In a constantly changing world, successful organizations must become more flexible. Just as the human body can react and “shift resources” when an infection strikes, successful organizations must also develop contingency plans that allow them to shift their resources rapidly.
What is a Contingent Workforce Strategy?
A contingent worker is a worker who can easily be released by a firm. Most are contracts or temps, but there are other variations. They are often superior to permanent workers because of the fact that they are easier to “get rid of” when they are no longer needed. The reasons that they are easier to release include:
They themselves have lower job security expectations, so they resist less when the time comes.
Managers don’t have the same trepidation as they do when they fire a “permanent” worker because 1) managers know contingent workers realize they may be let go at any time (managers are chicken!), 2) there is less paperwork involved in releasing them, and 3) a new contingent worker can be hired at any time, since they don’t count as “headcount.”
There is less of a probability of legal action when you release them.
A contingent workforce strategy means that the HR department provides managers with a series of related tools that work together to allow managers to increase the ratio of contingent workers over permanent workers. This integrated strategy gives managers an increased capability to cut labor costs whenever product sales decrease. Where traditionally having a contingent workforce meant just hiring more “contractors” or temps, what is proposed here is a more dynamic and integrated approach, which provides managers with new ideas and more options.
Benefits of a Contingent Workforce
Some of the many potential benefits of having a contingent workforce strategy include:
Releasing contingent workers fast is relatively easy because contingent workers have short-term contacts that expire or they have agreements that can be easily terminated in any business downturn.
Avoiding the publicity that comes with laying off permanent workers (which must be reported to the SEC) allows you to avoid the damage to morale and your external image as a good place to work that comes with formal layoffs.
Contingent workers can be utilized during peak hours, days, or seasons. They increase your short-term capability while keeping long-term costs low.
Some contingent workers will work for less (and sometimes without benefits).
Most contingent workers come already trained.
Contingent can also mean that some employees will be designated as “floaters” and be available for redeployment to fill short-term needs much like a utility player does in baseball.
Smart firms increase the percentage of contingent workers:
With a rising unemployment rate.
As the unemployment rate rises above five percent, more workers are willing to take contingent jobs.
As sales fall (or are projected to fall).
A firm should increase its contingent ratio to prepare for the upcoming sales downturn (and to avoid having to layoff permanent staff).
Prior to mergers.
Before mergers and acquisitions (because large mergers result in massive redundancies) firms should prepare by increasing their contingent ratio.
When the economy is exploding.
Because jobs are easy to get, some people are actually more willing to take contingent jobs.
When sales are growing rapidly.
Most recruiting systems won’t be able to keep up with rapid growth, and you will need contingent firms to supply you with talent until recruiting can catch up. In addition, because all rapid growth must eventually end, smart firms assume it is an anomaly and use contingent workers that can be easily released when the boom slows down.
During peak periods.
During peak sales months (summer, Christmas, etc.) contingent workers should increase. Some firms increase contingents based on the specific hours and days of peak demand.
In times of uncertainty.
In any upcoming period of uncertainty (when new technology is introduced, industry consolidation occurs, scandals occur, the stock plunges, a new CEO arrives, etc.) it is wise to increase the contingent ratio to increase flexibility.
During a sale or closure.
If you are contemplating the sale or closure of a business unit it is wise to begin transferring out some of the individuals you want to keep and replace them with contingent workers.
HR can become a corporate hero through effective workforce planning, and one of the most important elements of workforce planning is the use of contingent workers. Contingent workers, if used correctly, can reduce labor costs as well as increase your firm’s flexibility. During the boom of the last decade they may have been underutilized for a period — but their time has come again!