The Contingent Workforce Is Alive and Growing
With demand for the contingent workforce on the rise, we are also seeing a greater and greater variety of workforce staffing solutions that businesses can incorporate into their strategies.
I drove a Tesla the other day for the first time. It wasn’t until I did this that I truly understood how much and how quickly Tesla has disrupted the automobile industry. Here is a car that is not only very energy efficient but is also the fastest car (0-60 mph in 3.2 seconds) I have ever driven. And with a mere upgrade to the car’s software, it can now drive itself and be summoned automatically to and from your garage via smartphone. Pretty soon it will learn to automatically re-charge itself.
But now that I think about it, the staffing industry has also experienced disruptive change in the last couple of years. It, too, is on track to continue evolving at a rapid pace.
Contingent Workforce on the Rise
Like the auto industry, mobility and connectivity are changing the staffing industry at a rate not seen in about 100 years. This is especially true for the contingent workforce, which now makes up 40% of the total workforce according to the US Government Accountability Office.
Most estimates show that the contingent workforce is on the rise and will not be slowing down. Companies across the board appear to be shifting their staffing strategies. Consider these facts:
- Since 2008, the number of contingent workers has doubled.
- In 2014, there were 53 million Americans working on a contingent basis.
- By 2020, it’s estimated that number will be up to 40% of a company’s total workforce.
- In an Oxford Economics survey, 83% of executives stated they plan to increase their use of contingent workers –both seasonally and on a continuing basis.
- The contingent workforce global market is expected to grow to $63 billion between now and 2020.
Who is using contingent labor?
Contingent Workforce growth is being experienced across sectors. Oxford Economics recently published a study on workforce trends, Workforce 2020. The report ranked the industries by percentage of companies in each sector using contingent labor.
- Public Service Agencies = 86%
- Retail = 82%
- Healthcare = 81%
- Professional Services = 81%
- Financial Services = 80%
Why contingent labor?
The contingent workforce is an attractive staffing model for several reasons:
- Companies cut costs by not having to pay employee salary, benefits and unemployment.
- Talent is targeted on an on-demand basis.
- Manpower is scaled to workload, project or season without layoffs and unemployment issues.
- HR department burdens are reduced as contingent workforce agencies handle payroll, taxes, etc.
- Companies can quickly and easily find top level talent on an as-needed basis
Factors Driving Contingent Workforce Growth
We are going to look at six key factors currently contributing to growth in the contingent workforce market:
- Statement of Work (SOW)
- Industrial Staffing
- Human Cloud Market
- Talent Pools
- Demographic Change
- Gig Economy
SOW (Statement of Work)
More and more companies are incorporating SOW consultants into their workforce strategy.
Analyst Adrianne Nelson points out that the SOW is on the rise since it allows companies to engage project-based labor, bill based on fixed price deliverables, and better control project costs.
Staffing Industry Analysts define SOW as:
A document that captures the work products and services,including, but not limited to: the work activities and deliverables to be supplied under a contract or as part of a project timeline. In contrast to a typical temp or contingent work arrangement, which is billed based on time worked, SOW agreements are usually billed based on a fixed price deliverable or for hitting specific milestones.
This type of agreement enables businesses to hire specialized talent on an as-needed basis. The SOW is on track to remain a key part of the contingent workforce landscape.
Nelson also states that industrial temporary staffing is alive and well. The demand is particularly high in transportation and logistics, and the largest U.S. markets remain undoubtedly in California and Texas.
Industrial temporary staffing is “projected to be at peak levels in 2016, reaching $32.9 billion dollars in the US market — comprising nearly 30% of the total US temporary staffing market.”
This sector shows no signs of slowing down:
Expansion is being driven in the warehousing, construction, trucking and portions of the manufacturing sector (such as motor vehicles, furniture and beverages).
The Human Cloud
The emergence of the human cloud market presents businesses with even more choices in talent engagement based on digital technology.
Staffing Industry Analysts differentiate the human cloud from other online platforms—such as Monster (job board) or LinkedIn (social network)—by the fact that it encompasses the entire work arrangement from start to finish, procurement to payment. The human cloud is defined as:
an emerging set of work intermediation models that enable work arrangements of various kinds to be established and completed (including payment of workers) entirely through a digital/online platform.
Many contingent work buyers are already using the human cloud, and usage is certainly expected to grow:
With approximately $11 billion in spend in 2014; the human cloud is big business. Currently, 50% of buyers are now aware of online staffing according to our 2014 contingent workforce Buyer Survey compared to 20% in 2012.
Nelson predicts that trends in technology will only continue to drive new innovations in work intermediation platforms and online staffing:
Companies will emerge and morph into engagement models we have not even thought of that combine human cloud, artificial intelligence, big data and high-touch strategic solutions that will enable better and faster talent vetting, placement and tracking.
Another factor influencing contingent workforce growth is demographic change. The American labor force is getting smaller as the baby boomer generation ages. According to Raghav Singh, “by 2019 every baby boomer — 44 percent of the labor force — will be 55 or older.”
So companies will likely need to get more creative with their hiring, as the labor pool becomes smaller, younger and less experienced. One strategy is to recruit older workers, even if it means luring them back out of retirement. This means that “employers will need to figure out what accommodations will allow older workers to be successful.”
This older workforce is more likely to work on a flexible, part-time or temporary basis, which will only contribute to contingent workforce growth.
The Gig Economy
The gig economy popped up overnight and appears to be changing the landscape of today’s contingent workforce. More and more Americans, by necessity or choice, are making a living through multiple “gigs” with no connection to a single employer. These sorts of jobs are characterized by flexible hours, little to no training, and the ability to start quickly and easily.
Companies in this sector, according to business writer David Schepp , “harness the power of the Internet to offer ride-sharing, food delivery, lodging rental and many other services”—the most popular examples being Airbnb, Uber and TaskRabbit.
One major challenge of the gig economy is the number of workers now living outside traditional safety net benefits and worker protections. Another challenge is the difficulty measuring such a new sector, as the appropriate labor classifications remain unclear.
Schepp points out that it is becoming less and less clear how to apply terms such as “employee,” “contractor” and “self-employed”, which causes contingent workforce data to vary widely:
A 2015 U.S. Government Accountability Office found that the contingent workforce ranges from less than 5 percent to more than a third of the country’s overall labor pool, depending on how jobs are defined and the data source.
At the federal level, the U.S. Department of Labor still operates on 20th century definitions and perceptions about work and income. Schepp concludes that the gig economy will demand new definitions and policies for the 21st century workforce:
Only time will tell if regulation can catch up with industry in developing a new classification of worker, one that squares the legal rules governing work with the new products and services that the marketplace demands.
Talent pools are an increasingly valuable asset to companies, as they provide “pre-identified, fully vetted contingent labor resources.” They give businesses a place to go for qualified, proven talent—usually grouped by skill set, geography or background—that can hit the ground running.
Another benefit of talent pools is that payrolling firms typically process the workers, which saves businesses additional time and money.
According to Elizabeth Slack, contingent workforce vendors are jumping on board the talent pool trend and the new opportunities it affords:
Many VMS providers have developed technology for engaging these talent pools. MSPs are also getting into the game by offering solutions to help manage these talent pools. Additionally, some staffing suppliers are building out curated talent pools that align closely with their clients’ unique hiring needs.
Slack assures us that we will see talent pools become increasingly popular in 2016.
With demand for contingent workers on the rise, we are also seeing a greater and greater variety of workforce staffing solutions that businesses can incorporate into their strategies. Thanks to unprecedented mobility and connectivity in the digital age, staffing, like the auto industry, is growing and changing at a rapid pace.