Contingent Workforce Management Benchmark Report

August 2013

Presented by Jenni Nelson, HCMS

Sponsored by:

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Why a Contingent Workforce Management Benchmarking Survey?

According to the ABS, November 2012, there are:•11.5 Million workers in Australia of which 3.15 Million are either:

– Workers with no paid leave entitlements; or

– Independent Contractors

•This represents 28% of the total workforce

28% of

total

workforce

Source: Forms of Employment, April 2013, ABS

What does best practice in Contingent Workforce Management look like?

Cost ManagementCost Management

• Visibility of overall spend• Consistent pay rates and margins • Reporting capability• Reduced administration costs

Risk ManagementRisk Management

• Low risk engagement contracts• Compliance with OH&S, legislative and internal

policies• Robust 3rd party suppliers

Productivity and Optimised Workforce Utilisation

Productivity and Optimised Workforce Utilisation

• Measure time to productivity • % of contingent workers that meet stated goals and

objectives, and that fulfil their contract• Reuse of contractors for other assignments

Supply Chain EfficiencySupply Chain Efficiency• Time to hire• Quality of hire• % of compliance to agreed processes

Who responded?

• 110 respondents, 53 completed• Top 5 industries:

– Government / Defence

– Banking and Finance

– HR Recruitment

– Mining, Gas & Oil

– Transport and Logistics

• 33% of companies with >$1billion turnover

FINDINGS

Key Themes

Contingent Workforce Management is:•An emerging discipline•Mostly fragmented and inefficient•Typically, there is no one function accountable for it•The current activity is focusing mostly on cost and efficiencies, with less focus on quality and competitive advantage

Structures and Enablers

• No one function is accountable for Contingent Workforce Management• Technology tends to be disparate Without a comprehensive lens, organisations are exposing themselves to

potential risks and higher costs

Reasons For Using Contingent WorkersTop 3 reasons respondents use Contingent Workers:Short term projects and/or project centric workTo replace a staff member on leaveGreater Flexibility than permanent

Average Tenure of Contingent Workers: Top 3 for each category

Findings:•Many respondents do not know the average tenure of their Contingent Workers•Most respondents are using Contingent Workers for more than 7 months, across all labour categoriesThis runs contrary to the top 3 reasons for engaging Contingent Workers

SUPPLY CHAIN EFFICIENCY

How Contingent Workers are Recruited

• The supply chain for Contingent Workers tends to be governed to some extent• Some use of MSP and/or RPO, and high use of preferred supplier panels

Time to Fill

• 20% indicated they do not know Time to Fill for one or more labour category of contingent workers

• 92% indicated Time to Fill for one or more labour category of contingent workers

• 7% did not know Time to Fill for any labour category of contingent worker

It appears that Time to Fill data for Contingent Workers is somewhat tracked:If one of the top 3 reasons for using Contingent Workers is “Greater Flexibility”, then Time to Fill is Critical

How do you Measure Quality of Hire of Contingent Workers?

• Most organisations are measuring Quality of Hire at some level, but not necessarily formally or consistently

Quality of Hire should be captured to measure the effectiveness of your supply chain

PRODUCTIVITY AND OPTIMISED WORKFORCE UTILISATION

Tracking Productivity

Contingent Workers’ Performance and Productivity is not tracked consistentlyOpportunity to achieve greater workforce utilisation and productivity

Contingent Workers: Contract Extensions

Inferences:Initial requirements are not properly estimatedLine managers are taking the “path of least resistance” by extending existing contingent workersSome line managers may use contingent workers to avoid FTE constraintsRisk increases in relation to employer / employee relationship issues, as tenure increases

42% of organisations extend more than 50% of their contingent workers beyond their first engagementOpportunity for Cost Savings through better governance and infrastructure around raising requisitions and extensions

Contingent Workforce Utilisation

Time to productivity is a significant benefit of re-assigning contractors

To achieve greater re-use of contingent workers, organisations need better visibility of their contingent workers’ skills and availability

26% of respondents re-assign more than 75% of their contingent workersOpportunity to improve contingent workforce utilisation

COST MANAGEMENT

Contingent Workforce Cost TrackingTypically, cost tracking of contingent workforce spend is poor, representing opportunities for improved cost efficiencies

Contingent Workforce Pay Management

65%65%Use pre-defined and consistent Contingent Worker pay rate ranges for at least one category of work

44%44%Reported “pay rates are negotiated at time of hire” for at least one category of work

13%13%Did not know how pay rates were negotiated for Contingent Workers in at least one category of work

Organisations are starting to standardise contingent workforce pay rates, however there is still a long way to go.

The pay component, represents 80-100% of the rate and a large proportion of the overall cost opportunityDefining and implementing consistent pay rates based on skill types and levels, improves cost efficiencies.

Managing Margins with 3rd Party Suppliers

47%47%

25%25%

20%20%

Have negotiated consistent margins with 3rd party providers, for at least one category of work

Negotiate margins at time of hire, for at least one category of work

Have no visibility into 3rd party margins, for at least one category of work

Negotiating margins with 3rd party suppliers of Contingent Workers appears to be somewhat ad hoc and inconsistent.

• For organisations looking for an ROI to implement an MSP, RPO and/or CMO model, improved margin control presents an opportunity to achieve cost efficiencies.

RISK MANAGEMENT

Decision Frameworks for Engaging Contingent Workers

The decision to utilise a Contingent Worker appears to be predominantly informalTighter controls through a formal decision framework will reduce risks associated with employee/employer relationships

Nature of Engagement Contracts• Organisations are using multiple types of contracts for engaging contingent workers• There is high use of Direct Contractors in all work categories, which is the greatest

area of risk

Compliance Risk: Non-Standard Contracts

Risks associated with non-standard contracts can include:•Financial risk regarding entitlements such as superannuation or annual leave•Payroll tax liabilities•Unpaid income tax•Workcover claims

35% of respondents reported that less than 50% of their contingent workers are engaged under their organisation's standard contractsNon-standard engagement contracts represent risk exposure

Governance Frameworks• 55% of respondents use their Contractual Framework (amongst other mechanisms)

to ensure their 3rd party providers are meeting their financial, legislative and corporate governance requirements

• 17% reported having no framework in place

Managing Financial and Legal Obligations• 28% of respondents do not have centralised accountability to ensure worker entitlements and

relevant taxes are paid regarding their contingent workforce. They rely on the business unit or 3 rd party agencies to manage this.

• 8% don’t manage it at all.

RECOMMENDATIONS

First Steps: Visibility, then Cost and Risk Prioritisation

• Centralise accountability for Contingent Workforce management

• Identify all current Contingent Workers, their rates, length of tenure and nature of engagement contract

VisibilityVisibility

• Implement centralised and regular reporting to track costs and other metricsCostCost

• Identify all ‘high risk’ engagement contracts (e.g. direct contractors; non-standard contracts)

• Identify long term Contingent Workers at risk of being deemed ‘employees’

• Develop a prioritised plan to mitigate risk

RiskRisk

Solutions and Enablers:

Consulting: •Contingent Workforce Audit

Technology: •Vendor Management System

Contingent Workforce Management Providers:•Recruitment Process Outsourcer; •Contractor Management Outsourcer

THANK YOU FOR YOUR TIME

© This information is the property of ATC Events and may not be reproduced or used without attribution