5 Ways Contingent Labor is Killing your Company

Ah, contingent labor: a word beloved almost as much as human capital or incentivize…

In 2011, the joys of temp labor have finally been brought to the professional masses. So much so that we all seem to be contingent laborers, strangers passing each other in a corporate night(mare). It’s not that there is no care for the collective spirit of the employees that make up a company, it’s that at most companies there just is no collective spirit. We don’t owe anything to each other anymore, right?

We jest a bit – contingent labor is a broad trend toward efficiency that isn’t going away. In fact, in a recent survey conducted by the Economist Intelligence Unit, 67% of 479 senior executives plan to maintain “leaner” organizations by outsourcing work or hiring contract workers (See “Making Cents of Temps “.) There are huge benefits to hiring workers on a contingent or “as needed” basis. These benefits include cost overhead reduction, “ramp up” flexibility, enhanced employee time cost and productivity metrics, and a workforce conducive to project based production and output.

However, in the quest to realize the benefits of contingent labor (and they are real), organizations many times fumble, in particular those that are used to a traditional workforce structure. Poorly managedand ill-conceived contingent labor talent initiatives can be devastating to the long term health of a companies. Worse yet, the negative structural and long term side-effects can be masked by short-term cost savings.

This does not mean you have to give up on staffing. In fact, if your talent acquisition department isn’t actively planning and creating a strategy for the use of contingent labor, you may be well behind the curve. If your organization is looking to hire more temp workers, work with third party staffing firms, or outsource labor, be sure that you don’t let any of these five potential problems happen to your organization. (Remember, these don’t have to happen, but they can!)

1. Intellectual property goes bye bye: Contractors come and contractors go. If you’re involved in a process which requires any kind of knowledge and intellectual property, know that you may be loaning that knowledge and property to your competitors a year from now. If you value the collective experience of your staff, you have to tread lightly around strategic projects when using temp workers.
2. Responsibility vanishes: In particular if you are using consultants that are in a high-demand field, it is very difficult to instill the same sense of responsibility in contractors as it is in employees. When it comes down to it, contingent workers do not have a vested interest in your company. Period. Employees do, especially if you invest in them.
3. What non-compete? Non compete contracts and agreements are very difficult to enforce with regular employees, especially in states that rhyme with cornea… But with contingent workers, non-competes are almost impossible to enforce. Non competition arrangements with contingent labor are possible, but your employment lawyer is going to send you a big bill. This isn’t to offer any serious legal advice of course, but just know that there are additional considerations to, well… consider.
4. Niche skill cost goes through the roof: Niche skill sets, such as those required for specialized accounting or software development projects can be acquired and developed within internal employees through training. The workforce maintains it’s same cost of labor (think under-market costs and appreciative talent quality). However, with contingent labor, you are paying exactly what the labor market demands – in certain niche skill sets, that means you will pay hourly rates that look like they came from your favorite employment lawyer’s bill.
5. Turnover rates fly past the moon: In any project and through regular work, skills are developed, talent is nurtured, and beneficial relationships are formed. Every time an employee leaves, their talent leaves with them. When you have difficult and complex projects and processes, a team member leaving means expensive training and ramp up time. It’s difficult not to have increased turnover as you increase use of contingent labor. You have to have a rigorously planned approach to managing turnover if you plan to use contingent staff.

Developing a sensible strategy for contingent labor with trusted staffing firm partners and outsourcing firms can be a great way to save costs and increase productivity and business insight. However, make sure you don’t run into a major staffing initiative with blinders on. Contingent labor is not some sort of talent panacea – make sure you think about the long term effects of what you are doing and build in solid rules, metrics, and contracts.

If planned correctly and applied to the right sections of your workforce, contingent labor can help you build a more successful, competitive, and vibrant company – but be sure you don’t forget to go into any initiative with a level head, reasonable expectations, and a solid plan.