The Contingent Workforce: Everything You Need to Know
Most organizations today work with different types of temporary employees and have developed a contingent workforce as a result. In this article, we’ll zoom in on the contingent workforce. We’ll look at trends, contingent workforce management, and share three best practices. Let’s dive in!
Contents
What is a contingent workforce?
Contingent workforce trends
Benefits of a contingent workforce
What is contingent workforce management?
Contingent workforce management best practices
Wrap-up
FAQ
What is a contingent workforce? A definition
A contingent workforce is a labor pool that consists of people who are hired by an organization for a fixed period of time, often on a project basis. Many, if not most, organizations today have a workforce that is a mix of contingent and non-contingent workers.
A contingent worker can be a freelancer, independent consultant, contractor, part-timer, on-call worker, or someone in any other type of alternative work arrangement.
The rise of the contingent workforce is the result of various developments. First of all, there is a growing need for (digital) skills and companies struggle to find people with the right skills.
Second, the continuous outflow of baby boomers (10 000 people a day in the US alone) leaves many organizations with vacancies to fill.
Third, tapping into the market for contingent workers – also referred to as the gig economy – provides companies with a lot of flexibility. It enables them to adapt their workforce to constantly changing internal and external circumstances.
The recent COVID-19 situation is a good example of this. Many companies had to (temporarily) lay off people, think for instance of the restaurant industry. With bars and restaurants slowly opening up again in certain countries, these businesses now need to quickly restaff. While they may want to rehire former employees, they’ll probably also hire contingent workers to remain flexible.
Fourth, the increasing number of Millennials and Generation Z. These workers will soon make up the largest part of the global workforce, and they don’t always have a traditional view of the employee-employer relationship.
A 2017 study by Lovell Corporation found that 75% of workers in these generations plan to start their own business and that over 70% of them want their work to support their personal interests. Contingent employment can be a way for them to earn a living while keeping enough flexibility to work on their own business at the same time.
Contingent workforce trends
The contingent workforce trends mentioned above (skills shortages, retiring boomers, a need for flexibility both on the employer and employee side) have an impact on the so-called human capital architecture of companies.
The image below illustrates what an organization’s human capital consists of in terms of employment modes and employment relationships. If, however, we look at the contingent workforce trends we’ve seen over the past decades we can see how this model is shifting. Tasks that used to be essential before are now often done by contingent workers or outsourced (think, for instance, of IT, accounting and admin activities). As a result, an organization’s core workforce becomes smaller and its contingent workforce increases.
Benefits of a contingent workforce
Let’s take look at some of the benefits a contingent workforce brings. Some of them are more obvious than others, but benefits include:
- Access to talent that otherwise would have been unattainable. Contingent employment allows you to ‘have’ people in your organization that otherwise wouldn’t want to join. Think of industry ‘celebrities’ that are experts in their field for instance. These kinds of people don’t want to become a full-time employee but they may want to go for a contingent arrangement.
The same thing goes for (Millennial and Gen Z) workers who like to keep some of their time to work on their own business, they won’t go for a full-time contract but may be happy to opt for some form of contingent employment.
Another example is that of a parent with young kids and a partner who already has a full-time job. They might want to work for you but not five days a week. - Flexibility. Employing contingent workers provides organizations with a flexibility they lack with their full-time employees. It allows them to hire more people when needed, and to adust their workforce during quieter times.
The flexibility argument goes for employees too, by the way; as we’ve seen above, there are various groups of workers that highly value the flexibility that comes with a contingent work arrangement. - Additional talent pool. Both the contingent worker and the organization they temporarily work for can look at this period as a test phase. Do they see a fit? Would they like to turn their temporary contract into a more permanent one? For organizations, contingent employees can be a valuable additional talent pool, one they’ve already had (a great) experience with. They know how those people work, what their strengths are, and whether or not they fit in the company culture.
- Fewer costs. Of course, there is a financial reality too. Hiring a contingent worker is financially interesting for companies. They usually pay fewer taxes for contingent employees and no employee benefits. According to the Bureau of Labor Statistics, benefits for private industry workers in the US account for 29.8% of total employer compensation costs. In other words, choosing for a contingent worker instead of a full-time employee saves American organizations almost 30% in benefit costs alone.
- No need to train/highly specialized. Contingent workers are often highly specialized in what they do. Organizations may need these specialists every now and then for certain projects, but not on a permanent basis. Rather than spending (a lot of) money on training people in-house, companies can hire a contingent worker to help them out.
Another benefit of working with a contingent expert is that they tend to have a lot of experience. This means that they don’t need a lot of training to get started. They know how to get the job done and are able to do so autonomously.
What is contingent workforce management?
Put simply, contingent workforce management is about how an organization treats its contingent workers. Roughly speaking, we can distinguish two main approaches here, which we’ll refer to as an inclusive and an exclusive approach.
In the former, companies include their contingent workforce in their normal HR practices. In the latter, companies treat contingent workers as a separate group of employees, often bypassing existing HR systems and processes.
In-between these two approaches a wide variety of contingent workforce management methods is possible, combining elements of both.
Contingent workforce management best practices
In this section, we’ll discuss best practices for managing your contingent workforce.
1. The HR life cycle
In companies that follow an ‘exclusive’ approach, contingent workers often bypass the traditional HR life cycle. This means that they – and the organization they work for – don’t benefit from all the optimized HR processes in place. Think of a process for onboarding people quickly, managing and improving their performance, offboarding, etc.
When your contingent workforce isn’t a part of the HR cycle, your company misses out on ways to get them up to speed faster and increase their performance.
Naturally, companies that follow an ‘inclusive’ approach when it comes to contingent workforce management, do include their contingent workers in the organization’s HR cycle.
2. Employee experience
Or should we speak of contingent worker experience? Inclusive organizations understand the importance of a great experience for everyone, regardless of their contract type. As such, they make sure that the three enablers for an awesome employee experience (technology, workspace, and culture) are optimized both for traditional employees and their contingent workforce.
A rather common, simple example of this that is culture-related is making sure that traditional employees don’t make decisions without asking their contingent colleagues for their opinion and that information is shared with everyone. Birthdays are a good example of small things that can make a difference too; recognize your contingent employees’ birthdays just like you would do with any full-time employee.
Another reason for HR to think about the company’s contingent worker experience has to do with recruitment and employer brand. If the organization treats its contingent workers well and like everybody else, the temporary employees might be willing to come back in the future for a different project and you can add them to your talent pool. Or perhaps they even want to join as a full-time employee.
If, on the other hand, they had a rather unpleasant experience and felt like they weren’t really part of the team, they probably won’t come back. Nor will they speak highly of you as an employer to other (contingent) candidates.
3. Performance management
Many organizations don’t measure the performance data of their contingent workers and those that do, often capture the data outside of their traditional HR system and employee database. This means that they lose out on data of an increasing part of their employees. And even though temporary employees usually aren’t as essential as full-time workers with a permanent contract, this isn’t always the case.
Imagine the following situation, for example. Your company has just won a big new client. For their first project, you need a project team – and manager – with specific skills and expertise. Since hiring one or more full-time employees takes too long, you opt for a contingent project manager. Her name is Sophie. Not only does she successfully bring the project to an end, but she also transfers some of the skills your workforce was lacking to your current employees.
If Sophie’s performance would have been measured and managed – as part of your company’s performance management process – you would have data demonstrating what her contribution to the organization was. This would have enabled you to, among other things:
- compare her performance with that of full-time employees in similar roles as well as other contingent employees
- gain insights to help you improve the performance of full-time employees in similar roles as well as other contingent employees
Another reason to capture performance data of people in contingent employment in your traditional HR system and employee database has to do with succession planning. If you end up hiring high performing temporary employees on a permanent basis, you already have their performance data. This makes the development of these talents a lot easier.
Wrap-up
The contingent workforce is likely to become an even more important part of your organization’s human capital over the next few years. Naturally, this has implications for HR and their practices. But while a lot is still unknown about the role of contingent workers, the best approach seems to be an ‘inclusive’ one, following the best practices mentioned in this article. What are your thoughts or experiences with contingent workforce management? Share them in the comment below!
FAQ
A contingent workforce is a labor pool that consists of people who are hired by an organization for a fixed period of time, often on a project basis. Many, if not most, organizations today have a workforce that is a mix of contingent and non-contingent workers.
Put simply, contingent workforce management is about how an organization treats its contingent workers. Roughly speaking, we can distinguish two main approaches here, an inclusive and an exclusive approach. In the former, companies include their contingent workforce in their normal HR practices. In the latter, companies treat contingent workers as a separate group of employees, often bypassing existing HR systems and processes.
Contingent workforce management best practices involve the inclusion of contingent employees in the HR cycle, creating an employee experience for all types of employees, and including those in contingent employment in your performance management process.
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