What is SOW in contingent labor?
9 November 2022

What is SOW Contingent Labor?

2 min read

The contingent workforce today is made up of a number of different workers, with temporary workers and independent contractors (ICs) making up the largest percentage of contingent work.

These workers are sourced through a mix of staffing agencies and Statement of Work (SOW) labor. In fact, according to Randstad, SOW spend is typically 65 percent of all contingent labor spend. Yet that spend is largely hidden, leading to “maverick spending”.

There’s a tendency to categorize these workers together, but SOW labor is distinctly different to traditional contingent labor sourced through staffing agencies.

In this blog, we take a look at what statement of work labor actually is, how it differs from traditional temporary labor sourced through staffing agencies and what to keep in mind when managing this category within your contingent workforce program.

2022 Contingent Workforce Trends

What is SOW?

SOW is a strategic process in which a company hires non-employee workers on a per-project basis, in which the business is paying for a finished product or service to be delivered. The company typically has no control over how, or where the contingent worker performs that work.

The SOW itself is a formal document used to source contingent labor. It defines the specific deliverables of the project, milestones, timelines, expectations and payment schedule for the work being performed. 

There are a number of reasons why SOW spend should be managed carefully, including:

✔️ To gain insight into SOW spend. Without separating traditional contingent labor and SOW, your business will mix the two up. That will give you no insight or visibility into your SOW category, resulting in rogue SOW spend across your organization. 

✔️ To mitigate risk. Temporary workers and independent contractors have to be legally managed differently. Separating the two categories will ensure you are classifying your contingent workers correctly and managing them lawfully. 

How does SOW contingent labor differ from temps?

The traditional method of employing a contingent worker is through a staffing agency, with the contractor coming into the business on an hourly rate, on a fixed contract, and with a requirement to track their time though timesheet submissions. 

These workers are typically brought in to augment a company’s existing workforce, providing extra support during times of peak demand or when a new project has been signed and a business doesn’t have the resources to complete it.

The key here is that these non-employee workers are typically sourced through a staffing agency. 

SOW spend is different. SOW spend is applied to fixed fee, milestone and deliverable based projects, though hourly billings can be part of the project, its generally milestone based. This can be executed through independent consultants but the more common, and highest dollar spend is with consulting and outsourcing firms.    

These workers are brought in through a SOW document, which defines the project deliverables, timeline, payment schedule, and any other standards that are agreed upon as part of the working agreement. Providers typically charge higher rates, but have more skin in the game on the outcome.

How to manage SOW contingent labor

An effective contingent workforce management program will identify traditional staffing agency spend and SOW labor separately, and the best way to do that is typically through the use of a vendor management system and an MSP program.

When you have a robust SOW strategy in place, your organization will:

  • Gain insight and transparency into SOW spend so that you can make data-driven decisions. 
  • Have strategic processes in place that allow for fast and quality talent acquisition. 
  • Improve its agility, so you can rapidly meet shifting market conditions and new project demands.
  • Mitigate the risk of misclassifying workers and avoid the legal fees that come with it.

Interested in learning more about SOW contingent labor, or simply want to enquire about how you can improve your contingent workforce management program and enhance your talent acquisition initiatives? Get in touch with Contrax today

Ready to learn more? Contact us today!

Subscribe to the Contrax Blog