Contingent Workforce Management

A Comprehensive Guide to the Contingent Workforce and How to Manage it

The contingent workforce is growing at an exponential rate, with an increasing number of organizations using non-permanent workers to access a range of benefits from cost reductions, improved business agility and better access to talent. 

In fact, the average percentage of workers who are contingent is expected to grow to 24 percent in 2022, and to 29 percent by 2030 (Staffing Industry Analysts).

As the use of contingent workforce grows, so does the importance of implementing a strategic contingent workforce management program for any business that uses contingent workers to augment their internal employee team. 

While the contingent workforce brings a huge number of benefits to businesses that use it - helping them to address workforce shortages, reduce workforce costs and scale their organization up and down rapidly - it can also bring challenges and risks when managed ineffectively. 

And managing the contingent workforce isn’t easy. 

It requires knowledge of the contingent category, an understanding of managing staffing agencies, and vendor management system technology that standardizes and automates processes.

To help your organization optimize its use of the contingent workforce, we’ve created this definitive guide to successful contingent workforce management. We hope it helps you drive new ROI for your business.

1

What is the contingent workforce?

Before we get into how organizations can successfully manage their contingent workforce, it’s first important to look at what the contingent workforce is and how it can benefit a business. 

Over the next few sections, we’ll look at an overview of the contingent workforce, including what it actually is, how its use brings business benefits, how these workers differ from employees and how companies can position themselves as an “employer of choice” for non-permanent workers. 

So, let’s kick this off with a look at what the contingent workforce actually is. 

The contingent workforce is made up of a range of non-employee workers who are hired by a business on an on-demand or project-by-project basis, typically through a staffing agency but they could also be hired directly through a direct sourcing model.

Contingent workers work for a business under a contract or temporary basis, and are therefore not considered employees of the company. 

The contingent workforce is made up of:

  • freelancers;
  • temporary workers (temps);
  • independent contractors;
  • consultants;
  • And other non-permanent workers.

These workers are typically contracted for a specific project or predetermined period of time. Once this short-term engagement is complete, the contingent worker then either leaves the company for a different role or accepts a new contract - either for a new project or a new period of time.

2

How do contingent workers differ from employees?

One of the most important things to keep in mind when building a contingent workforce is compliance. 

There are both local and national regulations that apply to contingent work, and businesses must ensure they comply with them to avoid breaking employment laws.

Unlike an employee that is employed directly by the company on a permanent employment contract and is on the company payroll, contingent workers are either provided to an organization by a staffing firm (and are employees of the vendor) or are hired by the company (either with or without the help of a staffing agency) on a project-by-project basis or for a specific period of time.

Workers in any of these relationships could be full time, part time, short term or long term. The number of hours they work has no bearing on whether a worker is an employee or a contingent worker, but instead it's the relationship they have with the company. 

Typically contingent workers are not eligible for the same benefits that employees are entitled to, such as vacation time, sick pay bonuses or retirement benefits. Although this does differ depending on the category of worker. 

Contingent workers who are hired on a contract basis generally are not entitled to typical employee benefits, but have the freedom to choose the hours they work and where they work from since they are their own boss.

Classifying contingent workers correctly is an important process that mitigates the risk of misclassification or co-employment.

3

What are the benefits of a contingent worker?

The contingent workforce is a broad category, and can help businesses with seasonal demand, long-term projects, consultancy roles, and industry expertise - allowing organizations to augment their existing employees with additional workers, new skills or specialized expertise. 

It’s due to these benefits that the contingent workforce is increasing at such a rapid pace. 

According to a report from Intuit, roughly 25-30 percent of the US workforce is now contingent and more than 80 percent of large corporations plan to “substantially increase” their use of contingent workers in the coming years.

Since the contingent workforce offers such a diverse range of skills, businesses can gain a number of benefits from improved flexibility, cost savings, the ability to access talent during workforce shortages and the agility to scale up and down when needed.

With that in mind, here are just a few of the top benefits businesses can realize from an effective contingent workforce strategy

COST SAVINGS

The entire process of hiring an employee is an expensive one. In fact, it costs employers an average of $4,129 and takes an average of 42 days to fill just one open position according to the Society for Human Resource Management (SHRM). A good contingent workforce program can significantly reduce an organization’s workforce costs.

FASTER HIRING TIMES

Not a big fan of the number we mentioned above, that it takes the average business 42 days to fill one position? The contingent workforce dramatically reduces time-to-hire, with workers that can be placed into a business on a fast track.

ACQUIRING TOP TALENT

There has long been a skills gap within the workforce, and that has left the competition for talented workers being more competitive than ever before. The contingent workforce provides organizations with a new avenue to access skilled, experience and specialized talent.

IMPROVED BUSINESS AGILITY

The contingent workforce empowers organizations to build an agile business strategy, in which workforce requirements can be assessed on an ongoing basis. Contingent workers give businesses the agility they need to change their workforce rapidly, depending on current market conditions, business demand and workforce requirements.

A COMPLETELY SCALABLE WORKFORCE

Since contingent workers are sourced as-and-when needed, businesses are able to quickly scale their workforce up and down when required. This is particularly important for organizations that experience huge seasonal swings in demand.

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4

How to position your business as an ‘employer of choice’ for contingent workers

While the contingent workforce gives businesses more opportunity to access talented workers and gain a competitive edge over their competitors, there is also increased competition for these non-permanent workers.

As much as the number of contingent workers increases, the percentage of organizations using non-permanent talent is rising even more. 

As a result, companies who source the best contingent workers for their needs and beat their competitors to these workers will have to position themselves as “employers of choice” for the contingent workforce.

By doing so, organizations will be able to better retain contingent talent and re-engage workers again and again as they are needed, reduce turnover within their contingent workforce program and be a more appealing proposition to new contingent workers they haven’t worked with before.

To position themselves as an employer of choice, businesses will focus on:

  • Building a company culture and candidate experience that helps attract, and retain, both employees and contingent workers.
  • Recognize the contribution of non-employee workers.
  • Build long-term relationships with contingent workers, shifting away from the mindset that contingent workers are temporary solutions that can be forgotten about after their contract is up.
  • Offer non-employee workers future contingent opportunities. 

When businesses improve how they engage and satisfy contingent workers, they’ll not only benefit from being able to re-engage talented workers in the future but also from word-of-mouth marketing that promotes the organization to other contingent workers.

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5

What risks come with a contingent workforce?

All business operations involve an element of risk, and the contingent workforce is certainly no different. When the right strategies and processes aren’t implemented, risks can run rampant within your organization that have a serious impact on your bottom line. 

When it comes to the contingent workforce, many organizations simply don’t have the visibility into, or control over, their contingent workers to understand what their risks are. 

That’s why we’ve listed some of the top contingent risks here.

MISCLASSIFICATION OR CO-EMPLOYMENT

As we mentioned earlier on this page, one of the most common risks when it comes to hiring contingent workers is misclassification or co-employment. Falling foul of employment laws could result in back taxes, hefty fines and penalties for your business.

VENDOR PERFORMANCE

The staffing agencies you partner with are crucial to how successful your contingent workforce program is. Without data and insights into vendor performance, you’ll have no idea how these vendors are performing. It’s likely that this will result in low workforce quality, slow hiring times and your business overpaying for talent. To ensure ROI from your staffing agencies, organizations need the insights to see how they’re performing and how program results can be improved.

OVERSPENDING

When organizations don’t have effective management processes and documentation methods in place, they lose visibility and standardization across their contingent workforce program. This results in hiring managers sourcing workers from staffing agencies with their own rules and their own rates, resulting in no centralized program and rogue spend running through your contingent workforce.

 

These risks all stem from a lack of visibility and control over your contingent workforce. Thankfully, that can be changed when you implement a strategic contingent workforce management program.

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6

Why it’s crucial to build a contingent workforce management strategy

To successfully mitigate the above risks, a strategic contingent workforce management program is necessary. 

Organizations that don’t develop an effective contingent workforce management program or implement technologies (such as a Vendor Management System) to manage that program are simply unable to gain the required visibility and control over their contingent workforce to reduce risk.

The problem is, building an effective contingent workforce management program isn’t easy. It requires expertise in the contingent category, technology software and the right resources in place. 

Here at Contrax, however, we find that a large number of organizations (particularly those with smaller volumes of contingent workers) don’t have an “official program” in place. 

When a business has no contingent workforce management program implemented, they suffer from a lack of standardized processes that results in hiring managers engaging staffing agencies on their own terms and at their own price. 

This results in a complete lack of control and visibility over where money is being spent and what workers are being hired by the organization - resulting in rogue spend that runs rampant throughout the business. 

When a contingent workforce management program is successfully implemented, the opposite occurs. Businesses gain full visibility and control into both their contingent workers and their staffing agencies. 

With an effective contingent workforce management program, companies can:

  • access top talent more effectively, and faster
  • reduce costs and improve their bottom line for a contingent workforce program that delivers better ROI;
  • mitigate risks within their program;
  • automate processes so internal teams have more time to focus on core competencies that improve business profitability;
  • as well as build standardized processes and rates that all hiring managers can follow and adhere to.

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7

Contingent workforce management methods: In-house and outsourced

Despite the importance of a contingent workforce management strategy, only 9 percent of companies in the Sapient Insights 2020-2021 HR Systems Survey believed they were “excellent” at managing gig or contingent workers, while 17 percent said they were “poor” at managing that segment of the workforce.

So, how exactly can businesses implement successful contingent workforce management programs? 

Traditionally, companies have managed their contingent workers and staffing agencies with no real program in place. Instead, they use spreadsheets and fragmented processes across their entire organization.

We can tell you one thing, this management method will certainly lead to rogue spend that impacts your bottom line and result in a lack of visibility that leads to poor workforce quality and subpar vendor performance.  

Organizations that want to address this issue have two options, they can either improve how they manage their contingent workers and staffing agencies in-house, or they can outsource this management program to a third-party with expertise in the contingent category.

Let’s take a look at what these options are here:

OUTSOURCED CONTINGENT WORKFORCE MANAGEMENT OPTIONS

There are two primary methods that organizations use to outsource their contingent workforce management program, an MSP or a master vendor program. Let’s take a look at each of those in a little more detail.

MANAGED SERVICES PROVIDER (MSP)

An MSP is a third-party contingent expert that will assume responsibility for a company’s entire contingent workforce management program. They’ll be responsible for all things related to the program, from implementation and engaging vendors, to hiring contingent workers, onboarding and billing. The aim is to take away the strategy and ongoing management burden of a contingent workforce away from the actual business itself.

MASTER VENDOR PROGRAM

Similarly to an MSP, a master vendor (or prime vendor) is a way to outsource a company’s contingent workforce program. However, it isn’t as complex as a full MSP program, and organizations can pick and choose which aspects of the program they’d like to outsource to the master vendor. A master vendor typically works with its own network of pre-approved staffing agencies to fulfill a company’s workforce requirements.

MANAGING YOUR CONTINGENT WORKFORCE IN-HOUSE

With the appropriate resources, time, money and contingent category it’s definitely an option for some organizations to manage their contingent workforce program in house, but the key is to use a vendor management system to underpin the entire program.

A vendor management system acts as a system of record for a company’s entire contingent workforce program in one centralized platform, giving them complete visibility and control over their contingent workforce.

VMS software also automates all processes associated with managing the contingent workforce, from sourcing vendors, engaging contingent workers, onboarding, time entry and approval, analyzing vendor performance and making payments. 

A VMS is used both by companies managing their contingent workforce internally, as well as to augment an MSP program.

According to the Staffing Industry Analysts’ ‘Workforce Solutions Buyer Survey: 2020 Americas Results’, 84 percent of companies have experienced cost savings with Managed Services Providers (MSPs) and 76 percent have seen savings with a Vendor Management System (VMS).

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Contrax Ultimate VMS Buyers Guide

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