Contingent workers – people with no implicit or explicit contract for ongoing employment – now account for up to 40 percent of the US workforce, depending on the definition you apply. They can include independent contractors, self-employed individuals, freelancers, interns, temporary agency workers and individuals working via online platforms.
In the UK, there are some 2m freelancers, many of whom are “gig” workers. A Deloitte survey has revealed that 51% of executives plan to increase their use of contingent workers in the next three to five years while, according to a Resolution Foundation survey, 65% of UK companies turn to agency workers as a stopgap measure.
“It used to be ad hoc 15 or 20 years ago,” says Kevin Barrow, partner at the international legal practice, Osborne Clarke LLP. “Line managers would circumvent HR, pick up the phone and get somebody.”
Gradually, procurement departments took control of engaging on-demand workers as finance executives realised the huge expenditure allocated to staffing companies. HR departments then stepped in, viewing contingent workers as part of their “total talent management” and, says Barrow, “believing access to talent’s more important than cost savings.”
Catherine Mazy, a freelance business writer and former editor at The Wall Street Journal, writing for FT | IE Business School Corporate Learning Alliance, says, “These decisions vary according to company size and the skills sought. According to an EY report, 62% of large companies considered contingent workers as a cost-saving measure, while 58% of mid-market-size companies – with annual revenue of $100m to $5bn – viewed this as a way to complete projects requiring specific expertise.”
Tom Hadley, director of policy at the London-based Recruitment and Employment Confederation, agrees that for many companies, “a bigger factor than reducing cost is bringing in skills quickly when it’s hard to recruit permanently.
“By the time you’ve done interviews for full-time staff and they’ve given their notice, it’s two or three months before they can start,” says Hadley. “Using an agency, you can phone now and have a temp by the end of the week.”
In some knowledge fields, such as engineering, information technology and medicine, Barrow says, “The only way to get certain types of skilled people is on a contingent basis because that’s what people prefer to do.”
This is prompting organisations to develop ‘just-in-time’ principles and new ways to engage with this talent pool.
Some employers outsource non-strategic operations to contractors to focus on their core business. Others, especially in the construction sector, see contingency staff as a way to respond to fluctuating demand. In the tech sector, using contingent workers helps reduce risk when entering a new market.
Professional services firms use online platforms to attract gig workers. PwC launched its Talent Exchange in 2016, enabling US workers to bid for project work. EY recently rolled out GigNow which advertises short-term contracts in such fields as law, cloud computing, robotics, artificial intelligence, cyber security, and data science.
But, while bringing organisational benefits, contingent workers present operational problems. These include conflicts of interest, low engagement levels, quality control, and intellectual property protection.
Much of this can be mitigated through background checks – although there’s evidence that only one in two organisations conduct these for their contingent hires, compared with 91% that vet full-time, salaried workers.
Then there are legal and tax risks – as illustrated in the UK Supreme Court judgement of 13th June 2018 relating to the plumber, Gary Smith. Mr Smith had worked solely for Pimlico Plumbers for six years. The court ruled that, despite being VAT-registered and paying self-employed tax, Mr Smith was entitled to workers’ rights such as holiday and sick pay.
“Contingent workers are often cheaper because they’re engaged in a tax efficient way,” Barrow says. But, if tax authorities decide that a worker was incorrectly classified as self-employed, the end-user or temp agency may be liable for unpaid tax.
“Businesses spend a lot of money to be seen as good places to work,” says Hadley. “They should make a similar effort for their contingent workforce.”
“However, the more they’re included and integrated into the workforce – like training them and inviting them to parties – the more courts can say they’re really employees, triggering tax and employment liabilities,” warns Barrow.
Organisations’ competition for talent isn’t just with employers in the same market. They’re now competing against freelancing itself.
HR / L&D professionals must develop strategies that support this new blended workforce to attract and retain the best. Investing in their full-time and contingent workers’ development is one way for organisations to be more competitive in the talent marketplace.
Some may say that, by using contingent workers, organisations can avoid sinking L&D and benefits costs into workers who, potentially, won’t stay or aren’t a good match for the organisation. Moreover, these contingent workers often come with the special skills the organisation needs – so the L&D cost of “developing” them is nil.
Yet, without effective hiring and induction (onboarding), contingent staffing creates challenges – such as finding workers who can perform the job and are loyal, engaged and interested in the organisation’s corporate culture and goals.
Organisations hiring contingent workers need existing workers who can – and are happy to – help introduce these workers to the organisation’s culture, telling them where they fit into the “big picture”, and convincing them of the value of the organisation’s corporate culture and goals.
With contingent workers, the challenge for L&D professionals is to align induction (onboarding) practices with those used for regular employees while still delivering an appropriate, unique experience. They must foster engagement and loyalty among contingent workers from the start of each worker’s connection with the organisation.
L&D leaders must also balance skills across the entire workforce. This includes discerning between the capabilities an organisation should grow in-house through development programmes and which should be filled by tapping external expertise.
Independent contractors with a specific skill set can be a useful training asset.
The arrival of independent contractors provides an L&D opportunity for full-time employees. You can organise knowledge-sharing sessions between contingent workers and full-time staff – via networking events.
Creating a culture of learning in the workplace has always been a powerful strategy for worker retention, and the rise of the gig economy and contingent workers is only highlighting its value.