According to a 2010 study on Contingent Labor Management by AberdeenGroup, nearly 20% of the average workforce is made up of temps, contractors, consultants and other contingent workers.
That’s 1 in 5. Feels like a sea change to me.
Back in February I wrote about the move away from job based pay as reliance on contingent workers increases and what that means for compensation professionals. But my topic today is more holistic.
In the wake of the economic crisis companies have increased their reliance on contractors instead of FTEs, which has had a positive impact on total salary burden. The downside is that most HR systems aren’t designed to deal with contingent workers beyond identifying them in the system, which means that few companies have visbility into who’s working on what, the cost and quality of work and how work contributes to the business.
Oh, and did I mention that on average 70% of total operating expenses are workforce related? That’s a pretty big chunk of change for something you can’t analyze properly.
(But I bet you can tell me exactly how many widgets you have in your warehouse, how long each one has been sitting there and exactly what it costs – too bad that’s less than a percent of total operating expenses.)
Generally speaking, when we talk about best practices around salary, incentives and paying for performance we’re talking about employees. Unfortunately, that leaves about 20% of the workforce in management limbo, a number that Time Magazine predicted will rise to 40% by 2019.
Part of the information vortex around contingent labor results from the fact that most HR systems were designed to track employees, but part of it is self-imposed:
Organizations fear co-employment lawsuits if they inadvertently treat contingent workers like employees. As a result, they don’t track skills and experience for contractors or conduct formal performance evaluations as they do with employees.
In many cases, companies also fail to track contingent work type with an adequate level of granularity (i.e., temp, contractor, consultant, service provider, etc.), which means they also can’t determine the overall costs, quality of work and types of services associated with each category.
It's therefore somewhat ironic that most co-employment lawsuits result from too little oversight rather than too much.
But there's a larger challenge at work here as well because most companies lack a cohesive talent management strategy that aligns work to organizational objectives, measures cost and quality of work, tracks talent profiles for the extended workforce and actively mines these to reduce total workforce spend.
They have more information about employees than contingent workers and more mature processes for managing them... but not much more.
Bottom line: Companies that don’t actively manage work, track the cost of work and hold contingent workers accountable to the same quality standards as employees are playing hot potato. They overspend on contingent labor, are more vulnerable to co-employment lawsuits and get lower quality work out of their contingent workers.
Not surprisingly, they have lower business performance overall.
Stop playing hot potato. Embrace the sea change.
I wish that were catchier.
Picture courtesy of filmtotaal.nl.
Laura Schroeder is a Compensation Strategist at Workday, headquartered in Pleasanton, CA. She has nearly fifteen years of experience designing, developing, implementing and evangelizing global Human Capital Management (HCM) solutions and holds a certificate in Strategic Human Resources Practices from Cornell University. Her articles and interviews on HCM topics have been published in the US, Europe and Asia. She lives in Munich, Germany and enjoys cooking, reading, writing, kick boxing and spending time with friends and family. If you want to read more from Laura, check out her talent management blog Working Girl or follow her on Twitter @WorkGal.
How does one "embrace the sea change"?
Treating contingent workers as regular employees carries heavy penalties in many places. Keeping them at arms' length minimizes the management burden, but creates other issues. Converting contractors to employees undercuts the whole purpose of outsourcing. Every option has pros and cons.
What are you recommending?
Posted by: E James (Jim) Brennan | 01/04/2011 at 01:19 PM
Too right, Jim - contingent workers are not employees and should not be treated as such. Nonetheless, I am recommending improved oversight and control. It is both possible and advisable to track what types of contingent workers are working in the organization (contractor, consultant, temp, etc.), what they are working on and what it costs, as well as hold them accountable to clearly defined performance measures.
Posted by: Laura Schroeder | 01/04/2011 at 01:37 PM
I had got a desire to begin my own firm, but I did not earn enough of cash to do it. Thank goodness my mate told to take the loans. Thence I received the consolidation loans and realized my dream.
Posted by: HelenaCurtis23 | 01/04/2011 at 11:40 PM
Helena - slightly off-topic but thank you for commenting.
Posted by: Laura Schroeder | 01/05/2011 at 01:34 AM