is the lack of loyalty and commitment, as temporary staff may not be as invested in the company’s long-term goals compared to permanent employees. Training and onboarding costs can add up if contingent workers are frequently replaced, potentially affecting productivity. Contingent workers may have access to sensitive information, raising concerns about confidentiality and data security that require careful management. There is also a risk of misclassifying workers, which can lead to legal and financial consequences if they are found to have been engaged under the wrong employment status.

 

Contingent workers & right to work checks

 

UK employers are legally required to check a contingent worker’s right to work before engaging them to avoid potential fines, reputational damage and legal liabilities. The right to work check ensures that contingent workers, including contractors, freelancers, and temporary staff, have the necessary permission to work in the UK.

The first step is to establish the contingent worker’s employment status—whether they are self-employed, employed through an agency, or working via an umbrella company. If the worker is self-employed, they are responsible for their own right to work checks, but businesses should still verify their legitimacy to avoid engaging an illegal worker. For agency or umbrella workers, the agency or intermediary must conduct checks, but the employer should obtain confirmation that these have been carried out correctly.

For contingent workers requiring checks, employers should follow one of the approved methods.

Digital right to work checks using Identity Service Providers (IDSPs) are available for British and Irish citizens with valid passports or Irish passport cards. Employers can use certified IDSPs to verify these documents remotely. If a British or Irish citizen does not have a valid passport, a manual check must be conducted using original documents. Employers should check original documents from List A (e.g., British passport) or List B (e.g., visa with time-limited work permissions). The document must be checked in the worker’s presence, and copies should be retained securely.

Workers with digital immigration status, such as those with settled or pre-settled status under the EU Settlement Scheme or holders of Biometric Residence Permits, Biometric Residence Cards, or Frontier Worker Permits, cannot use IDSPs. Instead, they must prove their right to work through the Home Office’s online checking service by providing a share code. Employers then access the Home Office website to verify their status and keep a copy of the check for records.

Where an employee cannot prove their right to work through any of these methods, the employer should use the Employer Checking Service for a verification notice as to their status.

Employers must ensure that checks are completed before work commences and that follow-up checks are conducted for those with time-limited work permission. Records of all checks should be kept for at least two years after the worker leaves the organisation.

 

Data protection, IP & confidentiality considerations

 

Under the UK General Data Protection Regulation (UK GDPR) and the Data Protection Act 2018, employers must ensure that contingent workers handle personal data securely and in accordance with data protection principles. When providing access to sensitive data, businesses should:

 

• Limit access to only the information necessary for the worker to perform their duties.
• Conduct due diligence to ensure the worker understands data protection obligations.
• Include clear data protection clauses in contracts outlining responsibilities and consequences of non-compliance.
• Provide appropriate training on handling personal and confidential data securely.

 

Employers should also implement measures such as encryption, monitoring access logs, and requiring contingent workers to sign data processing agreements if they process personal data on behalf of the business.

Contingent workers may create valuable work for a business, such as designs, software, or written content. Without clear contractual agreements, there is a risk that the worker may retain ownership of the intellectual property they produce. To avoid disputes, contracts should clearly state that any IP created during the engagement belongs to the business and not the worker. Employers should:

 

• Include IP assignment clauses to transfer ownership of all work created.
• Specify how confidential materials and ideas should be handled.
• Prevent workers from using company-owned IP for other clients or personal projects.

 

Contingent workers may have access to sensitive business information, trade secrets, and customer data. Employers should take precautions to protect this information by:

 

• Requiring workers to sign non-disclosure agreements (NDAs).
• Restricting access to confidential information only when necessary.
• Implementing clear exit procedures to ensure all materials and data are returned or securely deleted when the engagement ends.

 

 

The role of contingent workers during challenging economic conditions

 

Rising labour and operating costs in the UK, including increases in employer National Insurance contributions and statutory sick pay, have made contingent workers an increasingly attractive option for businesses seeking to manage expenses while maintaining efficiency and agility. With labour being one of the most significant business costs, organisations are looking for ways to stay competitive by adapting to changing market conditions without committing to the long-term financial burden of permanent staff.

Even before the current economic challenges, businesses have increasingly relied on contingent workers to address fluctuating demand, access specialised skills, and reduce overhead costs. However, while the use of contingent workers offers flexibility and cost savings, it also presents risks. Misclassification of employment status can result in financial penalties from HMRC, as well as claims from workers seeking employee benefits such as holiday pay and pension contributions. Employers must ensure that contingent workers are engaged under the correct legal framework to avoid potential liabilities.

Effective workforce planning is essential to fully leverage the benefits of contingent workers. Businesses must assess whether short-term project needs justify the initial higher costs of temporary expertise, or if investing in permanent staff may be more cost-effective in the long run. In cases where immediate specialised skills are required or projects are of limited duration, a blended workforce approach combining permanent employees with contingent workers can offer the best balance of flexibility and cost management.

 

Need assistance?

 

DavidsonMorris’ HR consultants and business employment lawyers work with employers to support with all aspects of workforce management. We can advise on the implications of different types of employment status on your responsibilities and on workers’ rights, and support with drafting effective terms, conditions and legal documentation to mitigate legal risks. For advice on engaging contingency workers, contact us.

 

Contingent workers FAQs

 

What is a contingent worker?

A contingent worker is an individual hired on a temporary, freelance or contract basis rather than as a permanent employee. They provide services to a business but remain self-employed or work through an agency or umbrella company.

 

What are the benefits of hiring contingent workers?

Contingent workers offer flexibility, allowing businesses to adjust their workforce based on demand. They can help fill temporary skills gaps, improve productivity, and reduce costs associated with recruitment, training, and employee benefits.

 

Are contingent workers entitled to employee benefits?

No, contingent workers are generally not entitled to benefits such as sick pay, holiday entitlement, or pensions, as they are not considered employees of the business they provide services to.

 

How are contingent workers paid?

They are usually paid on a project basis, hourly, or per day, and they are responsible for handling their own tax and national insurance contributions.

 

Do contingent workers require contracts?

Yes, it is important to have a clear contract in place outlining the terms of engagement, responsibilities, and payment arrangements to avoid misunderstandings or disputes.

 

What are the risks of using contingent workers?

Potential risks include misclassification of employment status, lack of long-term commitment, and security concerns if contingent workers have access to sensitive information.

 

Can contingent workers become permanent employees?

In some cases, businesses may offer contingent workers permanent roles if their skills and experience prove valuable to the organisation.

 

Do contingent workers need right to work checks?

Yes, businesses must ensure contingent workers have the legal right to work in the UK, even if they are self-employed or working through an agency.

 

How long can a contingent worker stay with a business?

There is no set limit, but long-term use of contingent workers may raise questions about employment status and entitlements, so regular reviews are recommended.

 

Glossary

 

Term	Definition
Contingent Worker	An individual hired on a temporary, freelance, or contract basis, rather than as a permanent employee.
Freelancer	A self-employed individual who provides services to multiple clients without being committed to a single employer.
Contractor	A person or business engaged to provide specific services for a set period, often through a contract for services.
Temporary Worker	An individual hired for a limited period, usually through an agency, to meet short-term business needs.
Contract for Services	A legal agreement outlining the terms under which a contingent worker provides services to a business.
Self-Employed	A work status where individuals run their own business and are responsible for their own tax and national insurance contributions.
Umbrella Company	A third-party organisation that employs contingent workers and handles payroll, tax, and compliance responsibilities on their behalf.
Right to Work Check	A legal requirement for businesses to verify a worker’s eligibility to work in the UK.
National Insurance Contributions (NICs)	Payments made by individuals and businesses to qualify for certain benefits and the State Pension.
Employee Benefits	Perks such as holiday pay, sick leave, and pensions, typically not provided to contingent workers.
PAYE (Pay As You Earn)	A system where employers deduct tax and National Insurance from employees’ wages; contingent workers often do not fall under this scheme.
IR35 Legislation	UK tax rules designed to determine whether a contractor should be taxed as an employee or self-employed for tax purposes.
Redundancy	A situation where an employer reduces their workforce, usually offering compensation to permanent staff but not to contingent workers.
Recruitment Agency	A business that sources and supplies temporary or contract workers to companies, managing contracts and payments.
Onboarding	The process of integrating a worker into a business, often requiring minimal effort for contingent workers compared to permanent staff.