What is an on-demand worker?

On-demand workers are outside contractors who come in and assist a company with projects on an as-needed basis. They may also be called:

• Freelancers
• Temp workers
• Day laborers

An alternative to traditional employment, on-demand workers are either independent contractors or can be hired by an employment agency. With 30% of the workforce performing some type of self-employment work each week, there’s an abundance of specialized talent ready to work on a temporary basis.

Temporary vs. contract workers

While both types of employment remove the barriers presented by the onboarding process, there are some differences. Temporary workers are brought in for a period of time, while a contracted worker is employed for the duration of a specific project. Typically, temporary on-demand employees are recruited through staffing agencies, and contracts are fulfilled with independent contractors.

Pros and cons of on-demand workers

Depending on your needs, location and industry, it may suit your company to onboard a temporary worker. On-demand employees are typically paid less than those hired full-time by a company; however, there are a few caveats to consider.

Costs of using an employment agency

Employment agencies charge numerous fees for their services, including the hourly rate paid to your on-demand workers. Typically they’re paid between 10%-20% of the employee’s hourly wages, either on a monthly basis or as a lump sum in the case of direct hires. Sign-up fees and regular account maintenance dues are to be expected as well. Agencies charge to contract out their employees because they’re taking on the financial responsibility of maintaining an employee’s records and training.

Benefits of using an on-call employee

The pros of hiring independent contractors are numerous, including saving money in the long run. The contractor provides needed supplies such as tools and gas, though they certainly consider the costs of these items when figuring their job bids.

Additionally, health insurance and job protection insurance are easily offered by an agency with enough employees to justify such a purchase, whereas a smaller company might have to pay more to provide those benefits. Independent contractors also pay their own Medicare and Social Security taxes, costly payroll expenses.

Legal responsibility

Legal responsibility is another aspect of employment that can be avoided when you outsource employees.

Skills and specialized educational needs

A well-trained staff is important for effective operations, of course, but some projects require skills you don’t typically use. For example, workers on a construction project or a financial auditor may require licenses and certifications that are costly and time-consuming to earn. Outsource a payroll company or construction firm for a temporary team member instead of a full-time employee to take care of your on-demand work.

Schedule flexibility

In addition to the financial aspect of hiring contract employees, there are other upsides, such as the scheduling flexibility you can offer your entire team when you supplement with 1099 employees as needed. You can easily remedy scheduling issues such as a team member falling ill or needing to take paid time off. Or, when you experience unexpected business demand, simply reach out to your trusted contractors to fill in. Often they can do so at a moment’s notice.

What type of benefits does an on-demand worker typically expect?

Finding quality candidates to add to your teams is a challenge, but you can make it easier by offering a juicy benefits package. Most independent contractors don’t receive any benefits, so you can easily stand out to applicants by doing so. While benefits such as health and life insurance are typically provided by the staffing agency or procured independently by the contractor, you can offer access to some of your company’s nonstandard benefits, for example, access to employee recreational areas and discounts on local events or services.

Nonemployee compensation (NEC) is a type of benefit that awards contractors things like bonuses and commissions along with their wages. Only independent contractors may be paid in this way. Common examples of NEC include:

• Merchandise in exchange for work done
• Payments for rental real estate
• Freight and storage compensation
• Payments for utilities, including phone and internet

Where to find quality on-demand employees

Finding the proper employer marketplace depends on whether you want to employ the services of a staffing agency or hire an independent contractor.

Staffing firms exist in nearly every city nationwide; a quick internet search should show you listings of agencies in your area along with reviews. Investigate each agency’s pricing and recruitment process to make the best decision for your company.

Independent contractors typically advertise their services through local directories and, often, their own websites. Reach out to local small businesses to contract work by doing a search using the keyword for the position you are looking to fill and your zip code.

To find an independent contractor, list exactly what you want to accomplish, then look for places in your community that might meet your needs. Network to find trained tradespeople or put up fliers around the workplace or a place of business that employs people in positions you’re looking to fill.

On-demand worker FAQs

Do employers pay taxes for on-demand employees?

No, independent contractors pay self-employment tax instead. Be careful to properly classify independent contractors. The IRS imposes stiff penalties on employers that attempt to avoid paying employment taxes by incorrectly neglecting to claim an employee or failing to report wages paid to a 1099 worker above $600 in cash or nonemployee compensation.

How does the IRS differentiate between a W-2 and a 1099 contractor?

If a contractor has complete autonomy during a project and the company only has ultimate control of the outcome, that worker is an independent contractor. If a company directs or supervises someone, that person is considered an employee.

How does a company report hiring a contractor on its taxes?

The IRS requires the independent contractor to file a W-9 to get a taxpayer identification number (TIN) for business transactions. Businesses report wages paid to on-demand employees using the 1099-MISC form and send a copy to the contractor at the end of the year. Nonemployment income is reported on a 1099-NEC. Money spent on paying contractors is listed in the expenses column of a business’s financial reports.