A megatrend is underway in the U.S. workforce. Twenty-six percent of American workers make their living without the traditional mantle of a company paycheck, either choosing or being compelled by business and economic circumstances to work as part of the flexible workforce. As the millennials’ population in the workforce grows, their priority on work-life balance is attracting many to the flexibility of the freelancer career model, adding to the trend in flexible workforce growth. Combining this popularity of work life flexibility with the rapid adoption of mobile technologies and ubiquitous Internet access, and the result is a megatrend that is expected to exceed 50% of the workforce by 2020.
Effectively tapping this expanding labor pool is a growing necessity for businesses in order to access the diversity of talent essential for remaining competitive. And there are many great benefits to leveraging the flexible workforce:
- Staffing level flexibility – the ability to quickly add and eliminate staff in response to demand fluctuations can have a large, positive impact on efficiencies and cost. Staffing for work load peaks yields excess utilization capacity and cost during slower times. Staffing for work load valleys stretches your staff during peak times, leading to potentially unacceptable service and performance shortfalls. Relying on contingent labor for work demand spikes can mitigate this tradeoff as long as the contingent resources can deliver effective business results.
- Geographic flexibility – for the enterprise with multiple locations, having the right resource at the right location can prove challenging. Expanding beyond the employee workforce to tap local talent where and when it may be needed can reduce travel costs for transporting HQ staff, while increasing resource availability and responsiveness at the remote locations.
- Access to skills not available internally - A new customer opportunity, project, or strategic initiative may demand skills that are not available in-house due to other workload commitments or simply an absence of the required expertise among internal staff. The flexible workforce can fill this gap.
- Tax, benefits, and long-term compensation savings – As long as the contingent labor is not comprised of misclassified employees, businesses can save on taxes and benefits which are not paid to independent contractors.
However, there are also significant risks:
- Limited visibility and control over geographically disbursed resources – Staff that are not working in your office with you exhibit management challenges that are exacerbated by their independent relationship with your business. How can you ascertain (before it’s too late) that they are working on your agenda within your time frame? What accountability tools do you have to rectify substandard performance?
- Lack of context and company-specific experience relevant to successful work product delivery – Contingent staff can bring industry experience and skills to their employers. But they don’t have the company specific knowledge of products, methods, communication styles, and culture that are invaluable, and possibly even indispensable, in many work situations.
- Absence of loyalty to company – Conscientiousness is not exclusive to employee labor. However, contingent labor is less likely than a regular employee to exhibit extraordinary effort and sacrifice in completion of a goal. The regular employee is motivated by loyalty that has accumulated over years of company relationship investment. Different motivational tools must be utilized with the flexible workforce.
- Administrative burden of securing / managing hybrid workforce – The administrative aspects of leveraging contingent labor can be significant and include sourcing from one or more vendors, reviewing resumes and interviewing, training, payment processes, and more. And by definition, the labor is temporary, meaning the costs will be repeated for every new worker. Software tools (vendor management systems) are available to help manage the administrative costs, but they do little to ensure intended business deliverables/objectives are being met.
- Remediation costs from performance inconsistencies – Onboarding a new resource invariably introduces performance risk until startup hiccups are overcome and the resource proves it’s capability in your environment. Inevitability, some things will go wrong, the magnitude dependent on the experience and vigilance applied in the procurement process along with a sprinkling of luck. And associated remediation costs can vary widely depending on your business’s exposure to the results of the resource’s work product – from the cost of repeating some work to potentially losing a customer’s confidence and follow-on business.
- Liability risks – Businesses can create substantial liability exposure by using “independent contractors” that are actually misclassified employees. Compounding this risk is the fact that there is no single definition of the term “independent contractor”, and the interpretations by courts and enforcement agencies to a wide body of state and federal labor laws must be considered when evaluating a particular situation. The Supreme Court has ruled under the Fair Labor Standards Act that there is no single definition that pertains to the employer-employee relationship, and have described a series of six significant factors of which no single one is controlling. The California Division of Labor Standards Enforcement starts with the presumption that a worker is an employee and then considers eleven factors dubbed the economic realities test to assess a worker’s status. State and federal tax collectors have targeted worker misclassification as an area of substantial loss of tax revenue, and seek out audits that have the potential to recover these losses and assess penalties. Worker injuries can lead to workman’s comp and misclassification claims with similar associated financial risks.
Despite the risks, the flexible workforce has become an indispensable element of operations for many businesses. Those that use contingent labor on a small scale typically lean on their internal HR resources for support. For a more significant hybrid workforce, vendor management systems (VMS) can help facilitate sourcing, vetting, contract management, and payment administration. The HR duties associated with management of the contingent workforce can be outsourced to a PEO (professional employer organization), sharing some of the risk via this co-employment relationship. Liability risk can be minimized by the use of SOW (statement of work) focused outsourcing, with solutions such as Service-as-a-Product able to provide guaranteed, repeatable business deliverables without the overhead, risks, and headaches of do-it-yourself approaches.