Pros and Cons of Contingent Workers

A little over ten years ago, I participated on a human resource round table to discuss the future of the workforce. Most of the participants focused on demographic changes in the workforce and only at the end did the conversation turn to how traditional employment will transition to a more temporary workforce in the future. The majority of the participants acknowledged that some information technology positions align with the trend, but they felt that the move to a more temporary workforce overall would not be an issue for employers until well into the future.

Today, the contingent workforce is a reality. Contingent workers include freelancers, independent contractors, consultants, or other outsourced and non-permanent workers. The Bureau of Labor Statistics (BLS) reported in 2017 that approximately ten percent of the workforce functioned in a contingent capacity. Some of the other findings included:

• contingent workers were more than twice as likely as non-contingent workers to be under 25;
• contingent workers were more likely to work in professional, construction, and extraction occupations;
• compared to traditional workers, independent contractors were more likely to be older, temporary help agency workers were more likely to be Black or Hispanic or Latino, and workers provided by contract companies were more likely to be men; and
• almost 80 percent of independent contractors preferred their status over traditional jobs.

Many analysts and researchers feel that the BLS underestimated the total and that the actual, contingent workforce is much larger (https://www.shrm.org/resourcesandtools/hr-topics/talent-acquisition/pages/experts-puzzled-new-bls-contingent-workforce-data.aspx). In keeping with that idea, according to Deloitte, more than four in ten workers or 40 percent in the current workforce may be functioning in a contingent capacity.

Employers have embraced the contingency approach due some relatively sizable benefits. The major benefits include:

cost savings – while the hourly rate might be higher in some cases, the absence of benefits and paying for unproductive time reduces overall labor costs;
workload management – allows organizations to staff up and down based on business needs;
broader labor pool – by including more talent in the selection process, an organization has more selection options;
workforce stability – contingent workers allow traditional workers to remain with the organizations during periods of economic downturns or other financial adjustments; and
administrative reduction – by employing contingent workers, an organization reduces it administrative burden associated with traditional employees.

While the advantages are compelling, what is not discussed as much are the disadvantages of growing the contingent workforce. Some of the major disadvantages include:

commitment – contingent workers typically lack commitment to the organization when compared to traditional workers;
high turnover – contingent workers have a higher turnover rate;
security issues – access to confidential or propriety information creates more of a risk for an organization than working with traditional workers;
cultural misalignment – when joining an organization as a contingent worker, there can be issues with integration, cultural alignment, and even morale;
knowledge retention – organizations have found that more temporary workers create dilemmas for documenting and retaining job-specific knowledge;
skills issues – while contingent workers can bring hard to find skills, organizational experience can vary on the quality of the skills.

Contingent workers provide a central and key element of the modern workforce. As an organization weighs its options, it is critical to use some form of cost-benefit analysis to ensure that its staffing decisions are the right ones.  Consequently, a successful implemention process should include examining what processes need to change or adjust to best address the differences in needs and behaviors.

Buyer’s Market

Most of us have experience the joy of finding a “bargain” or a better price than expected on a good or service that we desire. Causal conversation, office stories, social media, as well as reality TV all include stories of diligent and savvy shoppers who use their wits, technology, and negotiating skills to find and make an incredible deal. While there may be a variety of reasons for why we feel we have gained the “upper hand” as a buyer, the key element in the availability of deals is simple supply and demand or the gap between how much of something that is available compared to how much it is desired.

When we speak of a “buyer’s market,” we are describing a purchasing environment where the buyer has some type of advantage over the seller that benefits the buyer. For example, when there are more units of a product then what is desired by consumers, then the price of the product tends to fall. Conversely, when one refers to a “seller’s market,” there is less of the product than what is desired by consumers and consumers compete with each other for the limited availability of the desired product.
Labor markets respond to supply and demand shortages in a similar fashion where some periods favor employers, while other times favor candidates. When there is excess demand and limited supply of labor, the price increases and employers have to compete with each other for talent. Similarly, when there is excess supply of labor and slower demand, employers have the upper hand and have a multitude of choices to acquiring new labor with less resources.

Based on the current level of unemployment and economic growth, potential employees occupy a more influential position. As employers deal with increased levels of competition for labor, talent acquisition strategy becomes more important. In other words, how a firm positions itself in the labor market and the effectiveness of its actions determine how successful it will be at attracting the best talent possible. Various factors influence the success of an organization’s strategy, but this post will focus on one of the roots of strategy formulation: perception.

What an employer thinks of its own organization plays a key role in how an employer positions itself vis-à-vis its peers, enacts its talent acquisition strategy, and interacts with potential employees. Put simply, if an organization thinks it has an advantage with candidates and it does not, then it will more than likely adopt the wrong strategy. Organizations, like most of us tend of have a slightly “rosier” view of its actions, image, and strengths.Figure 1: Comparison of Employer and Candidate Perceptions

In order to demonstrate the differences in perception between employer and candidates, the results of a recent survey of 20 employers and 500 candidates in the southeast within the service industry appear in Figure 1. The survey asked candidates to rate their perceptions of the employer’s image as well as posed the same questions to the employer’s hiring managers. All five questions differ between employer and candidate with the largest differentials pertaining to commitment to social and environmental support, total rewards, and work environment. A variety of factors create differences in perception and this small sample is not sufficient to draw strong conclusions. Nevertheless, some areas for consideration include:

• measurable and regularly reported information tends to have more alignment between candidate and employer perceptions;
• social media affords candidates more insight into workplace environment;
• candidate ideas on what is fair and equitable may be different from the employer’s perceptions; and
• social and environmental initiatives may require more than communication as candidates look for ways to not only join an employer with a commitment to supporting the community, but also desire to actively participate in the process.

Some important things to keep in mind based on these results include the following:

• employers have to define who they are to the labor market or someone or something else will;
• positive characteristics should be communicated through a variety of media; and
• intangible characteristics may require more communication.