How to overcome the five most crucial contingent workforce challenges

December 11, 2023

Human capital is your organization’s most vital asset. Talent and how it is applied will determine your company’s ability to achieve success and meet its strategic goals.

In today’s uncertain economic environment, it is more important than ever to create an agile, flexible workforce where talent can be applied quickly to meet ever-changing market threats and opportunities. This is why businesses increasingly use non-employee talent, which now represents nearly 50% of the average company’s workforce.

To acquire and manage this agile workforce strategically, human resource managers and contingent workforce program owners must overcome several challenges, the most important of which are:

  1. Lack of visibility into non-employee workforce engagements
  2. Ineffective or incomplete cost control
  3. Failure to comply with legal, regulatory, and policy requirements
  4. Uneven talent and project performance quality
  5. Inconsistent, inefficient process management

To address these challenges, nearly 80% of companies worldwide with 1,000 or more employees use a vendor management system (VMS) to automate the management of their non-employee talent. If your company is not using a VMS – or if you are using a VMS to manage some, but not all, of your non-employee resources – read on to discover how a VMS can reduce these potential risks.

1. Contingent workforce visibility

While companies increasingly depend on non-employee workers – including temps, consultants, independent contractors (ICs), and outsourced service providers – many cannot account for all these workers.

Too often, they don’t know who the workers are, where they are, or what they are doing. Without proper visibility, they don’t know what access these workers have to company facilities, networks, data, and intellectual property. Worse yet, they don’t know when these non-employees’ assignments begin or end, and whether the workers are correctly classified for tax purposes.

Without end-to-end visibility of all categories of non-employees, it is impossible to know if the company is paying too much for certain skill sets or whether talent is being deployed strategically.

Fortunately, a VMS can track all contingent workers – including statement of work (SOW)-based service providers – throughout their entire interaction with the company. At any time, executives can know the precise composition of their non-employee workforce, what work they’re doing, and for what cost. Armed with this information, the company can make better-informed, more strategic staffing decisions.

2. Cost control

Managers engage temporary workers or contract for outsourced services when they are short-staffed or need specialized skills. Without centralized control of the talent acquisition and contract award processes, this can result in unbudgeted “maverick spend” or “sweetheart deals” with favored vendors to get the work done.

A VMS can eliminate these costly practices by controlling labor engagement. Here are just a few of the cost-saving measures that can be easily managed with a VMS:

  1. Compare bill rates to market standards
  2. Review and negotiate vendor rates
  3. Analyze and reduce overtime usage
  4. Consolidate budget tracking
  5. Negotiate supplier discounts through competitive bidding
  6. Track and analyze turnover
  7. Increase spend forecast accuracy

If your contingent workforce program is managed manually or using a VMS that lacks services procurement functionality, a modern, full-featured VMS or extended workforce platform offers plenty of opportunities to improve cost control and, very likely, to reduce spending.

3. Compliance

As contingent labor increases, the compliance challenge grows. Governments want to ensure workers are correctly classified for tax and benefits purposes. Equally important, companies must ensure that their hiring policies and non-employee engagement policies are correctly followed.

If they are not followed correctly, the result of misclassifying contingent workers or independent contractors (ICs) can be devastating. It can result in litigation, fines or expensive financial settlements, and reputational damage. Contingent workforce program managers can mitigate compliance risks by ensuring – and documenting – the procedures they have followed to comply with applicable laws, regulations, and company policies.

The right tools can make compliance easier. A VMS automates and documents the process steps required to ensure compliance for all categories of external workers. By following these workflows and maintaining an audit-ready record of successful compliance, the program team can be well-prepared to protect their company’s interests.

4. Performance measurement and optimization

Faced with severe shortages of critical skills, it is not enough for contingent workforce program owners to deliver talent that meets the specifications of each job requisition. It is also vital for the program team to measure and analyze their own performance and the performance of the talent they deliver.

Only by setting goals, objectives, and key performance indicators, and measuring against these targets can the program office optimize its workforce spend and compete successfully for the talent and skills you need. With a data-driven contingent workforce strategy backed by the right analytic tools, you can put yourself in the position to deliver the right talent, in the right place, at the right time.

 The first step toward a data-driven strategy is to collect and gather all necessary data in one place. Among the data points to track are:

  1. Time to fill positions
  2. Bill rates, pay rates, and the margins between them, for each staffing vendor
  3. Billed hours and cost per contingent worker
  4. Contract extensions
  5. Number of re-engagements
  6. SOW-based project status
  7. Project talent costs
  8. Milestone and project completion rates

Based on this and other collected data, you will be able to determine:

  1. Who is providing your organization with the highest quality workers?
  2. Which service providers consistently meet budgets and schedules? Which do not?
  3. Does a particular supplier provide more productive workers or a quicker time to hire?
  4. Do you have an over-dependence on any single vendor?

A VMS makes it easy to track, visualize, and evaluate all the data generated by your contingent workforce. For future labor planning, reporting, and spend management, it can be a critical tool in optimizing your contingent talent spend.

5. Streamlined business processes

Due to the size and complexity of the non-employee workforce, it is no longer efficient to manage this labor manually or on a distributed, departmental basis. Instead, virtually all leading businesses have established centralized contingent workforce management functions to source and manage non-employee talent.

With the automation tools available in a VMS, contingent workforce program owners have the tools they need to:

  1. Guide hiring managers in the creation of job requisitions
  2. Distribute job requisitions to suppliers in accordance with approved procedures
  3. Automate candidate review and evaluation, including scheduling and tracking interviews
  4. Conduct rate negotiations
  5. Provide consistent onboarding and provisioning
  6. Manage timekeeping and expense reporting
  7. Automate the entire accounting and billing process, including application of local tax rules
  8. Automate worker offboarding, ensuring that all assets are returned and security access terminates when the assignment ends
  9. Integrate seamlessly with ERP, HRIS, and other enterprise systems for accurate, error-free data exchange
  10. Provide an auditable system of record for all contingent workforce data

Address these critical contingent workforce management challenges now

As an HR, talent acquisition, or contingent workforce management professional, it is your job to ensure that your contingent workforce management program can address these five challenges. If you don’t currently have a vendor management system (VMS), this should be the first item on your digital transformation roadmap.

If you already have a VMS, you must make sure it has the latest technology to manage all categories of non-employee labor: technology like AI-powered resumé visualization capabilities, direct sourcing, and comprehensive services procurement functionality. Without these capabilities, it will be unnecessarily hard for your contingent workforce management program to deliver the talent you need. And that will put your company at a competitive disadvantage.

For more information about how VMS technology enables strategic contingent workforce management, read this report by Everest Group.

Then contact us to learn how the latest extended workforce management technology can empower your business.