How Employers Manage Globally Distributed Teams of Independent Contractors and Freelancers

The New Technology of Teams - Managing the Contingent Workforce For Competitive Advantage

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This is the 2nd sponsored article in a series on The New Technology of Teams – it was researched and written by Andrew Spence and CXC.

Independent contractors are key team members in many organisations.

Some contractors say they prefer the autonomy of being their own boss and others rejoice at skipping the office politics. You might know a contractor who works as a Business Analyst for a technology firm or presents Football TV shows on the BBC. 

For employers, keeping the ship afloat during the pandemic has been a great achievement and the talent landscape gets more complex by the week.  A 20% additional labour cost will sink some businesses.  The next challenge for leaders will be to set a new course.  HR leaders will need to form new teams and some will require specific skills outside the current workforce. It will be crucial to have access to new talent pools to find suitably qualified freelancers, contractors, and suppliers.  Employers that can source from cheaper, smarter talent pools will have a competitive advantage.

This article outlines how employers are managing their contingent workforce with definitions, the big challenges, the technology, examples, and tips from industry experts.

What is the Contingent Workforce?

A contingent workforce is a labour pool that consists of people who are hired by an organisation for a fixed period of time, often on a project basis. Most organisations have a workforce that is a mix of contingent and non-contingent workers. A contingent worker can be a freelancer, independent consultant, contractor, part-timer, on-call worker, or someone in any other type of alternative work arrangement. 

Employers have always used contingent workers – it’s not a new practice.

For example, Google employs 130,000 temporary, contractor, or vendor workers (which they call TCV), which is more than their 123,000 full-time employees.

When it comes to sourcing work, business leaders now have more options. In terms of scale, Gartner estimate that 32% of organisations are replacing their full-time employees with contingent workers mainly as a cost-saving measure.

What are the Challenges for Employers Managing Contractors?

There are several challenges for employers who hire contractors, vendors, and freelancers. 

One dominant challenge is compliance with local tax legislation, particularly if your workers are in different jurisdictions. 

It was recently reported that the retired England footballer and broadcaster Gary Lineker is in a £5m IR35 tax battle over freelance earnings.

The tax authorities are pursuing individuals who are hired and paid as freelancers but are operating on the same terms as employees.  In the UK, from 6th April 2021 (yep that’s in the past), employers are responsible for determining the worker’s employment status, with some hefty fines.  A related compliance challenge is do you know who is working for you?  This is important to comply with IR35 requirements.

A fairly straightforward inclusion question such as “What percentage of people who work for us are women?” can be challenging for many employers.  Reports from the core HRIS system might give a quick answer for employees on the payroll, but what if your company uses 20-30 agencies providing contingent workers to your 10 sites? A fairly simple diversity question can be very hard to answer.  

In many organisations, employees and contractors are managed across HR and Procurement.  This is an obvious systemic reason why it’s hard to get a holistic view of all the workers - working across silos can be hard work. There is some evidence that this split is shifting, in a recent survey, 76% of companies stated that senior leaders are driving this shift in ownership from procurement to HR, including KPIs, budget, vendor management, and engagement.

Organisations need to be increasingly agile and make workforce changes as the business environment changes. When it comes to getting mixed teams to work effectively, then the data required goes way beyond cost.  To support productive teams we need to know which measures predict team cohesiveness and this should include certain contract workers. See for example the first article in the New Technology of Teams series, on How Organisational Network Analysis can increase team collaboration.  

Contingent Workforce Management as a Competitive Advantage

One way companies manage this diverse group of workers is with a centralised model which is sometimes an outsourced HR function.  With contingent workforce management (CWM), the vendor becomes the human resource function for clients’ contingent workforce.  See, for example, CXC’s contingent workforce management model. This ensures a streamlined approach to workforce management regardless of talent source and includes health and safety, account management, onboarding, offboarding, benefits programmes, invoicing, and payroll. Employers can hire the best talent anywhere, compliantly, without the need to set up legal entities.

In a particular industry, if one company has visibility on its total workforce, it can make changes more quickly with more confidence compared to another company that has more disparate workforce/supplier data. If that company has a smoother onboarding process and integrates its teams better, it will contribute to better ‘worker branding’.  

This is a major competitive advantage, they will be able to attract better workers. 

There are cost advantages too. In larger organisations, some teams use their own favourite contractor agencies ‘under the radar’ of procurement or HR, with no consistency on rates.  Bringing the management of all suppliers under one team gives visibility and supports better supplier management.

Vendor Management Systems and The Future of Tasks

71% of companies still rely on manual processes like our trusty Excel spreadsheets to manage their flexible workforce needs according to Aptitude Research.

Core HR technology solutions are way short of what is required for employers that rely on contingent workers across different geographies.  There are some integrations between core HRIS and Vendor Management Systems (VMS) with the larger providers.

One way of thinking about ‘future of work’ is through the ‘future of tasks’.

Rather than hire by traditional job descriptions, which are flawed in many ways, some work is better sourced by tasks.  And some of these tasks are better carried out by contractors than employees.

The role of a Vendor Management System (VMS) is to enforce terms and conditions across suppliers, reduce operating costs through automation of workflows, speed up payments and cut out duplication of effort and steps in processes.

Most large employers use a VMS, with the total spend under management at $179 billion (according to SIA).  Using a VMS isn’t just for large companies, with 46% of the market by spend by programs of $100m or less. The largest industries that use a VMS are in financial services, healthcare, and technology, and the largest occupational category is in IT.  The main VMS providers include Simplify VMS, SAP Fieldglass, and Beeline.

A Single Source of Tech Talent for GitLab in Europe

An example of an organisation solving a challenge with contingent workers is from GitLab, which develops DevOps software used by than 100,000 organisations.

GitLab is based in San Francisco with nearly 1,300 individuals working over 67 countries. Across Europe, GitLab had the challenge of wanting to source talented workers in countries where they did not have a legal entity or understanding of local regulations relating to labour law. Gitlab worked with CXC to manage their remote and distributed workforce which included providing compliance, contract, and payroll management solutions to their contingent workforce and future hires. This enabled GitLab to manage their remote contingent workforce in multiple European countries, as part of a fully globally distributed model.

Six Tips for Managing Contingent Workers

For employers with a complex ecosystem of employees, supplier, and contractors – it is possible to manage this more efficiently by having a full overview of your workforce through a managed service provider.

Hannah Young, Solution Specialist, CXC.

Here are six tips for companies grappling with the challenges of managing their contractors and freelancers.

  1. Instead of ‘employee experience’, think of ‘worker experience’ - remember that Employer Branding is for contractors too. Independent workers will vote with their feet where they have contract choices and making their experience positive will have benefits for both parties. 

  2. Work on the HR and Procurement relationship – make sure that everyone understands the workforce strategy across this important silo and is working on the same plan.

  3. Nurture new Talent pools for different types of workers, including on platforms.

  4. Consider using Managed Service Providers, or Vendor Management Systems if you don’t use them already.

  5. Keep on top of local legislation and work with the experts who do this for a living - the Open Talent Resource – is a hub for all things gig economy including recent legal decisions e.g. Deliveroo in Netherlands, Glovo in Spain, and Uber in the UK.  

  6. Include your contingent workforce in diversity initiatives – contractors are often excluded from these programmes, here are some useful tips for managing diversity and inclusion with your contingent workforce.

Managing The Contingent Workforce

The divide between the contractor and the employee will narrow over the coming years. 

Regulators are adapting slowly to this transition, and employers that are quickest to respond will have a competitive advantage. 

The technology platforms used to manage employees and contractors will also adapt in the next few years. 

In the medium-term, smart employers will adopt a Contingent Workforce Management approach to avoid higher costs, lower compliance risks, and gain access to better quality talent pools. 

Organisations can benefit from taking a holistic contingent workforce management approach for all types of workers, regardless of contract type.  The strategic benefits will pay off for having a more agile and productive workforce.

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