Contract Workers Needn’t Be Bad News — Unless You Allow Them to Be

Spend Matters welcomes this guest post from Pradeep Chauhan, founder of OnContracting, an online directory of U.S. staffing agencies that helps jobseekers find temporary contract jobs.

Companies’ procurement of contract workers has in recent times become a flashpoint, sometimes tarnishing the pristine reputations of even the most reputable companies. A number of stories in the media have covered reports that some of the best companies are mistreating their contract workers. In damage control mode — and sometimes under pressure from their own employees — companies have responded reactively to these stories, updating their policies and buffing up their legal and audit teams but not after getting a black eye in public.

Here’s one recent example. Google is facing criticism from its contractors, who allege they’ve been treated unfairly. The New York Times reports in a story where contractors tell of having limited access to resources and opportunities, not being paid equally or for overtime, and even facing harassment.

Why are businesses and contractors facing this now? And what can companies do to manage it better? In this article, I’ll try answer both of those questions.

Why Is It Different Now?

Companies have always used contractors but not as much as today. Contract jobs were often a blessing to inexperienced graduates, less-skilled workers and laid off workers who could quickly join the workforce. However, in the last two decades, companies have greatly increased their reliance on contract workers — from filling temporary needs to using them for any tasks they deem not core to their company. Recent reports suggest almost 50% of the workforce of many tech companies are now contractors. This has made finding stable jobs with growth prospects increasingly hard for many.

As the ratio of contract workers has increased, so have the chances that there will be HR problems. Companies increased the scale and efficiency of staffing with the introduction of more automation through managed services providers (MSPs), or intermediaries between companies and staffing agencies, like outsourcing firms. In response, many staffing agencies focus only on recruiting, and to keep costs low, started managing their contract workers from distant locations. This decreased the touch points between contractors, staffing agency and the hiring managers, and so there is less recognition of brewing issues and makes it difficult to resolve them quickly.

When contract workers feel their issues are not being addressed their frustrations start to boil over. This results in complaints on social media, which now offers a 24/7 public platform for the contract workers’ posts to be published and get popular support through likes, tweets and hashtags (even if the facts underlying a given case are not well known). The most egregious stories like workers being harassed, mistreated or fired can go viral almost instantly, and this can result in public outrage.

Why Can’t Procurement Seem to Solve This Problem?

The procurement of contract workers is very different than that of any other category of spend, because it involves individuals negotiating for themselves vs. suppliers who take a commercial, corporate view of the business and relationship with the client. However, most procurement teams still treat this category like any other category. Below are some of the other common reasons why procurement still struggles with this problem.

Firstly, many companies don’t have a clear or consistent contingent staffing strategy, and even the question of which organizational function owns contingent staffing at the company is often not clear. Some companies think it should be HR because it understands employment law and workforce planning. But there remain concerns that HR’s management of contractors leads to co-employment issues. Other companies think it should be procurement because it manages buying goods and services from suppliers at arm’s length. But most procurement managers do not have the needed HR and labor law/regulatory experience that is also required beyond supplier and spend management. This often leads to not having the relevant experts at the table during the project kickoff discussions when the staffing strategy is being decided.

In some large companies, contract worker procurement is managed by multiple category managers based on the type of suppliers being managed (consulting firms, staffing agencies, etc.) or the function that is using the contractors, for example, marketing departments, legal, IT, etc. Category managers in corporate procurement, the business group or the functional group who may have different priorities and strategies, may be overlapping and operating with different strategies leading to inconsistencies (or often worse).

Category managers are increasingly distanced from the actual contract workers and miss out on reading contract-worker sentiment until it is too late. Often contract workers who face problems are either transferred, fired or asked to “hush up” by the staffing agencies so as to not antagonize the hiring manager. Then the contractors, with no HR support from the client or the staffing agency, end up venting to the public.

Lastly, in many large companies, policies on how to work with contractors can be vague and intimidating, with warning labels such as “security risk,” “legal risk” or “co-employment risks.” Most hiring managers struggle with confusing and contradictory rules from HR, procurement or legal departments. So some managers end up treat contractors just like full-time employees, while other managers may end up applying the rules too strictly (for example, strictly forbidding contractors at department parties) and then end up with disgruntled contractors.

How Can Companies Better Manage This?

Companies need to address the underlying problems proactively and systematically, rather than react to events after the fact when, after stewing a bit on the internet, it appears in the media.

Companies need to organize themselves better internally and decide what functional group/executive is ultimately responsible for the contract workforce in the company, and then must encourage and empower the function/executive to establish and enforce holistic policies that go beyond the typical contract workforce procurement metrics.

While most companies have a contingent staffing strategy today, they usually only include spend and supplier-oriented metrics like cost savings, spend under management, new tools deployed, diversity spend percentage, time to fill openings, etc. To address the human nature of this category, companies need to add contractor-oriented metrics to their strategy. Metrics that describe and measure things like contract worker experience and satisfaction, pay rates, minimum benefits, conversions to full-time, HR issues, etc.

If other areas of procurement can monitor their supply chains for illegal or unethical labor practice, maybe the same can — or should — occur when it comes to the routine sourcing, engagement and management of contract workers.

How to Avoid Risks

Here are some suggestions to help companies that want to change course to avoid icebergs ahead:

Make your contingent staffing strategy more empathetic, inclusive and transparent

Evaluate what kind of company you are, how you want to be perceived by employees, by contract workers AND by the public; and ensure your messages reflect what you actually do — not what you say you do or think you do.
Organize your procurement and HR, or come up with a new structure to bring clarity to who owns the contract worker procurement strategy. Make sure everyone in the company knows this and gets buy-in for your contract worker staffing strategy, including who owns it, from the heads of finance, HR, procurement, PR, legal and the CEO so everyone is on the same page. Ensure procurement, the in-house expert, is involved in the project startup phase so they can offer advice earlier and not when the staffing strategy is already baked and can’t be changed and all procurement is left to do is to negotiate price or sign the contract.
Add contractor-oriented metrics to your strategy. It should state how a company decides what roles contract workers are to be used for and why. Be clear about what contract workers can expect in terms of work, opportunities, security and minimum benefits. It is also very important to measure contractor experience in getting hired for the contract, experience of working in the project, and satisfaction and trends over time if you really want to avoid blowups. While this may result in pushback from your legal or HR, part of a contingent staffing manager’s job should be to work with HR and legal to come up with practical solutions to real problems.
Implement a contractor orientation program for new contractors explaining the basics of working at your company as a contractor. They should hear what to expect, who to go to in case of problems, etc. from your company rather than recruiters at staffing agencies that may not have the right background or experience in explaining this well. Consider doing contractor exit surveys or interviews, and not just leave it to the staffing intermediaries.

Some of the Finer Points

Don’t let your workforce devolve into a two-tier system. It should be clear that all workers, whether employees or contractors, are to be equally respected. Remember, that while you work for the company, as a contingent staffing manager, you are also the only voice of contract workers who can speak to management.
Be open about your use of contract workers. If you do it transparently there’s a smaller chance that people will be surprised by it. Explain how contracting is common industrywide, how you and external workers both benefit from contracting.
Be open to talent wanting to work for you. Let job seekers know who your preferred agencies are, how to get a contract job with you, add themselves to your “on-deck” talent pool, what to expect in a contract job, what kind of pay and benefits they can expect.
Help to transition out contract workers. Give them time off to interview as their project ends and to look within the company for other projects or full-time jobs.
To never close the loop, set up a Google and Twitter alert for “<Company Name> + Contractor” to keep track of what is being said about being a contractor at your company. Address any issues immediately.

A Better Workforce Overall

Most organizations’ contract workforce is increasing and becoming a more integral part of the business at all levels. There are many reasons to ensure that contract workers are well integrated into your organization in a way that is compliant and attentive to the workers. Contract workers cannot be treated as suppliers or as materials, good or services that those suppliers provide.

Taking the suggested steps is not just about avoiding “bad news” — it’s also about creating a better, more productive, more sustainable and competitive workforce. Organizations benefit by ensuring that their contingent staffing strategies are consistent, simple to understand and appear fair to employees and contractors.

Remember: Contract workers needn’t be bad news — unless you allow them to be.