Contingent worker programmes have been a mainstay of the resourcing strategies of organisations for 25 years. The control and visibility they deliver on use of PAYE temporary workers and contractors has allowed organisations to leverage more from their supply chains both in terms of quality of workers and price competitiveness.
The programmes have allowed demand challenge at the point of order or identification of requirement, ensured through effective rate card management that pay, the biggest component of the charge to the end customer, can be controlled and ensured, and that risk can be managed through appropriate contractual employment relationships.
The role of procurement has always centred around achieving best value for the organisation, balancing the quality of the service against price point, with maturity of the market and historically low supplier margins, the question now is, how will procurement continue to deliver additional savings?
The evolution of labour composition
It is an accepted truth that traditional full-time, permanent positions are no longer the sole structure of a workforce. The rise of the gig economy, freelancing, and project-based work has reshaped how businesses engage talent. The line between contractor and consultancy intervention has become increasingly blurred.
A broader definition than ‘contingent worker’ is now needed to consider all non-permanent labour, which includes temporary workers, freelancers, contractors, statements of work (SoW), consultancies and consultants.
The same level of maturity of market and low supplier margins do not exist universally across this more broadly defined group of non-permanent labour. This represents huge opportunity for organisations, and for procurement teams in particular, to drive for the same principles of visibility, control, quality assurance, price competitiveness, demand challenge and understanding of the make-up of the total charge that has underpinned contingent worker programmes. This has the potential to answer the question as to how procurement will continue to add value and deliver additional savings.
Classifying non-permanent labour usage, and indeed triaging requirements as and when they arise, is key to realising the opportunity. It is not simply about trying to push all non-permanent assignments into an existing managed service programme (MSP). It is unlikely that the supply chain or commercial model will be fit for purpose to fulfil all types of non-permanent requirement.
Non-permanent categorisation tactics
It’s vital that before looking where additional costs and efficiencies can be made that you assess your non-permanent labour spend correctly. Here are some tactics you may want to implement before making any further decisions:
Create well-defined categories: Develop a comprehensive system of categories that accurately reflect the types of non-permanent labour utilised. Categories could include freelancers, consultants, temporary staff etc. These categories will serve as the foundation for accurate spend analysis.
Capture ancillary costs: Beyond direct compensation, consider capturing ancillary costs like recruitment fees, onboarding costs, expenses, training, and equipment.
Implement robust tracking systems: Utilise technology-driven systems to track and manage non-permanent labour expenses. Automated tools can facilitate real-time data capture, reduce errors, and improve visibility into spend patterns.
Adopt data analytics: Leverage data analytics to gain insights into non-permanent labour spending trends. This can help identify areas for cost optimisation, negotiate better rates with suppliers, and make informed decisions about the composition of the workforce.
Consider project-specific budgets: Assign budgets to projects that require non-permanent labour, considering the estimated expenses for different types of non-permanent labour. This approach helps prevent cost overruns and enhances financial control.
Collaborate across departments: Communication between procurement, HR, and finance departments is crucial. Collaborative efforts ensure all parties understand the nuances of non-permanent labour spend, reducing discrepancies and fostering a unified approach.
Regular review: Non-permanent labour classification should not be static. Regularly review and refine your categories, cost components, and tracking mechanisms to adapt to changes in the workforce and industry practices.
Once an organisation has mapped and categorised its non-permanent labour usage a wider programme of control is possible. Organisations can implement a services procurement model, effectively an MSP for consultancy and SoW spend. Services procurement programmes can help ensure management of contractual risk and best value through benchmarking of consultancy rates and SoW programmes. Where appropriate, they can facilitate competitive procurements to ensure best value against predefined outcomes. Services procurement solutions can support individual project requirements or be deployed on an enterprise level.
An effective triage service can ensure that any non-permanent requirement is directed and fulfilled by the most appropriate resource helping to ensure, for example, that the premiums attached to consultancy interventions are only applicable where it is not appropriate to consider a contingent worker, thereby helping to remove some of the blurring of lines between contractor and consultant.
What next?
Effectively classifying non-permanent labour spend is a strategic imperative for organisations aiming to optimise their financial management.
As the workforce landscape continues to evolve, mastering the art of classification will be a cornerstone of agile decision-making, cost containment, and competitive advantage.
By adopting comprehensive strategies and embracing technological advancements, businesses can navigate the complexities of non-permanent labour spend with confidence and efficiency.
For help with categorisation or find out more about our services procurement solution speak to one of our experts.
