Contractors and Australia’s quest for flexibility and agility

How to improve workforce flexibility and agility through a contract workforce

There is an emerging trend towards more formal contingent workforce management models as organisations seek to meet the need for increased flexibility, writes Trevor Vas

I recently conducted a straw poll of 10 recruitment managers and directors from Australia and New Zealand’s largest organisations to understand what they saw as the major trend for 2015. Many stated that the need to be agile in today’s volatile business environment was a major challenge – that is, dealing with staff redeployment and reduction in some areas of a business while ramping up for recruitment to meet growth in other business areas. So it is no surprise that relying on contingent labour to meet the need for flexibility is a growing trend for organisations. In fact, according to the ABS, contingent workers account for approximately 28 per cent of Australia’s working population.

A contingent workforce can be defined as labour that does not get paid entitlements such as annual leave, sick leave and public holidays. It can take the form of temporary staff and skilled contractors undertaking projects for an agreed tenure and rate of pay. The contingent workforce can also be hired under Statement of Work (SOW) Consulting or Contracting arrangements, where the engagement is based on project outcomes rather than labour supply.

Traditionally, contingent workforce management in most organisations has been decentralised. The supply chain has been managed by the business, whose main driver is to get the right labour at the right time. Thoughts about consistent contract rates, statutory compliance, health and safety and optimisation of the labour force have been secondary or potentially not considered. In fact, many contractors are hired due to permanent head count restraints, and because the effort to hire a contractor is less and the time to fill is faster.

“It is no surprise that relying on contingent labour to meet the need for flexibility is a growing trend for organisations”

With drivers such as cost reduction, risk reduction, flexibility and increased productivity, I believe that total contingent workforce management is the next frontier for recruitment and HR professionals. We are seeing an emerging trend towards more formal contingent workforce management models.

Best practice contingent workforce management
The organisations who have re-engineered their contingent workforce model typically go through three key stages:

  1. Efficiency: simplifying the supply chain, gaining statutory compliance, rationalising and standardising pay rates and margins, and reducing OHS risk.
  2. Quality: improving the quality of the contingent workforce hired, improving the range of services to the workforce such as training, and improved forecasting and service to the business units.
  3. Competitive advantage: optimisation of and improvement in the contingent workforce utilisation and productivity, increased flexibility and agility by the linking of workforce planning to create a reliable just-in-time workforce.

We have seen a range of contingent workforce management models implemented successfully. “Best practice” should really be defined by the outcomes. Some of the benefits of a well-designed and implemented contingent workforce management model are:

  • Improved visibility of the total workforce, pay rates and supplier margins
  • Capacity to ramp the workforce up and down as required
  • Cost reduction, through consistent pay rates and supplier margins
  • Cost reduction through centralised payroll services and streamlined/simplified accounts payable processes
  • Better asset management through consistent on-boarding and off-boarding of contingent workers
  • Reduced risk in relation to co-employment claims, ohs management, visa and working rights management, and through ensuring all contingent workers have appropriate and current qualifications and licences to perform their work
  • Reduced risk through improved supply chain management, including consistent contractual engagements and service level agreements
  • Increased productivity through reuse and redeployment of contingent workers
  • Improved candidate and contingent worker care.

“Total contingent workforce management is the next frontier for recruitment and HR professionals”

Contingent workforce management model components
There are four core components of a well-designed contingent workforce management model. These components can be delivered in a variety of formats. The reason for choosing one model or combination over another generally comes down to an organisation’s business drivers, culture, existing vendor relationships and infrastructure. The contingent workforce management model diagram is a generic model showing the four major components.

Contingent workforce management model
Contingent workforce management model

1. Contingent workforce acquisition. Acquiring contingent labour can be centralised, decentralised or a combination of both. Usually, the drivers behind these decisions are in relation to speed to hire and the level of independence that business managers require. Vehicles for delivering talent acquisition can include:

  • Managed Services Provider (MSP): An MSP is a third party provider that typically manages the sourcing of contingent labour. An MSP may use other downstream providers or agencies to source contingent workers but typically manages the interface to the business. In addition, the MSP takes on the contractual engagement, payroll and management of the total contingent workforce.
  • Panel of preferred third party labour hire providers: Many organisations who wish to implement a decentralised model will implement a panel of pre-approved labour providers that line managers can access in a self-service approach. Pre-approved vendors may also support the MSP model as an alternative source of contingent labour. The main benefit is to implement consistent contractual and fee agreements.
  • In-house recruitment through an internal recruitment team: We are starting to see contingent recruitment move in-house, as permanent recruitment functions mature and are able to increase their services to their organisation.

2. Contingent workforce management. Best practice is to outsource this function to a third party that specialises in contingent workforce management. Providers of these services typically fall into two categories:

  • Managed Services Provider (as outlined above): Examples of vendors offering MSP services include Alexander Mann Solutions, Hays, Manpower and Randstad.
  • Contractor Management Outsourcer (CMO): Examples of service providers include CXC, Entity Solutions and Oncore. These organisations offer a range of services to both organisations and contractors, including payroll services and management, mitigation of contractor workforce risk, provision of technology, tax advice to contractors and OHS management.

3. Technology. Specialist VMS technology is now a critical component in the management of a contingent workforce. It is used to raise and manage requisitions for contingent workers, manage the workforce including statement of work contractors, undertake time sheeting, provide reporting and ensure an organisation is in control of its workforce. Examples of technologies include Beeline, Fieldglass and 3 Story Software. These technologies are key in helping organisations reduce costs and risks, gain compliance and, importantly, optimise the use of this previously maverick workforce.

4. Strategy, governance and SLA management. Gaining centralised governance over contingent workforce hiring and management practices within an organisation is a huge win. Historically, the questions of who actually “owns” the contingent workforce governance is problematic, given that prior to implementing a comprehensive model, ownership usually sits at line management, which can create inconsistencies in relation to legal compliance, rates and supply chain management. With a more formalised approach, governance and strategy usually sits with procurement or HR/recruitment. In some cases, both.

“Specialist VMS technology is now a critical component in the management of a contingent workforce”

Many organisations prepare a business case to substantiate the contingent workforce model. The achievement of the objectives outlined in the business case should be managed by this area. The VMS technology is key in providing the reporting to support SLA management and measure the business case results. In addition, and for more mature models, strategic workforce planning should flow into this centralised view of the contingent workforce. Australia’s quest for flexibility and agility is driving many organisations to consider a “blended workforce” or to take a total workforce approach, combining both permanent and contingent workers.

A contingent workforce model case study
A great example of achieving the benefits outlined above with a creative contingent workforce model is an Australian utility. This organisation was going through the stages of exploration, construction and finally operation using a large contingent workforce that was mostly decentralised. The ability to gain control over workforce numbers and costs was problematic. The need for management of OHS was critical.

This organisation selected vendors who were best of breed MSPs and CMOs. This had the advantage of using specialists while creating flexibility to ramp up and down in a very project-centric world. It also gave the organisation control over costs and risk while gaining increased compliance. Importantly, it also provided additional gains by reusing contingent workers where it made sense to provide reduced time to productivity. Within the first three years of the model’s implementation, some of the achievements included:

  • An estimated cost saving of $6.5 million through reduced reliance on agency channels, and reduced cost of payrolling
  • More than 80 per cent compliance to the model company-wide, resulting in improved risk management and greater visibility of the total workforce
  • Implementation of company-specific rate cards – this achieves huge savings, estimated at up to 5 per cent of the total payroll
  • Reduced time to hire
  • Improved efficiencies through consolidated invoicing and enhanced administration services.

Trevor Vas is a director of ATC Events and will be holding a conference in Sydney on Contingent Workforce Management in September 2015.