Who is Managing Your Contingent Workforce Costs? | DCR Workforce Blog

Who is Managing Your Contingent Workforce Costs?

A study sponsored recently by SAP has 83% of executives stating that they are using contingent workers on an ongoing basis. These non-employees are filling positions in every organization. Gone are the days when companies only turned to staffing agencies   to meet contingencies like seasonal requirements and temporary shortfalls in talent availability. Of course, this comes as no surprise to anyone associated with the contingent workforce industry.

What gives us pause is a recent article by Christopher Dwyer for CPO Rising, which says that nearly 60% of all contingent labor is unaccounted for in financial planning, forecasting, and budgeting within the average company. Such a lack of oversight could throw a company’s budget awry, and mar the overall visibility into its finances. As a consequence, future plans and strategy can never be comprehensive, putting the growth and development of the business in question.

If Mr. Dwyer is correct – and we believe that he is – then who is responsible for tracking labor expenditures associated with non-employees, and why are these costs not reflected in corporate budgets?

Contracting with staffing agencies has historically been the task of Procurement, although in many companies the business and functional managers would directly establish agreements with their suppliers of choice. On an ongoing basis, these hiring managers would work directly with the suppliers whenever there was a need for contingent workers. The same model applied when contracting with companies to provide project services. Over the past decade, the model has changed. As the use of contingent workers has grown over the years, most large companies have implemented formal programs for managing the use of non-employees. Procurement takes the lead in selecting and negotiating with vendors who provide the resources, and Human Resources plays the strongest role in day to day interactions with these suppliers. Many companies have gone a step further, outsourcing responsibility for contingent workforce management to third parties known as Managed Service Providers (MSPs) and using Vendor Management Systems to increase operational efficiency.

If Procurement and Human Resources are driving these efforts, and using third-party resources and technology to manage the daily operations, then why do companies still struggle to account for the overall cost of contingent workers?

In most companies, the mission of the Procurement organization is to deliver the best vendors at the lowest possible rates. Emphasis is on negotiating pay and bill rates. Human Resources carries the burden of ensuring that the company’s line managers can access great talent when needed. The cost associated with usage of contingent workers is contained in the budgets of the individual functions and business units. However, this cost typically falls into the general category of “discretionary expenditures”. We all know that things that do not get measured cannot be controlled or managed.

Some recommendations for managing contingent worker spend effectively:

  • Most annual budgets contain separate sections for labor-related costs. We advise companies to further segment this section into “permanent employees” and “temporary labor”.
  • Make sure your Finance organization is directly involved, supporting both Procurement and Human Resources in managing your contingent workforce program.
  • Get your arms around your current contingent spend. Conduct an audit. If you have retained the services of a MSP, have them work with Finance to do it. Identify “below the radar” suppliers not screened by Procurement. Conduct a market analysis of pay and bill rates. Your MSP should do this for you at least twice annually, and should look at both pay and bill rates by skill and location.
  • Expect more from your vendor management system. In addition to facilitating tactical daily activities, the VMS should provide comprehensive reporting on all expenditures. It should incorporate budgets for every potential expenditure, and enable controls that prohibit overspending or charging to closed cost codes. It should provide decision tools that guide users in determining the most appropriate and cost-effective types of workers (i.e., agency contractors, independent consultants, entities providing project services, freelancers or permanent employees) for each assignment.

For most companies, their spend on labor takes a lion’s share of their operating expenses. The inability to plan and track this growing expense threatens to undermine their overall business success. As importantly, the business loses the flexibility and potential profits associated with a blended workforce that combines permanent and contingent workers.

If another prediction made by CPO Rising also comes true and contingent workers takes up 45% to 50% share of the total workforce, setting processes and systems in place to control this aspect of the workforce assumes an urgency which cannot be ignored.

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.