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Contingent Workers Drift Just Beneath the Surface

December 10, 2021 Digital Workplace
Mark Feffer
By Mark Feffer

The contingent workforce has made greater inroads into the global economy than most people recognize, and the attitude of workers themselves hints that they, as well as businesses, are changing the way they view their relationship.

A report by the ADP Research Institute said technology’s advance is transforming why, where and when people work as much as it’s impacting how they work. Among other things, this indicates that the spread of contingent work is taking on a more structural aspect than many employers may have realized.

Between 2010 and 2019, the share of gig workers at enterprise companies increased from 14.2% to 16.4%, ADP said. The company expects this proportion to grow, especially with the labor market being as tight as it is.

ADP’s report, "Illuminating the Shadow Workforce: Insights into the Gig Workforce in Businesses," defines “gig” workers as both 1099-MISC and short-term (one- to six-month) W-2 employees. Although many people describe “gig” workers as those who undertake single, one-off tasks, such as Uber or Lyft drivers, we’ll stick with ADP’s definition for our purposes here.

Whatever you call them, these workers usually fall outside of HR’s bailiwick. In terms of administration, they’re often hired and overseen directly by line managers or provided by staffing vendors who’ve negotiated an agreement with the procurement department.

In terms of issues such as culture and engagement, gig workers are likely to be left out of social events like holiday parties and given less, if any, attention in areas such as communications. Also, ADP noted, gig workers are often paid through a variety of channels such as accounts payable, payroll or a staffing agency, which makes it difficult to track their overall cost.

Contingent Workers and New Career Strategies

In a sign that the definition of “employee” may itself be evolving, most contingent workers under the age of 34 see themselves as traditional employees. More than half of the 1099s surveyed would prefer to have W-2 status, but not for the reasons business leaders might expect, namely benefits. Nearly three-quarters of them, 74%, said they’d keep working as an independent contractor even if that meant losing health insurance.

Employers believe many of these 1099 workers have made a conscious decision to remain independent for higher pay while their spouse works for lower pay and benefits, ADP said. That way the household receives both benefits and a higher total income. 

ADP also found a number of similarities between gig workers and traditional employees. For example, conventional wisdom says gig workers are employed less frequently, work for multiple companies and earn a higher hourly wage than traditional W-2s. However, the report found more than half of 1099 workers are engaged by the same company for 12 months, while 23% of traditional W-2s remain with the same firm for less time than that.

Related Article: Contingent Workers Are a Missed Opportunity for Many Employers

Less Than Optimal Management

Despite all this, organizational and legal challenges impede progress toward managing the entire workforce from one place, according to vendors, analysts and attorneys. One result: Employers lack “a single source of truth” for managing workers.

For example, ADP said most companies don’t track their gig workers in terms of cost, where they’re working or what types of skills they have. Most leaders don’t understand the value that information would have in terms of decision-making, corporate strategy and talent management. For example, they may not realize that the talent they need to address skills gaps may already be close at hand.  

Employment attorneys and workforce analysts say that while traditional HCM systems do a good job of helping companies manage and interact with their full-time employees, few attempt to do the same for gig and contingent workers. One reason may be compliance.

“You could have [gig and FTEs] in the same database tool, but from a compliance standpoint, you’ve got to be extremely careful with what you’re doing and how you’re facing your contingent workforce,” said one attorney. “If you start treating your contingent workers the same way as you’re treating your employees — giving them tools to see the way they’re paid and all those things — it feels a lot like employment.”

Related Article: Employers Want to Cut Remote Work Pay, Contingent Hiring & More HR Tech News

Are Contingent Workers the Right Tool for the Job?

Most companies manage their external workers with procurement-focused systems that address tasks involved with contracts, purchase orders and payment but do little to help oversee performance on the ground.

That’s one of the conclusions of "Services Procurement Insights 2019," a report from SAP Fieldglass and Oxford Economics. Though SAP’s bias here is obvious — Fieldglass is a vendor management system, after all — the study’s main points are worth considering as contingent workers grow as a proportion of the overall labor force.

Although employers continue to rely on contingent workers to build and maintain their business, they don’t pay nearly enough attention to managing them, the report said. As a result, companies aren’t realizing the full value of their investment, even as they expose themselves to security and compliance risks.

The study found that external workers, including contingent workers and service providers, have knitted themselves into a number of areas of business operations, increasing agility and speed to market as well as providing necessary skills. For example, 62% of the business executives surveyed said external workers are important or extremely important to meeting the need for specialized technology and digital skills.

On average, the report found, 42% of total workforce spend is on external workers. More than half of that is on contingent labor. SAP Fieldglass General Manager Arun Srinivasan said the study revealed “the significant need to better manage this sizable workforce to maximize value and minimize risk.”

For one thing, these workers aren’t managed closely enough, the study said. Just 47% of executives are “highly informed” about contingent workers’ contract terms, for example, while only 31% are as informed about the quality of their work.

Besides making external workers difficult to manage, this lack of insight exposes companies to security and compliance issues. Nearly half, 47%, of executives reported some kind of digital security breach with non-payroll workers. Forty percent faced some kind of compliance issue, and 36% reported worker misclassifications.

Procurement, Meet HR

SAP’s suggestions for addressing these issues follow the report’s logic. Organizations, it said, must develop greater visibility into their external workforce, manage it more rigorously and do so by working across functions.

For one thing, that means employers must manage external resources as closely as they manage their payroll employees. Among other things, employers should monitor work quality and the ability to meet milestones, SAP said.

Also, business leaders must understand that managing external workers requires collaboration between procurement, HR, IT and the lines of business involved with each engagement. Each function brings meaningful insights to the table, the report said. However, only 22% of the study’s participants believe HR and procurement collaborate at a highly effective level.

Most companies have effective HR technology in place, the study found. And while many have procurement solutions to handle the financial aspects of hiring external workers — items such as contracts, purchase orders and invoicing — they don’t have systems to manage contingent workers at an operational level. For example, few companies have technology that can verify certifications and training. HR and procurement solutions may be creeping toward each other, however.

“There’s a lot more that can be done,” said Fieldglass Chief Technology Officer Vish Baliga. For now, “we are simply at the early stage of being able to say, who is this individual working for us? Where are they from? Which supplier do they represent? We are just at that nascent level.”

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