Human Resources -- Employing the Contingent Worker: Is it Worth it?
The contingent worker is increasingly used in modern business. As highly skilled individuals are opting for employment as contingent workers, a company can increase its productivity and diversity while reducing its costs of placement, paperwork and administration by use of these workers. Calculating their compensation vs. that of regular workers entails a thorough cost effectiveness analysis and integration of these workers requires a thoughtful approach for engagement and equity.
Compare And Contrast The Various Aspects Related To How Contingent Workers Are Compensated vs. That Of A Regular Worker.
Calculation of compensation of contingent workers vs. regular workers is achieved by studying several aspects. Perhaps the most important aspect is careful consideration of the specific skills and competencies needed by contingent employees for the particular jobs they are fulfilling (Caudron, 1994). Beyond that, employers basically study cost effectiveness, as highly paid contingent workers may be cost effective provided they produce a high output, whereas lower paid contingent workers may not be cost effective if their output is too low (Caudron, 1994). While this approach may appear simple, several factors are commonly considered to arrive at cost effectiveness. First, the employer should calculate the agency charge to the company or wages/benefits paid by the company directly to the contingent worker vs. wages paid to regular workers performing the same work (Caudron, 1994). Secondly, the company should compare the productivity of the contingent workers vs. that of regular workers. If productivity is not easily calculated, the company should use three assumed situations in which contingent workers are 10% more productive, equally productive, and 10% less productive than regular workers (Caudron, 1994). Third, the company must calculate the cost of employment adjusted for productivity for each employee (Caudron, 1994). If, for example, a contingent employee costs 10% less than a regular employee and is 3% less productive, there is still a savings of 7% by employing the contingent employee rather than a regular employee. Fourth, the company should calculate costs of training contingent workers in terms of cash outlays for education, wages paid to contingent workers during training and output lost while contingent workers are being trained (Caudron, 1994). Fifth, the company should look at training payback in terms of productivity to see whether and to what extent the company is earning back its training costs (Caudron, 1994). Training should result in greater productivity and to the extent that productivity exceeds the costs of training, the company is earning back its training costs. Finally, the company should consider the amount of time the contingent worker remains at the job, so the company can recoup and surpass its training costs by a worker who remains a sufficient amount of productive time on the job (Caudron, 1994). While those six steps will give a good indication of the cost effectiveness of contingent workers, even if it is found that contingent workers are not currently cost effective, the company should reevaluate the ways in which it is using these workers to determine a more productive method of using them (Caudron, 1994). Cost effectiveness of contingent workers can also be increased by using a single supplier of contingent workers with whom the company may negotiate volume discounts and reduce administrative/paperwork costs (Caudron, 1994).
a. Given The Different Levels Of Pay And Total Rewards, How May An Organization Create A Sense Of Internal Equity?
A sense of internal equity can be achieved by clearly delineating contingent workers according to the work site and the specific jobs they perform (Lawrence, 2012). To that end, contingent workers must be properly classified as such and the work process and eligibility for benefit plans must be clearly stated (Lawrence, 2012). In these ways, both the contingent workers and the regular workers understand the specific, non-threatening, fruitful nature of retaining contingent workers for specific tasks. Furthermore, as we learned in our previous module, companies strive for internal equity by ascertaining the comparative worth of jobs to the specific organization (Byars & Rue, n.d., p. 7). Comparative worth of jobs for the organization is often ascertained through four basic job characteristics: "skill, effort, responsibility, and working conditions" (Anonymous, 2002). Using these 4 characteristics, organizations can theoretically place all the organizations' jobs side-by-side, assigning point values to the amounts of each characteristic needed in each job. After assigning point totals to each job according to those characteristics, jobs are placed in a hierarchy according to their point totals. Then, pay ranges are assigned to each place in the hierarchy (Anonymous, 2002). This method can be when placing contingent workers, as well as regular workers, within the company's hierarchy of jobs. Furthermore, the seven-fold "human capital" approach can be used, focusing on: pay for performance, in which better performance is compensated more highly; linkage to other company change levers, by linking, fostering and rewarding by clearly identifying the organization's objectives, recognizing employee performance, fostering the development of employee careers and furnishing stimulating opportunities for employees; measurable competencies by identifying and rewarding certain employee skills abilities and behaviors that further the company's goals; incentives matched to corporate culture, whereby employees are rewarded according to what the organization claims it values; clear and simple group incentives, in which rewards are made understandable, easily measurable and frequently rewarded to employees; widespread communication, in which the company's goals, culture and rewards are made clear to employees and their feedback is encouraged and used; and recognition for the work itself, in which employee performance is clearly recognized and acknowledged (Hale & Bailey, 1998).
b. Does The Extensive Use Of Contingent Workers Effect The Organization External Competitiveness As It Relates To Attracting Top Level Talent As Well As Meeting Organizational Objectives?
The extensive use of contingent workers can favorably affect a company's external competitiveness and meet the company's objectives because an increasing number of highly skilled workers are willing contingent workers who can be used highly effectively for specific assignments. Furthermore, the addition of contingent workers for specific tasks can greatly increase the diversity of the company's talent pool. Finally, the company can make use of the placement agency's definitions of contingent workers, interviewing, screening and coaching of contingent workers, their compensation and their successful completion of their work assignments (Lawrence, 2012).
c. Should Contingent Workers Be Equally Compensated Given The Fact That Employers Will Pay A 20-40% Surcharge Per Employee To Temporary Agencies?
Whether or not employers pay a 20-40% surcharge per employee to temporary agencies, the amount of compensation paid to a contingent worker should depend on the skills of the worker and the job at hand. Lower skilled workers may be paid less in view of their less demanding jobs and the morale of regular workers performing the same jobs; however, highly skilled contingent workers may be equally compensated due to their unusual skills and experience for a specific job at hand. As it is, companies tend to pay 12% less to contingent employees than to regular employees and provide no additional benefits to contingent employees because the agency fee is more or less the same as the benefit costs for regular employees (Caudron, 1994).
d. How Would You, As The CEO Of The Company, Create A Sense Engagement With The Infusion Of Regular Employees And Contingent Workers?
In order to successfully create a sense of engagement with the infusion of regular and contingent employees, a CEO should regard contingent workers exclusively through the lenses of the work site and the specific job being performed (Lawrence, 2012). To that end, contingent workers must be properly classified as such and the work process and eligibility for benefit plans must be clearly stated (Lawrence, 2012). CEOs inexperienced in these regards can rely heavily on the agency's clear lines for its definitions of contingent workers, interviewing, screening and coaching of contingent workers, their compensation and their successful completion of their work assignments (Lawrence, 2012). Here, placement agencies are used as valuable external Human Resources assets with ideas and initiatives in addition to those of in-house Human Resources departments (Sheehan & Cooper, 2011). Finally, a CEO should take advantage of the benefits of using a single vendor for contingent worker placement, as he/she might obtain a volume discount while lowering the amount of paperwork administrative work in hiring contingent workers that would be involved in using contingent workers from multiple agencies (Sheehan & Cooper, 2011).
Calculation of compensation of contingent workers vs. regular workers is achieved by studying several aspects, including the specific skills and competencies needed for contingent workers' tasks and cost effectiveness. Cost effectiveness can be determined by: calculating calculate the agency charge to the company or wages/benefits paid by the company directly to the contingent worker vs. wages paid to regular workers performing the same work; comparison of productivity between contingent and regular workers; calculating the cost of employment adjusted for productivity; calculating the costs of training; reviewing training payback in terms of productivity; and the length of time a contingent worker will stay on the job. In…