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What is the contingent workforce?
August 28, 2024
What does contingent worker mean?
The contingent workforce – also known as extended workforce, external workforce, or non-employee workforce – refers to workers who are not permanent or full-time employees of a company. Instead, they work on a temporary or contract basis. This includes agency-provided temporary workers, freelancers, independent contractors, interns, and consultants. It also includes the employees of outsourced service providers who deliver both strategically important services, such as information technology (IT) project services, and non-strategic services, such as call centers, security, landscaping, and facilities maintenance. Together, these contingent workers constitute a significant portion of the global labor force.
Why is the non-employee workforce growing?
The non-employee workforce has grown substantially in recent years, from 20% in 2010, according to Ardent Partners/Future of Work Exchange, to nearly 49% of the total workforce globally in 2023. This trend is driven by skills shortages and the need for organizations to optimize their labor investments.
Historically, the primary focus of contingent workforce management was on minimizing the cost of external labor. Today, the focus has shifted to strategically deploying the right categories of external talent to achieve organizational goals. This requires complete visibility into the extended workforce and an understanding of the various talent categories available.
What are the different categories of contingent labor?
Most external workers can be grouped into one of the following four categories:
- Temporary staffing
This includes short-term assignments with simple, repetitive tasks requiring high supervision. Sub-categories include commercial, office/clerical, and industrial staffing, with a further sub-classification for high-volume, shift-based staffing. - Professional staffing
This involves more technical, specialized, or managerial functions, such as IT, engineering, accounting, and legal services. Workers are generally called Contractors and can be engaged directly or through staffing agencies on a Time & Materials (T&M) basis. - Consulting and professional services
These projects typically involve statement of work (SOW) contracts with fixed pricing based on outcomes rather than hours worked. Payments are milestone-based, and workers are known as Consultants or Service Workers, depending on their roles. - Outsourced services
This includes long-term arrangements for both non-core business activities (e.g., call centers, security) and critical processes (e.g., IT, accounting). These contracts are driven by ongoing service provision rather than specific deliverables.
Learn more about the different categories of contingent labor.
Understanding contingent workforce terminology
There is no universal consensus on terms used to describe the extended workforce. Staffing Industry Analysts maintain an up to date Lexicon of Global Workforce-Related Terms, which can be very helpful.
Critical considerations for differentiating workforce categories:
- Scope of Assignment
Includes the length of assignment, tasks, supervision level, and responsibility. - Payment Terms
Determines whether talent is paid based on hours worked or the completion of specific deliverables.
How to source and manage your contingent workforce
Sourcing and managing hourly contingent workers involves different processes and procedures than those required to source and manage statement of work (SOW)-based service providers. To handle both categories of external talent, businesses typically use contingent workforce management software that includes two main modules or tracks:
- Contingent staffing
Engages, manages, and pays for individual contractors. Sourcing methods include the use of staffing suppliers and direct sourcing via private and public talent pools. - Services procurement
Sources consultants and service companies, writes and negotiates statement of work (SOWs), and manages the project lifecycle.
According to Staffing Industry Analysts’ Workforce Solutions Buyer Survey 2024 (Americas), the technology most often used to source and manage contingent workers is a vendor management system (VMS), with 81% of survey respondents saying they have a VMS in place.
How to manage external talent more efficiently
As external workforces expand, managing contingent talent has become increasingly complex. VMS platforms are designed to meet these challenges, providing workforce visibility, mitigating risks, enhancing operational efficiency, and achieving cost savings.
Before implementing a VMS, organizations typically find:
- Only 38% of the non-employee workforce is captured in budgeting, planning, and forecasting
- Only 73% compliance rate with national and local regulations
Can a VMS deliver better visibility and cost savings?
Implementing a VMS increases the visibility of the contingent workforce for planning, budgeting, and regulatory compliance. It also typically delivers a 9.2% year-over-year cost savings.
What are the risks associated with the contingent workforce?
How a VMS helps mitigate contingent workforce risks
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Enhance visibility and control
Centralizes workforce management for better oversight -
Global Management
Manages non-employee spend across geographies -
Increased Efficiency
Automates processes to streamline operations -
Effective Onboarding/Offboarding
Ensures quick and compliant transitions
Top reasons to implement a VMS
- Cost savings
Eliminates rogue labor spend, consolidates suppliers, and achieves savings through negotiated rates and process improvements. - Visibility
Provides detailed analytics and reporting for better staffing decisions. - Compliance
Enhances control over procurement processes and reduces co-employment and tenure litigation risks. - Quality
Monitors supplier and worker performance to maintain quality standards. - Security
Tracks who has access to facilities, networks, and data, ensuring secure access termination when needed. - Competitive advantage
Helps businesses compete successfully in the war for talent
Stakeholder benefits
- Hiring Managers
Quality assurance and quicker time to fill positions - Human Resources
Policy compliance and efficiency - Procurement
Spend management expertise and operational efficiency - Finance
Consolidated invoicing and real-time reporting - Legal/Audit
Policy compliance and operational efficiency - Suppliers
Visibility, lower costs, and robust reporting
A VMS empowers contingent workforce management automation, providing visibility, mitigating risks, and driving cost savings. The platform connects extended workforce data across various systems, offering tailored solutions to meet dynamic business needs. Learn how a VMS helps companies maintain a competitive edge by managing their contingent workforce more efficiently.
Best practices for managing a contingent workforce globally
A multinational company that manages its contingent workforce program in only one country can expose the organization to security and compliance risks. Expanding a contingent workforce program to match a company’s global footprint can enhance the company’s competitive advantage by increasing oversight in more labor categories and countries. It allows a business to take advantage of global talent sourcing and ensures that the external workforce is controlled and managed wherever work is done.
Assess readiness for expansion
Assessing program maturity is crucial before expanding. A contingent workforce program maturity model, such as one developed by Everest Group, helps determine readiness by evaluating dimensions like comprehensiveness, strategy, governance, measurability, and sustainability.
Find experienced technology and service partners
Engaging experienced partners, such as a managed services provider (MSP) and VMS provider, is essential for successful expansion. These experts offer valuable insights, industry best practices, and technical support.
How to “Think Global, Act Local”
Developing a global strategy with localized components ensures compliance with varying labor laws, tax structures, and cultural norms. This approach balances global visibility and control with local market adaptability.
Understanding cultural differences is critical for successful change management. Engaging top management in top-down cultures and promoting grassroots innovation in bottom-up cultures ensures effective adoption.
Take control of the new world of work
Global competition and the gig economy demand agile talent engagement strategies. However, this also introduces risks like rogue spend and non-compliance. A VMS helps manage these risks by providing centralized control over staffing suppliers and contingent labor. Learn more about how to manage your contingent workforce globally.
6 easy steps to a best-in-class contingent workforce program
Organizations are increasingly turning to a mix of traditional employees and contingent, non-employee labor to compete in an on-demand economy. Leveraging technology is crucial to managing this diverse workforce effectively.
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Step 1: Choose a technology provider dedicated to innovation
Selecting a robust vendor management system (VMS) is essential for achieving visibility, security, compliance, and cost management. A VMS should not only meet current needs but also adapt to future technological and strategic changes. The VMS provider should emphasize client-focused innovation, integrating features like direct sourcing, AI, workforce analytics, and seamless integrations. Regular collaboration with clients ensures continuous improvement and alignment with industry needs.
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Step 2: Plan to include all non-employee talent
To gain a competitive advantage, organizations must manage all types of contingent talent, regardless of engagement type or employment status. This requires a comprehensive approach, clear objectives, and scalable technology and processes. Beeline’s Solution Design team collaborates with clients to tailor the VMS to specific needs, providing training and ongoing support to ensure program maturity and effectiveness.
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Step 3: Use a multi-faceted talent pipeline strategy
Traditional staffing vendors offer limited access to available talent. A best-in-class program taps into larger talent pools, including online platforms, retirees, alumni, and other known resources. Direct sourcing expands talent options, making it crucial for programs to leverage diverse and extensive talent pipelines to meet growing demands.
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Step 4: Leverage experts for industry best practices
Contingent workforce management can be complex, requiring insights from industry experts. With decades of contingent workforce experience, the right VMS providers can provide strategic advice based on extensive industry knowledge. They will help clients stay updated on trends and best practices, fostering community engagement and knowledge sharing among professionals.
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Step 5: Apply workforce analytics for better decision-making
Success hinges on utilizing data to optimize the workforce program. Advanced analytics offer visibility into cost savings and quality improvements, enabling data-driven decisions. Your VMS provider should provide consulting and advisory services to help clients exploit these tools, ensuring the program’s full potential is realized.
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Step 6: Think long-term in a short-term world
In a rapidly evolving business landscape, HR and procurement leaders must innovate continuously. A best-in-class contingent workforce program delivers immediate benefits like lower costs and improved security while being adaptable to future changes. The right VMS provider supports long-term success with a diverse team of professionals committed to evolving the program to meet changing business requirements.
By following these six steps, organizations can develop a comprehensive and adaptable contingent workforce program, ensuring they remain competitive and responsive to market changes.
What to look for in a contingent workforce management solution
More than 20 years ago, contingent workforce programs focused on minimizing the cost of external labor through VMS platforms that automated sourcing and managing temporary staff. Today, contingent workforce programs are more strategic, aiming to deliver the talent needed to achieve specific organizational outcomes. Modern VMS platforms support better staffing decisions and total workforce optimization strategies and provide essential functionalities like visibility, cost control, and compliance.
Critical considerations for selecting a technology provider
Selecting a VMS provider involves evaluating both the technology's features and the provider's philosophy and support approach.
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Company background
Assess the provider's history, financial strength, and corporate philosophy. Questions about management experience, executive turnover, and ownership structure are crucial. -
Program model support
Determine the provider's capability to support various program models, whether managed internally or by Managed Service Providers (MSP). Evaluate examples of clients using different models and understand workflow differences. -
Product portfolio
Understand the critical elements of the provider's solution, including supplier engagement, time and expenses management, SOW creation and management, direct sourcing, and analytics. Review industry reports for third-party assessments and compare functionalities across providers. - Core functionalities
• Requisitions and sourcing: Automation of requisition creation and distribution, supplier tiering, and direct sourcing options.
• Candidate selection and onboarding: Tools for candidate comparison, interactive screening, interview scheduling, rate negotiation, and compliance with regulatory requirements.
• Timekeeping and invoicing: This feature supports accurate time entry, complex billing rates, tax calculations, and the generation of compliant invoices.
• Services procurement: The ability to source, negotiate, procure, and manage SOW-based contracts with scalable functionalities and centralized views.
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Decision support tools
Interactive tools that assist users in making informed decisions, mitigating risks, ensuring proper contractor classification, and enforcing company policies. -
Analytics and business intelligence
Advanced visual analytics for real-time trend analysis, optimization opportunities, and anomaly detection. Tools should provide comprehensive visibility of the extended workforce and support decision-making with actionable insights. -
Report generation
Easy access to standard and custom reports with robust report-building features, real-time previews, and drag-and-drop filter creation. -
Data security
Ensure the provider's security systems and procedures are certified and regularly audited. Evaluate their data encryption, anti-malware protection, intrusion prevention systems, and disaster recovery plans. -
Implementation and integration
Assess the provider's readiness assessment process, configuration responsibility, implementation timelines, and post-deployment support. Ensure seamless integration with existing enterprise applications. -
Customer service
Evaluate the provider's support services, including help desk, strategic consulting, and training. Determine the extent of operational and strategic account support offered.
10-point checklist for evaluating contingent workforce management software providers
- Demonstrated performance
- Analytics and reporting capabilities
- Lifecycle service
- Real-time visibility
- End-to-end services procurement
- Data security
- Direct sourcing capability
- Global capabilities and experience
- Continuous innovation
- Customer-centric culture
It is vital to choose a technology that meets current needs and is adaptable to future changes. A comprehensive evaluation of potential providers, considering both technological and strategic support aspects, ensures the selection of a platform that can grow with the organization's program and support total workforce optimization initiatives. Learn more about how to choose the right contingent workforce technology partner.
Visit beeline.com for more information about how a vendor management system (VMS) can automate and enhance the sourcing and management of your contingent workforce.
To schedule a VMS demonstration, contact Beeline today.
