How Can Organizations Cut Off Labor Expenses Associated with Contingent Workforce Management?

While most employers consider engaging contingent workers in their business to bridge the skill gaps, mitigate labor shortages, or bring in specialized skills and experience, they often overlook the financial benefits that contingent workers come with. In view of the constant evolution of the global workforce, it can be said that business leaders are facing the tremendous pressure of restricting budgets without compromising the quality of products or services. With such financial constraints, building a resilient and agile team with full-time employees becomes quite challenging. With contingent staffing, employers can save a good amount of staffing costs while acquiring the desired skillsets and competencies required for fulfilling their business needs or project goals. However, it all depends upon the labor expense reduction strategies initiated by an organization to hire and manage contingent workers.

In this article, we will discuss the financial challenges that organizations often face while developing and managing a contingent workforce and the ways in which organizations can reduce labor expenses for the same. 

Key financial challenges faced by organizations during contingent workforce cost management

• Compliance and tax regulations: One of the major challenges that occur while forming contracts with contingent workers is adhering to market-specific worker and tax norms and regulations. In the absence of proper updates and knowledge regarding contingent labor compliance, organizations can exposed to legal risks and high-cost penalties.
• Ineffective hiring practices: While managing a contingent workforce is a tactical imperative for businesses, the lack of a streamlined hiring approach can make the strategy ineffective, thereby leading to elevated costs.
• Misclassification of contingent workers: Worker classification determines the substantial protection of employees in terms of fair wages, overtime pay, and other employee benefits, thereby affecting their labor rights and social security. Hence, the misclassification of workers is a legal issue, and thus, it can cause employers to encounter high penalties.
• Paying a higher amount for a short-term project: Though contingent workers help reduce overhead costs associated with onboarding, training, and employee benefits, employers may sometimes end up paying them a higher amount for short-term projects while attempting to fill positions quickly.  
• Absence of transparency in the budget management process: When there is a lack of visibility in the budget management process, recruiters face challenges in tracking labor expenses and setting cost controls.

Also read: Compliance in Contingent Staffing in the USA: Ultimate Employers Guide

Labor expense reduction strategies to be used for contingent workforce cost management

To deal with the aforementioned financial challenges while creating a contingent workforce for your business, it is essential that you undertake a structured approach and follow some strategic ways.

1. Balance your contingent workforce costs with business/project requirements

To manage your contingent workforce in a cost-efficient manner, you need to magnify your workforce planning and hit the right balance between contingent labor expenses and your business or project goals. You need to closely assess and review your project goals or business needs and smartly blend your fixed, full-time employees with contingent workers.

2. Centralize your contingent workforce program through a VMS

With a centralized contingent workforce program, you can gain comprehensive visibility not only of the performance data of your contingent workers but also of the hidden costs and inefficiencies associated with the contingent workforce. This can be done by implementing a neutral Vendor Management System (VMS), which can effectively track and control contingent staffing costs, simplify task management by automating workflows, and generate periodic reports on the performance of contingent workers. A neutral VMS can also help you streamline your hiring process by keeping you updated on hiring trends, worker compliance issues, and many more.

3. Follow a well-structured hiring process

Besides optimizing your workforce planning, you need to ensure that you follow a precise and standardized hiring process. From screening to onboarding, you need to design and follow a set of hiring principles that not only help you to get hold of the best candidates but also enable you to reduce administrative costs and elevate business efficiency.

4. Invest in skilled and experienced contingent workers

Many employers strategize to save labor costs by hiring freshers or not-so-experienced contingent workers to suit their short-term business or project needs but end up spending more on training and upskilling them. Remember, fresh graduates will surely need some training, in the absence of which they may fail in delivering quality performance. Hence, if you want to avoid spending heavy amounts of money as well as time on training freshers, you should consider hiring skilled and experienced contingent workers.

5. Adopt a data-driven approach to mitigate risks and implement contracts

To save your business from getting exposed to heavy legal penalties due to non-compliance with labor laws, it is best that you back your contingent staffing process and policy with a data-directed approach. By keeping yourself updated and informed about ongoing developments in labor laws and regulations, you can ensure the classification of your contingent workers appropriately, safeguard their interests and implement clear contracts.

6. Join forces with a reliable staffing agency

To get an all-in-one strategic solution to reduce your contingent labor expenses, you must collaborate with a reliable and experienced staffing agency like Denken Solutions. At Denken Solutions, we rely on cutting-edge technologies and high-grade expertise to boost the value of your contingent workforce. 

By choosing us as your staffing partner, you can get access to a vast pool of pre-screened and experienced contingent workers who might be the right fit for your business. Additionally, by recognizing and assessing your business objectives, we help you optimize your contingent workforce management program, thereby helping you reduce labor expenses. With extensive knowledge of labor laws and regulations across the globe, our team of dedicated professionals ensures that your business stays perfectly compliant while managing a contingent workforce.

Conclusion

It is true that a contingent workforce can help businesses save a good deal of time and money, which might not be possible with a full-time workforce. However, to get the full-fledged financial benefits of a contingent workforce, employers need to undertake a strategic approach to hiring and managing contingent workers. It is necessary to balance the contingent staffing costs with business or project requirements, centralize the contingent workforce management process through a neutral VMS, and follow a well-planned hiring process. It is equally essential to back the hiring process with a data-driven approach, invest in skilled and competent contingent workers for core positions instead of fresh graduates, and of course, partner with an expert staffing agency.