What is contingent workforce management? The ultimate guide
Contingent workforce management is the process of finding, engaging, and managing temporary workers and freelancers.
Primed by the pandemic, contingent workforce management has rapidly evolved from a stopgap measure into an essential strategic staple. In a recent Economist Impact report, 75% of CPOs believe that their handling of contingent workforce management and associated spending is a top priority for their organizations. Yet only 35% of organizations feel they have sufficient visibility into these activities. Businesses – from startups to global conglomerates – are now looking for ways to manage these new realities and gain the agility they need to thrive in today’s complex and fluid world of work.
What is contingent workforce management?
Fifty percent of organizations are sourcing talent by increasing the use of an external workforce. Most of these hires are experts in their fields – such as AI specialists, video producers, and app gurus – offering valuable skillsets to organizations on demand.
What is a contingent worker? A contingent worker is someone who works for an organization on a temporary basis, not as a permanent employee.
As contingent workers are not permanent employees, they are managed differently. Procurement and HR are increasingly working together to manage these workers with specialized contingent workforce solutions. The solutions are usually part of a broader vendor management system (VMS) – which is often integrated with human capital management (HCM) solutions – and offer tools for everything from initial requisitions and negotiations to onboarding, engagement, invoicing, payment, and offboarding. Without the right tools and technology, this process can become quite complicated – and the risk of noncompliance with labor laws, tax, and other regulations is high.
The contingent workforce can include independent contractors, freelancers, and consultants and is just one part of the external workforce. The other part consists of service providers sourced from businesses that provide people-based services, such as marketing agencies, law firms, and outsourced IT. Services procurement is the activity of hiring and managing the service providers who deliver these people-based services to an organization. Because the external workforce has become a significant part of workforce strategies around the globe, external workers must be managed with just as much care and attention as traditional, employee-based workers.
The importance of effective contingent workforce management
Effective contingent workforce management can bring many benefits to your organization including specialized skills, greater flexibility, and responsiveness. There is often a lot of focus on the benefits and challenges of contingent workers themselves, yet it’s also important to recognize the essential need to manage and administer this growing area effectively.
1. Economic flexibility: Successful contingent workforce programs empower organizations to leverage and grow a flexible workforce, allowing them to be more competitive and resilient – especially in times of disruption or economic fluctuation.
2. Response to market volatility: Many modern organizations are now interested in balancing and rightsizing the external workforce in the coming years. To achieve this aim, these businesses need to nurture and invest in the best contingent workforce teams and solutions.
3. Cost savings: Almost 40% of companies cite cost-saving initiatives as a driving force behind hiring contingent labor. Successful management strategies are essential in achieving desired outcomes from contingent workforce hiring.
4. Workforce planning flexibility: This is a top driver for today’s businesses as it allows for leaner budgets and more agile decision making. But this goal cannot be easily met without strong contingent workforce management strategies and resources.
5. Access to specialized skills: Contingent workforce management helps ensure that your company can access a pool of highly specialized practitioners on demand. The ability to expedite this process helps your business to be as competitive and responsive as possible.
6. Scalability and agility: The ability to scale labor capacity up or down as needed enhances organizational agility, making it easier to manage workload fluctuations and project-specific requirements.
7. Enhanced operational efficiency: Proper management of contingent workers ensures seamless integration into organizational processes, improving overall operational efficiency and productivity.
The challenges of managing contingent employees
Every change and innovation requires some adjustment. The good news is that you’re not alone. Today’s best companies are recognizing these common contingent workforce issues, and are rapidly adapting and evolving with solutions and processes to optimize this new reality.
1. Compliance and legal issues: Every year, the legal landscape of employment laws, tax regulations, and worker classification grows increasingly complex. Clear protocols and dedicated solutions can help to avoid risk and penalties.
2. Quality control and consistency: Maintaining consistency across various projects and teams can be challenging, especially when contingent workers are involved in critical tasks or projects. Meeting official standards and criteria can lead to better outcomes for both contingent workers and their employers.
3. Visibility and control: Procuring external workers outside HR oversight used to mean they were not integrated into centralized systems, making it difficult to track, monitor, and attach ROI to their work outputs. Today’s vendor management systems allow you to integrate external workers into a unified system.
4. Talent acquisition and retention: Both HR and procurement teams struggle with today’s competitive recruitment environment. The pressure is on to gain reliable, real-time access to talent pools, and to create an attractive and streamlined experience for all involved.
5. Data security and intellectual property: This is a challenge faced by both employees and employers. The best cloud-based contingent workforce solutions integrate with your ERP and central business systems to ensure that regular security updates and centrally supported IT protocols are in place.
6. Regionalization: Both remote and external workforces continue to grow. For contingent workforce managers, this means an overwhelming array of global and regional rules and paperwork. Vendor management systems can help by automating regular updates to compliance and labor regulations.
Different approaches to contingent workforce management
There are so many variables from company to company that can affect contingent workforce management, and modern organizations are taking an increasingly holistic approach to the practice. This includes amalgamating different methods and unifying activities within a more visible, cloud-based landscape.
1. Centralized management: This involves managing all contingent workforce activities through a single internal team or department. This method offers greater control and consistency but may lack flexibility.
2. Decentralized management: A decentralized approach allows individual departments or business units to manage their contingent workers directly. While this can be more adaptable to specific needs, it may lead to inconsistencies and a lack of overall visibility.
3. Hybrid management: A hybrid approach combines elements of both centralized and decentralized management and is an increasingly popular approach, intended to achieve a balance between control and agility.
4. Managed service outsourcing: Larger organizations strive to enhance and evolve their in-house contingent workforce programs, however many companies continue to use managed service providers (MSPs) who specialize in this area. Modern software solutions can help ensure that both internal and external contingent staffing experts can work together with visibility and seamlessness.
5. Dedicated cloud-based VMS solutions: AI-powered, cloud-based solutions deliver real-time data analysis and seamless system integration. This can significantly enhance the management of contingent workers, offering insights into costs, productivity, prediction, and compliance.
6. Strategic partnering: Forming strategic partnerships with staffing agencies or professional employer organizations (PEOs) can streamline the process of sourcing and managing contingent labor. Best contingent workforce practice involves developing protocols and leveraging the right technologies and processes for these purposes.
7. Internal talent pools: Developing and maintaining an internal pool of pre-vetted contingent workers can expedite the hiring process and ensure a consistent quality of talent. Contingent workforce managers work to facilitate and automate secure and robust access to these resources.
The importance of extending DEI to the contingent workforce
In the current climate, contingent workforce managers face intense demands from all sides. Procurement responsibilities call for speedy attention to urgent operational needs. Workforce management duties require service and personal advocacy to both those doing the hiring and those being hired. And with the number of diversity, equity, and inclusion (DEI) lawsuits spiking yearly, the C-suite pressure is on to minimize risk and maintain compliance at every turn. This complex landscape demands that contingent workforce managers not only align their strategies with the company's broader DEI objectives but also stay ahead of the curve in understanding the human meaning and impact of these policies.
Increased visibility is essential to effectively manage diversity and protect human rights within the external workforce. This entails a comprehensive understanding of the workforce, including insights into hours worked, ensuring accurate invoicing, and upholding fair pay practices. Such visibility is a matter of compliance and a step towards equitable treatment of all workers, irrespective of their contractual status.
Moreover, adopting digital processes for signing and document management, leading to a paperless approach, aligns with responsible consumption goals. This shift towards digitalization streamlines administrative tasks and reflects a commitment to sustainable practices, contributing to broader corporate social responsibility efforts. By integrating these elements, contingent workforce managers can create an environment that is compliant and efficient and aligns with evolving societal values and the ethical expectations of the modern workforce.
How AI is transforming contingent talent management
AI powers modern contingent workforce solutions to deliver smarter, faster, and more insightful and analytical results. This includes customizable workspaces, integrated workflows, and improved user interfaces.
AI and its subset, machine learning, confer upon systems the power to learn as they go, allowing for sophisticated skill analysis and talent intelligence. For instance, AI-powered job descriptions and recruitment processes can streamline how you source and place contingent workers, providing a faster and more ideal match between what you need and what the external worker has to offer. By seamlessly integrating with HR and other operational areas, AI also plays a role in analyzing data on workforce performance and compliance – providing access to real-time data and the ability to perform on-demand analysis on disparate data sets.
The contingent workforce managers of the future will need to balance the effectiveness of this tool with the irreplaceable qualities of human ingenuity and insight, bringing about a future of work that is as people-centric as it is efficient.
Total talent management: Why procurement and HR must work together
A successful business requires a diverse range of workers, encompassing both full-time and part-time staff, along with service providers and contingent personnel. The challenge often arises when these workforce segments are handled through disparate systems or managed by separate internal departments. This fragmented approach can lead to a lack of comprehensive visibility into your entire workforce, as well as cumbersome, manual processes for developing an integrated workforce strategy. This is where the need for total workforce management becomes crucial.
Today's best solutions provide a unified approach to workforce management, ensuring a consistent strategy and experience across all workforce segments, including planning, staffing, onboarding, and payment processes. The key lies in integrating all workforce data into a single, accessible view, enabling you to see and manage your entire workforce in one place. This integration ensures that you have the appropriate talent mix to meet your strategic workforce goals.
But the benefits extend beyond mere visibility. These solutions equip you with the necessary tools to handle everything from training to global compliance for your entire team, fostering a dynamic and adaptable workforce. By implementing such a comprehensive approach, you ensure that your business is equipped with the necessary resources to progress and adapt swiftly to changing needs.
What to look for in contingent workforce management solutions
With the right tools, you can answer crucial questions about your contingent workforce, such as who’s working for you at any given time, what they’re working on, and what resources they need to access to avoid misuse of IT systems. These tools can also tell you things like where they’re working from and how much you’re paying them, so that you can ensure you’re paying market rates for given skill sets. Contingent workforce management tools are part of a broader vendor management system, the most advanced of which also offer tools for services procurement – so the entire external workforce can be managed from one place.
Here are some key factors to consider when choosing a contingent workforce management solution:
Global talent engagement: Contingent workforce management solutions should allow you to source and deploy staffing resources quickly and feel confident in supporting compliance and protocols. You should be able to centralize your operations and move swiftly, wherever in the world your business needs emerge.
Scale and versatility: To compete, you need to be able to scale and reconfigure your workforce capacity up or down on demand. This means rapid access to diverse data sets, and the tools to swiftly analyze, collaborate, and make accurate predictive assessments.
Comprehensive visibility and control: Look for platforms that provide a full view of the workforce throughout the project lifecycle and across your business – detailing work locations, rates, project progress, potential risks, opportunities for optimization, and more.
Seamless integration with HR, ERP, and spend management: Solutions should easily integrate with your core business systems to ensure data consistency, reduce compliance risks, and improve overall workforce results and spend management.
Performance and outcome management: You’ll want to track and monitor key management metrics to accurately gauge performance and enhance productivity over time.
Analytics and decision-making tools: Look for capabilities that make life easier such as in-depth analytics for informed decision-making, mobile app support, and self-service configurations for rapid customization.
Intelligent automation: When powered by AI and machine learning, automation protocols can help you be ready for changing labor, compliance, and security requirements – giving you the heads-up you need to be responsive rather than reactive.
Customizable functionality: The ability to tailor templates and fields to customize functionality based on organizational processes and priorities.
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