More and more organizations are beginning to rely on flexible workforces as a complement to their full-time, permanent employees. This trend has roots in a variety of factors, including economic uncertainty, skill shortages and individuals choosing to enter the workforce through alternative methods. With the prevalence of flexible workforces expected to continue to rise, so too will expenditures related to this segment of the workforce. Therefore, it is important for businesses to maximize their investments and avoid paying too much for the different types of labor they require.
One of the best ways to manage flexible workforce spend is to choose the appropriate method to acquire and price each category of flexible labor. The methods to acquire and price contingent and project-based labor are different. Generally, organizations acquire contingent labor, also known as contractors, from a supplier through a time-and-materials contract that sets a fixed rate per labor hour. In contrast, organizations tend to buy project-based labor, often referred to as consultants, from a supplier through a statement of work contract. Statement of work contracts have fixed project pricing and payment is issued when the consultants successfully complete defined deliverables or milestones. It is the service provider’s responsibility to use sufficient resources to create the deliverables in the time allotted.
Thus, in order to choose the right type of contract and pricing, it is imperative that organizations have full visibility into their workforce. In addition, they need to understand the different categories of their flexible workforce and when it makes sense to engage with a service provider for each category.
Questions to consider when determine the type of worker to engage
The questions below will aid in categorizing whether a worker should be designated as a contractor or consultant based on the work being conducted. Every organization, project, type of service, time frame and scope is unique. Not every question will be applicable to every engagement; however many questions will apply to a majority of situations.
Consider the nature of the work
- Are there detailed requirements, milestones and deliverables for the engagement?
- Who is responsible for setting the milestones/ deliverables, the supplier or your organization?
- Are there penalties to the supplier for missed milestones, delays, rework etc.?
- What is the sourcing methodology to obtain resources (e.g. competitive bidding, direct source, etc.?)
- Is the supplier responsible for the project or is your management team responsible for driving the deliverables?
- What is the nature of the engagement (e.g., is it a call center, warehouse, field type work or is it high level design, architecture, analysis type work)?
- Is one supplier working on an engagement or are there resources from multiple suppliers working on the same engagement?
- What is the financial arrangement (i.e., T&M, milestone/deliverable or both)?
Consider how the workers are managed
- How are the workers selected?
- Does your management team interview the resources or does the supplier choose them?
- Must the worker take instructions from your management/project team regarding when, where and how work is to be done?
- What is the required availability of the resource? (For example, set schedule and hours for the duration of the engagement or sporadically on an as-needed basis?
- Is the flexible worker providing services only for your company?
- Is there a potential for the resource to become an employee of your company?
- Is the flexible worker required by the company to log hours worked?
- Is the work performed on company premises?
- Must the workers give your management/project team status reports regarding the project?
- Can your managers remove the resource from the project or is that only at the supplier’s discretion?