Years ago, contingent work was thought to be what people did while they were looking for a “permanent” or real job. Much has changed both from the perspective of the worker and the company engaging contingents. Contingent labor is recognized as enabling companies to stay focused on their core business, flexing and distributing non-core work to various contingent channels. The number of worker classifications are many and varied. Therefore, getting the right mix of contingent labor is where most companies are focusing their attention today.
The question of proper workforce mix covers what percentage of your workforce is contingent, but also should include what is the proper mix of the contingent portion of your workforce itself. In other words, how much of it should be “self-sourced” or payrolled, sourced from a temporary agency, independent contractors, statement-of-work (SOW) consultants or outsourced.
In considering your contingent workforce mix, I would start by looking at your core business and the skill sets necessary for the long term. Then consider functions that are easily outsourced, like call centers and other operational functions. Each category has its own business justifications. When you consider the SOW and independent contractor categories, the skill sets or services rendered often are outside the standard company core and the best way to procure those services is through those categories.
Then there are agency temps and payrolled/self-sourced workers.
Agency. Agency workers are ideal for skill sets that are needed frequently, these workers are usually used for projects that ramp up and down involving frequent increases and decreases in demand as well as hard-to-find skill sets that are needed to support specific projects with finite end dates.
Payrolled. Payrolling best serves two different purposes. First, it is a good way to try someone out before bringing them on as a regular employee. If you have a culture that supports employee referrals, this is a lower cost way to determine someone’s fit in the role or at the company. If you are a growing organization, it is a good way to build your winning team. Also, payrolling workers is a safer engagement process for independent contractors. If it is difficult to justify an independent contractor as truly independent, payrolling is the best way to get the expertise without the risk.
Payrolled/self-sourced workers engaged through a payroll provider often carry a low markup and therefore can be a lower cost way to engage non-employee talent. But because payrolled workers often are found as a result of employee referrals, that savings may not materialize. Many companies reward employees for referring friends and relatives to open positions even if temporary because the cost of procuring them at that point is so much less. But often, the worker is offered a higher pay rate than the market because the referring employee discusses higher rates with the referee thanks to the personal connection. In these cases, it could cost the company more than an agency worker would.
But they may benefit in other ways. Because they are referred by current staff, they often put in their best because they wouldn’t want to let the person who referred them down or have their own poor performance reflect badly on the employee that gave them the referral. This ensures they are a better quality worker than other contingent categories. I have seen companies whose cultures actively embrace this strategy.
There is no hard fast rule that spells the “right mix” of contingent labor to any company; What’s more important is if the reasoning behind the engagement choice is sound and in line with core business objectives. Then the numbers don’t really matter.