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Contractor Management

The Contingent Workforce – What is it and why it is increasingly being used for strategic reasons in businesses?

By 28 December 2022No Comments

Contingent workers are people who are not on the company payroll but provide services to an organization, such as contractors, consultants, temps and advisers.

Businesses have dramatically increased their use of contingent workers over the past decade as they struggle with rising labour costs and the need for a workforce that can quickly adapt to market conditions.

Relied upon by companies of all sizes to provide flexibility, specialized skills, innovation, labour cost control, and more, the extended workforce has woven itself deep into the fabric of today’s leading organizations.

Even in today’s job market, there is a shortage of workers with critical skill sets. This has resulted in a steady, year over-year growth in the size and cost of the contingent workforce. As the baby boomer generation is starting to retire, companies are bridging the critical skills gap with more contingent workforce.

“Some large companies estimate that up to 30 percent of their procurement spend goes toward contingent workers…”

Other organizations have seen the ranks of contingent workers swell so much that they represent a larger percentage of the workforce than ”regular” employees. Some of these organizations are overspending to use contingent workers in roles that they could fill at a lower cost with qualified talent elsewhere in the marketplace. The challenge organizations face here is understanding what skills and services contingent workers provide and helping managers make the applicable/specific fact-based decisions on whether to fill a role or skill needed with a contingent worker or a full-time employee.

Different cohort, different approach although the contingent workforce segment is growing in importance and its size, many organizations may not be skilled at managing it effectively. Major challenges include the lack of an integrated workforce management strategy, ad hoc (and at times high-risk) managerial behaviour, poor data management, inadequate technology and compliance. These shortcomings can expose companies to significant business, financial, and public relations risks. Additionally, the lack of an integrated solution across these areas can inhibit an organization’s ability to make decisions about what type of talent to deploy where. There are companies who specialise in assisting companies to adapt to the contingent workforce by managing the contingent worker’s compliance for you.

As more companies understand the issues associated with contractors and manage them well, they can benefit from improved operational performance, lower labour costs, informed staffing decisions, more organizational flexibility, and stronger HR alignment with business objectives. This gives them the ability to source and procure contingent workforce talent that is high-quality, aligned to the specific business needs, and available “on demand” to meet immediate talent needs.

Managers can make good talent decisions at the time of need, and the processes and systems are in place to manage and mitigate the risk of contingent worker administration across the worker lifecycle. Conversely, poor management of contingent workers can negate many of their potential benefits. One risk can be legal and regulatory challenges when governments pursue companies that misclassify contingent workers. Another potential downside is when managers use the contingent workforce to work around headcount and labour spend controls, driving increases in baseline costs with no discernible increase in value. In addition, the expanding use of contingent workers can expose companies to competitive risk from the loss of trade secrets, intellectual property, and organizational knowledge. When these workers support business critical functions and interact with customers, the lines between employees and the contingent workforce blurs.

The contingent workforce management issue is particularly timely given current market and regulatory conditions. The dynamic nature of marketplace conditions and the talent market are leading organizations to rapidly increase their use of contingent workers so they will have the flexibility.

“Total contingent workforce management is the next frontier for recruitment and HR professionals…”

If your business is looking for more flexibility and/or looking to lower your labour costs, contact us, book an appointment or reach us at [email protected] or 02 9407 8700 where one of our Australian team members will gladly help you with your Contingent Workforce plan.

Pendragon Team