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A contingent workforce is a provisional group of workers who work for an organization on a non-permanent basis, also known as freelancers, independent professionals, temporary contract workers, independent contractors or consultants.[1] [2] Contingent Workforce Management (CWM) is the strategic approach to managing an organization's contingent workforce in a way that it reduces the company's cost in the management of contingent employees and mitigates the company's risk in employing them [3]

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According to the US Bureau of Labor Statistics (BLS), the nontraditional workforce includes "multiple job holders, contingent and part-time workers, and people in alternative work arrangements."[4] These workers currently represent a substantial portion of the U.S. workforce, and "nearly four out of five employers, in establishments of all sizes and industries, use some form of nontraditional staffing." "People in alternative work arrangements" includes independent contractors, employees of contract companies, workers who are on call, and temporary workers.[5]

Staffing companies represent a conventional resource of contingent workforce talent, as individuals attempting career independence commonly default to staffing companies for their placement. Staffing companies generally work by charging a fee to the business wishing to engage the consultant on top of the rate that the individual consultant charges.

Drivers of Growth

Among several other contributing factors, globalization has had a large impact on the growth in using contingent labor. Globalization contributes to rapid growth in industries, increased outsourcing, and a need for flexibility and agility to remain competitive.[6] By engaging contract workers, organizations are able to be agile and save costs. The contingent workforce acts as a variable workforce for companies to select from to perform specific projects or complete specialized projects.[7] Also as organizations make efforts to be more agile and to quickly respond to change in order to be more competitive, they turn to the contingent workforce to have on-demand access to professionals and experts.[8] Organizations also see the opportunity to reduce benefits and retirement costs by engaging the contingent workforce.[9] However, there is risk involved in avoiding these costs if an employee is improperly classified as a contingent worker. Using the contingent workforce is also cost-effective in that using contingent labor allows for adjustments to employment levels and employment costs depending on what kind of expertise and labor is need and at what time it is needed.
Trends in the contingent workforce are also impacted by the economy. A study conducted by the MPS Group shows the relationship between the contingent labor cycle and the state of the economy.[10] In a bullish economy, the demand for contingent labor is strong. This is most likely due to the fact that organizations are trying to grow with the economy, and using contingent workers allows them to work with experts when needed, without the long-term costs of hiring them.
A knowledge-driven economy also contributes to the growth in the use of the contingent workforce because organizations rely more on their specific and expert knowledge and expertise.[11] As demand increases for highly-skilled and knowledgeable people, the expertise of contract workers becomes more attractive.
Another factor for the growth in the contingent workforce comes from not benefits to organizations, but to the individual. The ease of changing jobs has increased and has made working as a contingent worker more attractive.[12] Increased popularity of applying for jobs on-line as well as an increased need for specialists make becoming a contingent worker a possibility for several individuals.


Advantages and Disadvantages of using Contingent Workers[13]

Advantages Disadvantages
Flexibility in type and amount of labor resources Loyalty to employer or company
Save costs in benefits and tax Disturbs organizations core morale and culture
Immediate access to expertise not present internally Training costs
Savings in long-term compensation costs

The Future of the Contingent Workforce and CWM

Several reports and statistics report to an increased prominence of contractors and contingent labor to be used by organizations.[14] The US Bureau of Labor Statistics expects an increase of 68% in use of white collar contingent labor.[15] The BOL also estimates that the US staffing industry will grow faster than any other industry over the next 10 years.[16]

History of the concept of Contingent Workforce Management

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The concept of CWM appears to be fairly recent, dating back perhaps a few decades.[17] Yet, despite the fact that there is a trend in the workforce growing more strongly towards contingent labor, effective CWM is still not yet widely spread.[18]

Risk Assessment and Mitigation

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Businesses could save themselves that higher cost if they were to engage the consultant directly. However, U.S. businesses have had little motivation to alter this supply chain, because engaging contractors without the staffing intermediary has carried significant risks, as the IRS could levy damaging penalties against companies that classified individuals as contractors when they should have been considered employees. Using a Portable Employer of Record (PER) is a way to enable businesses to engage internally located contractors inexpensively and is one way to mitigate risk of IRS reclassification. Many large businesses have also implemented Applicant Tracking Systems (ATS) into their Human Resources environment, in order to reduce their dependence on staffing intermediaries.

Not an Uncommon Problem

Some employers misclassify unintentionally due to the complexity of classifying employees versus contingent labor. While others do it on purpose in order to escape the costs of providing benefits to employees.[19] According to a study done by the Cornell University ILR School, 10.3% of NY's private sector are misclassified each year.[20] And according to the US GAO 15% of employers misclassified employees as Independent contractors.[21] Yet another report shows that 66% of organizations are highly concerned about employee misclassification and co-employment risk, and 69% are highly concerned about their organization’s compliance with industry regulations such as Sarbanes-Oxley, SEC, FDIC, etc.[22]

Costly Problem

The risk associated with misclassifying employees is costly to the individual, the organization, the government and tax payers. As far as individuals, if not classified properly these contingent workers do not get the benefits they deserve as an employee.[23] For businesses it creates an unlevel playing field, unfair advantages, and risks of penalties from IRS.[24] The government and the tax payers who comply with policies and laws are greatly affected too. In New York state alone, $4,283,663,772 in taxable wages were underreported.[25]

Suggested Solutions

Traditional business models are slow to react to the change in the labor force and are not readily prepared to engage the contingent workfroce efficiently and risk-free.[26] Companies in a Taleo Research survey reported that they had implemented a contingent workforce management solution because of reasons including cost/bill rate reduction (32%), visibility and process control (31%) and risk reduction (21%).[27]

Among other solutions, the following are types of CWM.

  • Employer of Record (EOR): a business service that provides independent contractors and other contingent workers with support services typically found in a business, such as contract negotiation, payrolling, expense reimbursement, benefits plans, and collections.
  • Portable Employer of Record (PER): A type of Employer of Record that is portable after a relationship between the contingent worker and the PER is established, so that it may move with the worker as he or she changes job assignments or clients. MyBizOffice originally invented the PER[28], however there are other providers of PER.
  • Professional Employer Organization (PEO): provides outsourcing of payroll, workers' compensation, human resources and employee benefits administration. It does this by hiring a client company’s employees, then leasing them back under contract to the original employer.

See Also

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References

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  1. ^ from[1]"Workforce Planning and Employment", Quepublishing
  2. ^ from<http://www.bls.gov/news.release/conemp.nr0.htm>"Contingent and Alternative Employment Arrangements, Februrary 2005", US Bureau of Labor Statistics, Summer 2005
  3. ^ from<http://cips.org/documents/workforce_management_pp4_oct05_pg_40-43-1.pdf>"Contingent Workforce Management: Developing a Successful Strategy" Procurement Professional, October/November 2005
  4. ^ from "Futurework", Occupational Outlook Quarterly, US Bureau of Labor Statistics, Summer 2000, p.36
  5. ^ from "Futurework", Occupational Outlook Quarterly, US Bureau of Labor Statistics, Summer 2000, p.36
  6. ^ from<http://www.innovativeemployeesolutions.com/knowledge/articles_04/04-article-01.html>, " Ten important issues and trends shaping human resources in 2004", Innovative Employee Solutions, 2004
  7. ^ from<http://www.mpsgroup.com/vNews/mpsgroup/presentations/BankofAmerica/BOA_20040601.pdf>, "Banc of America Securities Conference", MPS Group, July 2004, page 21
  8. ^ from<http://www.businessweek.com/careers/content/may2007/ca20070523_580432.htm?campaign_id=rss_null>,"The Contingent Workforce", Business Week, May 2007
  9. ^ from<http://www.mpsgroup.com/vNews/mpsgroup/presentations/BankofAmerica/BOA_20040601.pdf>, "Banc of America Securities Conference", MPS Group, July 2004, page 21
  10. ^ from<http://www.mpsgroup.com/vNews/mpsgroup/presentations/BankofAmerica/BOA_20040601.pdf>, "Banc of America Securities Conference", MPS Group, July 2004, page 10
  11. ^ from<http://www.humancapitalinstitute.org/hci/tracks_contingent_workforce_management.guid>, "Contingent Workforce Management", The Human Capital Institute, 2006
  12. ^ from<http://www.taleo.com/research/articles/talent-article1.php?id=102>, "Resume Volume: Can You Handle It?", Taleo, 2007
  13. ^ from<http://www.quepublishing.com/articles/article.asp?p=437082&seqNum=8&rl=1>, "Workforce Planning and Employment", Que Publishing, December 2005
  14. ^ from<http://www.businessweek.com/careers/content/may2007/ca20070523_580432.htm?campaign_id=rss_null>,"The Contingent Workforce", Business Week, May 2007
  15. ^ from<http://www.mpsgroup.com/vNews/mpsgroup/presentations/BankofAmerica/BOA_20040601.pdf>, "Banc of America Securities Conference", MPS Group, July 2004, page 21
  16. ^ from<http://www.americanstaffing.net/statistics/economic.cfm>, "Staffing Industry Economic Analysis", American Staffing Association, May 2007
  17. ^ from<http://www.allbusiness.com/human-resources/workforce-management/593407-1.html>, "Will employee meltdown mean a "contingent" work force?", AllBusiness.com, 1996
  18. ^ from<http://www.s-ox.com/news/detail.cfm?articleID=1284>, "Contingent Workforce Management Trends", Sarbanes-Oxley Compliance Journal, 2005
  19. ^ from<http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1009&context=reports>,"The Cost of Worker Misclassification in New York State", Cornell University, 2007, page 5
  20. ^ from<http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1009&context=reports>,"The Cost of Worker Misclassification in New York State", Cornell University, 2007, page 5
  21. ^ from<http://www.unclefed.com/GAOReports/ggd96-130t.pdf>,"Issues in Classifying Workers as Employees or Independent Contractors", US General Accounting Office, 1996, page 3
  22. ^ from<http://www.s-ox.com/news/detail.cfm?articleID=1284>, "Contingent Workforce Management Trends", Sarbanes-Oxley Compliance Journal, 2005
  23. ^ from<http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1009&context=reports>,"The Cost of Worker Misclassification in New York State", Cornell University, 2007, page 5
  24. ^ from<http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1009&context=reports>,"The Cost of Worker Misclassification in New York State", Cornell University, 2007, page 5
  25. ^ from<http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1009&context=reports>,"The Cost of Worker Misclassification in New York State", Cornell University, 2007, page 5
  26. ^ from<http://www.401khelpcenter.com/401k/cfdd_new_business_model.html>, "New Retirement Plans Business Models: Adapt & Grow Or Die", 401K Help Center, 2004
  27. ^ from<http://www.s-ox.com/news/detail.cfm?articleID=1284>, "Contingent Workforce Management Trends", Sarbanes-Oxley Compliance Journal, 2005
  28. ^ from<http://www.print2webcorp.com/news/washingtontimes/employmentextra/20041122/p1.asp>"Employer Profile: MyBizOffice", The Washington Times, November 2004
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