Survive & Thrive: Controlling contingent workforce costs and risks

Businesses worldwide have dramatically increased their use of contingent workers as they struggle with rising labor costs and the need to build a flexible workforce that can adapt to volatile economic conditions.  Ardent Partners and  the Future of Work Exchange report states that external talent, which made up 17% of the average company workforce in 2009, now represents nearly half – 49% – of the total workforce. 

In addition to contingent workers supplied by staffing agencies, this external talent can include consultants, independent contractors, freelancers, and outsourced service workers operating under statement of work (SOW)-based contracts. 

While expanding a company’s workforce with contingent talent increases agility, it also adds new complexity and risk that must be managed to prevent damage, both to the company’s reputation and to its bottom line.  

Five categories of increased risk:

Successfully managing an extended workforce of external talent requires the mitigation of five types of risk: 

• Legal & regulatory risk – compliance with applicable laws and regulations
• Operational risk – ensuring talent quality, cost control, and process efficiency
• Data management & visibility – accurate collection and management of contingent workforce data
• Security of company assets – facilities, data, physical and intellectual property
• Strategic risk – adherence to company policies in support of organizational goals 

While all five risk categories are important, recent changes to the regulatory landscape and economic volatility have driven legal risks and operational risks to the fore. 

In the UK, confusion around IR35 compliance reporting and potential “double taxation” have forced contingent workforce managers to pay particular attention to the status of independent contractors. Meanwhile, the EU the economic environment has prompted consideration of new laws affecting the status of contingent workers. 

In just one example, on 12 June 2023, the Council of the EU agreed on a directive that aims to better protect external workers engaged via talent platforms. The directive aims to ensure that workers have or can obtain the appropriate employment status and provides for rules regarding the transparency of the use of algorithms within the platform economy.  

On June 10, 2023, Ontario, Canada, passed new regulations establishing a licensing framework for Temporary Help Agencies (THA) and recruiters that, among other things, will require employers to only use licensed THAs and recruiters. Failure to comply with these regulations beginning on January 1, 2024, will be a violation of the province’s Employment Standards Act. 
 

Misclassification is an ongoing legal risk 

The main risk under employment law is misclassification. For workers considered “co-employed” – employed both by staffing suppliers or talent platforms and by the companies that engage their services – these workers may be considered employees and entitled to equal pay and other benefits. Therefore, companies must take the necessary procedures to avoid co-employment and document these procedures to protect themselves against charges of misclassification. 

The effect of inflation on the extended workforce 

Another important concern for contingent workforce program owners and managers is the effect of inflation on the cost of contingent labor. According to Staffing Industry Analysts’ “Workforce Solutions Buyer Survey 2023,” 57% of European companies surveyed reported raising pay rates for contingent workers to respond to talent shortages.  While 41% of companies reported increasing pay rates by 5% or less, nearly a third reported raising rates by 6 to 10%, and 15% reported increases of 10% or more. 

Inflation in North America has had an even more pronounced effect on pay rates. According to Staffing Industry Analysts’ “Workforce Solutions Buyer Survey 2023: Initial Findings Americas,” 69% of companies reported raising pay rates, with 63% reporting increases of 10% or less, and 17% reporting increases of more than 10%.  

  With pay rates rising worldwide, it is vitally important for talent acquisition and procurement organizations to be as efficient as possible and utilize all contingent workforce staffing channels to find the talent they need at prices they can afford. This requires technology that can capture and compare market rates and make recommendations for consideration by hiring managers and program operators. When the right data is readily available, hiring managers can make better, more cost-effective staffing decisions. 

The path to cost control and risk mitigation 

Cost control and risk reduction both start with a commitment to integrated workforce planning across the organization. Business must match workers with the right skills and the right contract to each role or assignment.

This will require: 

• shifting to skill-based, rather than role-based, workforce planning 
• establishing the necessary policies and processes to execute an effective total talent acquisition program
• implementing appropriate technologies to make these programs and operate efficiently and compliantly 

The transformation can be daunting. But the results will let you: 

• acquire the best external talent for each assignment – without overpaying for that talent
• ensure that all talent is properly classified and managed in compliance with applicable labor laws and regulations