Contingent Staffing and the Economy: Do Regulatory Smoke Signals Suggest Trouble? (Part 1)

I've often found the contingent staffing market to be a useful indicator for looking at where an economy is in regards to its overall cycle -- from growth to recession. The traditional thinking goes that contingent hiring ramps up ahead of regular hiring during an upturn and down before full-time employee layoffs during a downturn. Yet the situation we find ourselves in today might be somewhat unique given the precarious state of the current recovery (if it is indeed a recovery). Consider the anecdotes from this story in Workforce Management that illustrates the current situation starting with an example of two job fairs looking for full-time contingent employees. The first case it calls attention to is for "500 new full-time positions for production workers at BMW's plant in Spartanburg, South Carolina" where a staffing firm will "do the hiring" and the "new employees will be 'contingency associates' employed as contract workers." In another case, a real estate brokerage firm with 900 agents in its home market of California plans to convert every last one from employee to "independent contractor" status.

Why are companies embracing contingent staffing models in the current market? For one, there's certainly a bit of testing going onto to see how far they can push the limits from IRS and other Federal regulations regarding the definition of employees vs. 1099 contractors (although staffing firm models create even more opaqueness in this area). After all, a contingent workforce may -- or may not, in certain cases -- cost more on an hourly or salary basis that full-time hires, but the real advantage is in the ability to flex, scaling up and scaling down without the liability of potential severance pay and other benefits that full-time employees require (healthcare and other benefits are not cut and dry depending on each unique case).

Regardless of rationale, one thing is clear when it comes to contingent hiring – it's on the up. The Workforce Management article suggests that the market for these positions "has driven the modest gains in employment since the end of the recession." Yet I'm worried we might be getting ahead of our readiness as companies to embrace such a model, putting too much stock in third party staffing firms and MSPs when it comes to helping us think through the compliance and related legal angles. Moreover, I'm not convinced that the average procurement organization, which as the article correctly notes is taking greater responsibility for contingent hiring, has thought through all of the different implications it must consider when it comes to buying services versus buying widgets in both contingent and SOW environments, from sourcing to on-boarding to broader lifecycle management.

Where will contingent hiring trends take us next and how can we protect ourselves from potential downsides while taking advantage of the flexibility such models provide? Stay tuned for the next post in this series. And in the meantime, check out our Compass research on the subject.

Jason Busch

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