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The Best Approach To Managing Contingent Labor Explained

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Addressing the Contingent Workforce Black Hole

Before Covid, 40 percent of the global workforce was made up of contingent workers. According to McKinsey, post-pandemic, 70 percent of executives plan on hiring more contingent labor. Looking forward, the proportion of independent contractors, freelancers and temporary workers is only going to continue rising exponentially. In fact, it’s predicted that by 2030, 80 percent of the workforce could be freelance!

But, despite their growing numbers, contingent workers aren’t a new phenomenon. So why can’t current management methods simply be scaled up to meet the growing needs of this important segment?

In this article, we’ll examine the problems associated with current contingent workforce planning methods, as well as introducing the benefits of adopting an alternative approach that facilitates total talent management.

Contingent Workforce Management Lack a Human Touch

Traditionally, the processes for procuring contingent workers differ significantly from those used to hire permanent employees. These relationships are typically seen as a single spend category where procurement takes the lead, often with no involvement from HR. As a result, temporary workers often skip the usual due diligence and onboarding steps carried out by recruitment professionals during the hiring process.

This can have a negative impact for a wide variety of reasons. Firstly, skipping the typical screening process might mean that people aren’t a good cultural fit for the organization. Secondly, treating these workers as numbers rather than individual employees is likely to have considerable implications for businesses trying to attract top talent.

Current processes are merely transactional, with limited steps taken to engage external employees. In a competitive labor environment, where the strongest candidates can be selective when it comes to deciding who to work for, this will no longer be good enough. After all, they can pick and choose the projects they decide to take on and the companies that they’re willing to work for.

Ultimately, business success will be determined by the talent that companies manage to hire. So those that secure top-performing contingent workers are likely to have a competitive advantage.

The True Costs of Managing Contingent Labor

Generally, there is no centralized process for contracting external employees. Due to the fragmentation and silos that exist between different business units, current contingent workforce management methods are often inefficient, inconsistent and expensive.

Ironically, one of the primary reasons organizations create contingent hiring programs is to drive cost savings. But currently, it is near impossible to quantify any savings delivered. In fact, the sourcing costs of hiring contingent workers are actually often much higher than those associated with permanent employees. This is predominantly due to agency fees incurred.

More and more companies are outsourcing temporary employment programs to keep up with the growing demand for contingent professionals. Lack of centralized management and the use of preferred supplier lists further increases costs.

The Danger of Lacking Visibility

Under current processes, leadership teams are deprived of visibility and control over a huge proportion of their workforce. Nearly 60 percent of all contingent labor is unaccounted for in financial planning, forecasting and budgeting. This is particularly shocking when you consider that companies are spending up to $270B globally on contingent workers. Without a clear overview of total talent within your organization, how can you even begin to address personnel planning?

In order to achieve breakout performance in today’s competitive landscape, companies must be able to react to market changes in an agile fashion. This includes being able to adjust human capital within the business to meet changing demands. But it’s close to impossible to optimize your workforce if you lack visibility over your total talent supply.

Time for change: A New Approach to Contingent Talent Management

Taking all of these factors into consideration, it’s clear that the time has come to adopt new methods when it comes to contingent hiring. Moving ownership from procurement to talent acquisition is the most effective way to make this change. And companies should invest in a strategic contingent workforce solution built specifically to meet the needs of contingent workers, rather than relying on limited vendor management systems (VMS solutions).

The organizations that do so are likely to enjoy increased efficiency, reduced costs and improved candidate quality. In addition, they’ll be able to address changing human capital demands in an efficient and flexible way thanks to the visibility they’ll gain.

In our e-book, Leveraging a Total Talent Strategy, we explore the business case for making this change, as well as introducing best practices for implementing a new management model. Download your free copy!

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