how to control the costs of your contingent workforce

Despite rising complexity and demand for internal resources, these steps can minimize your labor spend.

If your organization is like most, using more flexible talent has become business as usual. According to Deloitte, 77 million workers in Europe, India, and the U.S. formally identify themselves as freelancers, and half of employers it surveyed reported a significant number of contractors in their workforce. McKinsey estimate there are 162 million who engage in some sort of gig or freelance work. Staffing Industry Analysts estimated that human cloud revenues rose 65% in 2017.

Clearly, flexible talent is growing at a faster rate than the permanent, employee workforce. This trend means opportunities for companies to add more agility to their resourcing strategy, it opens up access to a growing talent pool and offers significant cost savings. There are many advantages to expanding contingent talent usage, but at the same time, the rise of temp and flexible labor also imposes complexity and challenges to many employers.

For many organizations, contingent labor cost can be a small to significant part of their budget, depending on the size of their flexible workforce. Regardless of the size, many companies fail to adequately control spend, leverage economies of scale, properly manage their supply chain and optimize processes for procuring talent. As a result, they don’t realize the potential for significant savings and efficiency gains even as the non-permanent portion of their labor costs rises. 

When examining costs associated with your contingent workforce, start by identifying your  direct and indirect costs.

contingent workforce cutting costs cost control

direct costs

These are easily identified. The cost to deploy a temp worker is the hours worked during a specific period, whether daily, weekly or monthly. Often decisions on candidate slates are made strictly on hourly rates, and if all things are equal the lowest rate should be the cost incurred. But as most contingent workforce managers know, the quality of candidates is critical to the organization since it can impact time to productivity, training costs, workforce morale and other factors. Other direct costs may be related to internal resources specifically dedicated to managing contingent resources and technologies such as vendor management systems as well as absenteeism, training, HR support and digital investments.

indirect costs

Spend outside what is easily tracked can account for a significant portion of the contingent workforce budget. Dedicated managers can account for their time, but what about the hours spent by hiring managers, procurement, legal and other functions when acquiring talent? Vetting suppliers, prolonged hiring times, high turnover, informal training can all add up. Other indirect costs related to workforce administration, shift scheduling and prolonged fill times should be considered.

One important consideration that requires significant resources is regulatory compliance. Whether you dedicate internal personnel or rely on an external partner to check your hiring practices adhere to local and national laws, don’t underestimate the amount of time and expertise required, especially as regulatory agencies increasingly impose rules on independent contracting. Also, communication with suppliers regarding compliance and other matters should be an important checklist item when expanding your contingent workforce.  

10 ways to minimize your contingent workforce costs.

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One important consideration that requires significant resources is regulatory compliance. Whether you dedicate internal personnel or rely on an external partner to check your hiring practices adhere to local and national laws, don’t underestimate the amount of time and expertise required, especially as regulatory agencies increasingly impose rules on independent contracting. Also, communication with suppliers regarding compliance and other matters should be an important checklist item when expanding your contingent workforce.  

Businesses that proactively examine these expenditures will likely have more success identifying gaps and inconsistencies with their workforce management efforts, leading to cost savings and output gains. However, do they have the internal expertise to accomplish this effectively? And can they continuously undertake these analysis to support a sustained contingent workforce program?

Companies that can budget and devote resources are sure to accomplish this, but it takes commitment, change management and executive support to do so. Many organizations are self-sufficient in building a world-class contingent talent workforce, but be aware of the level of internal resources required.

The alternative is seeking out the services of an external partner who can lend expertise, implement process excellence and provide technology guidance. Turnkey solutions can help companies quickly reach their desired state and spend practices, leading to compliant utilization of flexible labour and minimized costs. More importantly, an external partner has extensive experience with organizations like yours so a proven templated approach can be applied. This leads to predictable and desired results.

Should you embrace an external solution, begin with a baseline against which your contingent workforce costs are compared. This will help you develop clear metrics that can be used to structure a continuous improvement process that not only controls spend but also improve time to hire, candidate quality and overall outcomes.   

What model is best for your business? There are a number of options, including an inhouse service provider, a managed service program or payrolled offerings. Choosing the optimal one requires some investigation on your part but you may find providers offering insights on what you may or may not need. The important part to remember is that you undertake a thorough assessment and compare each solution point by point to determine the best fit.