Count on Contingency Workers for Talent, Flexibility

Faced with fluctuating demands and growing labor costs, small businesses have turned to contingency help — temps, leased employees, independent contractors, and interns. The benefits range from simple payroll reduction to attracting specialized talent. Here's a sampling:

Temporary help. A growing number of small companies use a temporary staffing strategy that relies on placement agencies to act as recruiters. You should expect to pay more for temps, but you save on the cost of benefits, workers' compensation, and paperwork. One sign manufacturer who buys 1,800 hours of temporary help a year to meet periods of peak demand, for example, has cut labor costs 18% by using temps. Another big plus: If you decide to make a temp permanent, you've saved time and resources by letting temp firms do the initial screenings, while you've had the opportunity to evaluate the employee on the job.

Leased employees. The logic behind leasing employees is economy of scale. An employee-leasing company keeps your work force on its much larger payroll and thus can afford economic benefits you might not otherwise be able to realize. This is particularly true for seasonal or cyclical businesses, which often face burdensome unemployment insurance costs when they have to lay off a large portion of their staff. The leasing company can spread the cost of unemployment insurance, as well as items such as workers' comp insurance, across a larger work force. Other benefits include meeting the participation requirements to offer health insurance and retirement plans.

If you are considering employee leasing, be advised that most states do not require such firms to be licensed. Also, be sure to check an employee leasing company's references, credit history, and insurance coverage.

Independent contractors. These are not regarded as "employees," per se, because although they provide services, they work for themselves. Therefore, the employer doesn't have to pay most payroll taxes and social security, and isn't liable for unemployment compensation and other employee costs. Small companies can benefit from using outside contractors in areas such as marketing, advertising, and consulting services. Beware, however: The IRS has strict regulations for classifying workers as independent contractors. They cannot "appear" to be regular employees in job requirements and responsibilities.

If you are considering independent contractors, you can obtain a Form SS-8, "Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding," from the IRS by calling 1-800-TAX-FORM.

Interns. Student interns represent inexpensive short-term help that can take on special projects or fill in for vacationing employees. But interns' potential value can extend far beyond mere convenience. First, they are potential hires. Interns are an opportunity to screen and train future employees. Second, interns allow flexibility. Because interns can be shifted from one department to another to pick up slack, they often end up learning more about the overall process than someone who has been in a company for several years doing only one job. Finally, interns are reliable. They are grateful for the opportunity to work for you, they show up on time, and they do the job as instructed.

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