Contingent workforce – these two words may ring a bell in today’s human capital landscape. But what exactly is it? And why has it become an increasingly popular option? Moreover, how do organisations reap the most value from them? We attempt to explore the answers to all these questions in this article.
What is a contingent workforce?
The definition of an employee has evolved in today’s context. The who and what a company relies on for productivity, performance and ultimately getting the job done can cover a myriad of resources – from the traditional full-time employment model to contractors and freelancers, even automated systems and artificial intelligence.
A contingent workforce is a labour pool whose members are engaged by an organisation on an on-demand basis. Members under a contingent workforce arrangement may work directly for the organisation, under a contract or on a temporary basis. They may also be engaged by the organisation through a staffing agency. They consist of freelancers, independent contractors and consultants.
The rise of the contingent workforce and its benefits
The Singapore Business Review reported contingent workers forming 38% of the Singapore workforce back in 2019. Extrapolating a growth of 8% annually, based on 2019 statistics, we can expect more than half the existing workforce to be contingent by the end of 2021. We explore the benefits of a contingent workforce to understand why this is a viable option for staffing needs.
- Flexibility
A contingent workforce allows an organisation to assess its needs on an ongoing basis and scale its operations with the ebb and flow of demand. This degree of flexibility is often appreciated, especially in turbulent times. The same level of flexibility is, however, not applicable to a full-time employee arrangement.
- Cost savings
Tapping into the local contingent workforce can allow the company to save on costs associated with the rigidity of hiring and maintaining full-time employees, with minimal impact on company structure.
A study in the US on employee compensation structure shows employee benefits to account for 29.8% of total employer compensation. Choosing a contingent worker instead of a full-time employee saves American organisations almost 30% in benefit costs alone.
While this study is not necessarily illustrative of the local context, a more implicative study done by a Singapore staffing agency, Adecco Personnel, reported that only 11% of the local employers surveyed fully aligned the benefits offered under a permanent staffing arrangement to their contingent workforce (Adecco Salary Guide 2018). This indicates some form of cost savings for local employers operating a contingent workforce program.
- Addressing skills gaps
Contingent workers provide businesses with a large pool of experienced candidates. Many candidates can readily offer niche or specialised skills, which are sought after by organisations without the need for much training. In a survey conducted by SAP for Contingent Workforce Insights 2019, 62% of executives acknowledged the contributions of their external workforce counterparts as “important”. These are especially apparent in subject matters that concern new IT and digital skills such as AI, machine learning, data science, blockchain, automation, cloud, robotics and the Internet of Things.
Contingent workforce management
In many cases, contingent workers operate at the heart of the enterprise. Hence, it is crucial that organisations oversee their performance. However, many organisations lack insight into contingent workers and do not manage them effectively.
Major challenges include the lack of an integrated workforce management strategy, ad hoc (and at times high-risk) managerial behaviour, poor data management, and inadequate technology. These shortcomings prevent organisations from unlocking the full potential of their contingent workforce and can expose companies to significant business, financial, and public relations risks. Here are some pointers to consider in managing your contingent workforce:
- Having a solid contingent workforce strategy
A contingent workforce strategy forms the bedrock of contingent workforce management. A solid strategy is a plan that understands the implications of contingent labour, and defines meaningful controls to achieve the intended outcome of the contingent workforce program.
It should address:
- WHY should we use a contingent workforce? How will it support us in achieving our business strategy?
- WHERE to apply contingent workforce? Which tasks can be outsourced and where do we need to bridge capability gaps?
- WHO are we going to hire as contingent workers? Do we need them to increase capacity, or to bring certain skills and expertise we do not have?
- WHAT kind of (labour) conditions are we going to offer and what are the different legal implications of these conditions? What work environment do we need to create to enable our workers to do their work efficiently, and to be an attractive and engaging employer? How to reinvent with a human focus?
- HOW will we successfully manage our contingent workforce? Which vendor relations do we need, how do we ensure we are compliant, how do we mitigate risks, and what technologies can support us?
In addressing these crucial points, inputs across multiple organisational disciplines (Procurement, Tax & Legal, HR, Business Operations and Technology etc.) are required to provide a holistic view of said program.
- Focus on improving visibility
Good management is usually facilitated by high visibility. Managing contingent workers is no exception. However, SAP reports a concerning observation – less than half of the senior executives who participated in their contingent workforce insights research are highly informed about the basic information concerning their contingent workers.
Even fewer respondents have insights into the quality of the contingent workforce engagement – only 31% are highly informed about their contingent workers’ quality of work. This limited insight poses a challenge to effectively manage contingent workers and instil confidence in the value delivered.
- Manage with the same level of discipline
Contingent workers should be managed with the same level of discipline as full-time employees. With contingent labour forming an increasing proportion of the workforce, the adverse effects of under-managing this category of labour can be significant within the organisation. Moreover, with most contingent workers having access to clients’ facilities, systems and sensitive data, a hands-off management style exposes organisations to an array of substantial risks like digital security breaches. Introducing more management rigour can help achieve better results.
- Utilise technology
Most organisations adopt HR solutions to manage their full-time employees and vendor management systems to manage their contingent workforce. However, most organisations either do not realise the full potential of their vendor management systems or roll out such solutions across the entire organisation, making management a challenging task. The following survey results show the opinion of the same executives surveyed by SAP, regarding the capabilities of their existing VMS.
Having the right technology improves work processes and facilitates effective management at the operational level.
- Cross-functional approach in taking responsibility for contingent workers
It is difficult to establish which function within an organisation is entirely responsible for managing the contingent workers. For effective management of the contingent workforce, the onus lies across multiple disciplines in the form of an intricate collaboration. This is because all disciplines work together as an entity to make an informed decision regarding an organisation’s contingent workforce strategy.
The following is an example of how information flows between disciplines and their engagement with the contingent workforce, to show how interconnected the whole contingent workforce management process is:
Business and Operation lines should feed operational data (like work quality) back to HR to inform future sourcing decisions and whether or not to re-engage a particular worker. Procurement colleagues should also be informed because they negotiate large contracts with staffing agencies. Insight into contingent workers’ quality of work helps Procurement ensure that the company has the right providers on its preferred supplier list. Any gaps in communication will produce a less than desired outcome which will not be beneficial for the organisation.
Conclusion
The contingent workforce is almost likely to continue growing to become a significant part of any organisation’s human capital over the next few years. With more organisations relying on the contingent workforce, businesses must be prepared to meet the challenges and demands associated with managing it. While there is still much to learn about contingent labour, the best approach when it comes to managing them, as observed from Pacesetters, appears to involve creating standardised, cross-functional business processes, policies, and roles across business units and regions, supported, where possible, by a single information technology platform.
You can also read our earlier article on talent acquisition to gain insights into the future of the pharmaceutical workforce.
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