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Are project workers more cost effective than permanent staff?

Matthew Franceschini
September 4, 2013

For the last hundred years, the talent engagement model has relied on permanent staff. Companies hire employees who turn up day after day and carry out their set tasks. The employee benefits from the security of a reliable income and the employer benefits from cost-effective access to labour or skills, staff loyalty and continuity of knowledge.

At least that’s the way it used to work, but the model no longer accurately reflects the reality of 21st century talent engagement. Ever since the initial inroads made by temporary workers during the 1970s and 1980s, the reliance on permanent staff has been gradually declining.

Today, according to the ‘Adecco Group Temporary Labour Report, Australia 2012’, growth in contingent labour outstrips growth in permanent employment. In 2010/11, temporary labour grew by 4%, compared to overall employment growth of 2.9%. One year later, temporary labour grew by 2.4%, while total employment slowed to 1.3%.

One reason for this is the fact that in a fluctuating economic environment, workforce flexibility can be a key determinant in productivity and profitability. Just as importantly however, employers are discovering that when used correctly, the contingent workforce can be as loyal, as long-lived in their engagements and more cost effective than their permanent peers.

Making the dollars count

Although it seems counter-intuitive, the use of contingent workers can lead to cost savings for organisations. Engaging people for defined roles and durations gives increased visibility into the workforce, enabling employers to better understand and plan for requirements. Direct sourcing of talent, good supplier management and the ability to pay for talent only when it is required all contribute to the savings.

Financial benefits also come from productivity and engagement. The ‘Twice as productive in one day’ study by Hudson in the UK shows that twice as many employers believe contingent workers to be more productive and more engaged than permanent employees. Locally, the annual IPro Index conducted by Monash University and Entity Solutions confirms that 98% of contingent workers believe they are considered trustworthy resources and that they have their client’s best interests at heart.

The myths

One factor that used to cause disquiet among employers was the potential risk to an organisation’s intellectual property (IP). This is a furphy. Retention of IP is not a matter of a person’s employment status, it’s a question of how frequently and how willingly information is passed along.

The IPro Index study shows that more than 70% of contingent workers provide regular to a lot of progress reports and overviews to their colleagues. In many organisations, it’s likely that there is a greater risk to IP from unhappy permanent staff.

Loyalty is another myth, often quoted as the reason for preferring permanent staff. People talk about there being no loyalty between contingent workers and the employer. In fact some say it scarcely exists between employee and employer any more. This isn’t strictly true, but the nature of loyalty in the workplace has definitely changed.

For employers and employees of all kinds, loyalty has become a temporary rather than life-long allegiance. This is no bad thing; it simply reflects the changing nature of the modern workforce model. For employees, the idea of loyalty to an organisation is fleeting, taking second place to their loyalty to careers and professions. For organisations, all the benefits of loyalty still exist for as long as the employee is engaged in their work.

Once you start to look closely at the reasons for permanent hires, a lot of the arguments and supposed benefits no longer exist. As long as you put due care into your workforce planning, an organisation may find that it’s easier and more relevant to bring in a contingent worker for a project or particular period of time, and then part ways.

The hourly rate of the contingent worker may be 10, 20 or even 50% higher than that of the permanent employee, but they are more likely to remain focused on the project or task at hand. One danger with permanent staff is that by virtue of being in the office, they frequently get sidetracked with administrative tasks or activities that would be better off being handled by someone on a lower rate.

In other words, the employer rarely gets full value for the hourly pay scale.  Another complication is the rapport and relationships that develop between permanent staff. This can make it hard to part ways with an employee, even when their role is no longer required or when their output is lacking.

An impermanent future

By 2020, IBISWorld Australia predicts one-fifth of the total workforce will be working on a contractual basis and companies will pay their workforce based on outputs, not inputs. It’s highly likely that by the second half of this century, the word ’employee’ will go out of use, as contingent labour becomes the norm.

The original push for temporary staff was driven by the need to keep business operating normally when employees were absent. Today, temporary and contract staff still plug gaps in the workforce but they also play a far more important role supplementing in-house capabilities with cost effective, on-demand expertise.

Given the flexibility and savings benefits organisations can achieve when using contingent workers, it’s clear the shift towards contingent workers is going to continue well into the future.

Matthew Franceschini
Matthew Franceschini is a co-founder and the CEO of Entity Solutions, a contractor management agency. He has more than 10 years’ experience working in the contract workforce management industry. He holds a Bachelor of Economics and is also the Vice President of Independent Contractors of Australia.
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