The Impact of Pay on Contingent Worker Engagement | DCR Workforce Blog

The Impact of Pay on Contingent Worker Engagement

Contingent Worker engagementThis is a question that probably haunts every professional and manager, whether they are recruiting or looking for a job change. Job satisfaction has to be looked at, from two different angles. One concerns their satisfaction with their job content, while the other deals with their satisfaction with the compensation they receive for it, whether as temporary workers or permanent employees. In our last blog, we explored the factors that drive job satisfaction and engagement of contingent workers. In this blog, we dig deeper into the issues surrounding financial compensation.

Compensation as Motivation:

Historically, the vast majority of contingent workers were comprised of individuals unable to find permanent work, or women seeing to supplement the family income. Companies viewed these workers as cheap sources of labor who could fill in gaps and perform non-essential administrative tasks. Over the past few years, however, the landscape has changed. Companies now seek contingent professionals and technical personnel who can deliver skills that are only needed for a short term or are in high demand. These individuals have chosen careers as contingent workers because of the potential for greater work-life balance, variety of assignments, and ability to negotiate increasingly higher rates. How do companies compete for these ‘in demand’ individuals, many of whom are self-supporting or heads of households?

When developing compensation packages for permanent employees, companies have a number of levers they can pull. Compensation elements go beyond base salary (or regular and overtime hourly rates) to include end of year bonuses, commissions, annual cost of living increases, paid vacation days, employer contributions to 401(K) plans, stock options, travel and meal allowances, and many other fringe benefits. These are rarely made available to contract workers by the staffing agencies that supply them. For these workers, financial compensation is limited to negotiated pay rates. While the staffing agencies are now required to offer health insurance, plans are usually of lower value than that offered to direct hires and qualification is tied to length of assignment. The worker carries the burden of negotiating the highest possible pay rate when the offer is made.

How Much is Too Much?

According to the MIT’s Living Wage Calculator (updated on 3-24-14) a living wage, needed to meet a family’s basic needs (with two working adults, two children) ranges between $45,655 to $69,820, while it stands at $56,179 in the North, $53,505 in the West, $49,167 in the South and $48,496 in the Midwest. This does not cover the 1 million dollars needed to be set aside as a retirement fund.

Gallup poll data collected from more than 450,000 U.S. residents in 2008 and 2009 indicated a strong correlation between financial compensation and job satisfaction — 82.1 percent of those with an income of less than $36,000 were unhappy in their jobs, while 91.9 percent of those with an income of $90,000 or more were happy in their work.

This creates a high level of tension between companies using contingent workers and the workers themselves. Unskilled workers are still viewed as a commodity. Companies using large amounts of light industrial and clerical workers tend to focus on achieving resources at minimal costs. Because of the unpredictable nature of contingent assignments, and limited ability to negotiate better pay rates, the result is that these contingent workers are more likely to fall below the poverty level than their permanent employee counterparts. This is leading the government to explore measures to provide better protections for these workers.

At the other end of the spectrum, the power shifts to the worker with high demand skills. Companies must offer salaries that are competitive while still realizing savings over the use of direct hires. To achieve this, many negotiate lower mark-ups with suppliers, insist that workers on longer-term assignments be transitioned from recruited to payrolled rates after a specified period of time, and require the staffing suppliers to offer fringe benefits to workers without passing on the costs to the companies who will use these services.

Beyond Financial Compensation:

When competing for contingent talent, successful companies differentiate themselves by making financial compensation one element of the total package. As a starting point, they conduct location-specific market rate analyses to discover what other permanent employees and contingent workers with similar skills are being paid. Sharing this information with prospective candidates eliminates any feelings of being discounted. They also structure the assignment to include opportunities for workers to expand their skills. Working with staffing suppliers, they create programs for recognition of contingent worker contributions. They create positive and inclusive work environments. They assist workers in finding their next position through references and visibility into other opportunities within their company.

Share your thoughts on the impact of pay on contingent worker engagement.

The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.
Lalita is a people/project manager with extensive experience in operations, HCM and training and development across industries like banking, education, business consulting, BPO and information technology. She believes in a dynamic approach to life and learning as change is the only constant.