Contingent Workers: Compensation, Equity, and Engagement

Introduction

The contingent worker is increasingly used in modern business. As highly skilled individuals opt for employment as contingent workers, a company can increase its productivity and diversity while reducing its costs of placement, paperwork, and administration. Calculating their compensation relative to that of regular workers requires a thorough cost-effectiveness analysis, and integrating these workers into the broader workforce requires a thoughtful approach to engagement and equity.

Compensating Contingent Workers vs. Regular Workers

Calculating the compensation of contingent workers versus regular workers involves studying several aspects. Perhaps the most important is careful consideration of the specific skills and competencies required of contingent employees for the particular jobs they are fulfilling (Caudron, 1994). Beyond that, employers study cost effectiveness, since highly paid contingent workers may be cost effective provided they produce 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 straightforward, several factors are commonly considered to arrive at a sound cost-effectiveness determination.

First, the employer should calculate the agency charge or wages and benefits paid directly to the contingent worker versus wages paid to regular workers performing the same work (Caudron, 1994). Second, the company should compare the productivity of contingent workers to that of regular workers. If productivity is not easily measured, the company should model 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 but is 3% less productive, there is still a net savings of 7% by employing the contingent worker.

Fourth, the company should calculate the costs of training contingent workers — including cash outlays for education, wages paid during training, and output lost while they are being trained (Caudron, 1994). Fifth, the company should assess training payback in terms of productivity to determine whether and to what extent it is recovering its training costs (Caudron, 1994). Training should result in greater productivity, and to the extent that increased productivity exceeds training costs, the company is earning back its investment. Finally, the company should consider the length of time the contingent worker remains on the job, so that it can recoup and surpass its training costs through sustained productive tenure (Caudron, 1994).

While these six steps provide a solid indication of cost effectiveness, even if contingent workers are found to be currently cost-ineffective, the company should re-evaluate the ways in which it uses them to identify more productive methods (Caudron, 1994). Cost effectiveness can also be increased by using a single supplier of contingent workers, with whom the company may negotiate volume discounts and reduce administrative and paperwork costs (Caudron, 1994).

Creating Internal Equity Across the Workforce

A sense of internal equity can be achieved by clearly delineating contingent workers according to their work site and the specific jobs they perform (Lawrence, 2012). Contingent workers must be properly classified as such, and the work process and eligibility for benefit plans must be clearly stated (Lawrence, 2012). In this way, both contingent and regular workers understand the specific, non-threatening, and productive nature of retaining contingent workers for defined tasks. Furthermore, companies can strive for internal equity by ascertaining the comparative worth of jobs to the specific organization (Byars & Rue, n.d., p. 7).

Comparative worth is often assessed through four basic job characteristics: "skill, effort, responsibility, and working conditions" (Anonymous, 2002). Using these four characteristics, organizations can place all jobs side by side, assigning point values to the degree of each characteristic required in each role. After assigning point totals, jobs are arranged in a hierarchy, and pay ranges are assigned to each level (Anonymous, 2002). This method can be applied to contingent workers as well as regular workers when positioning them within the company's job hierarchy.

Additionally, the sevenfold "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 identifying organizational objectives, recognizing employee performance, fostering career development, and furnishing stimulating opportunities; measurable competencies, by identifying and rewarding employee skills, abilities, and behaviors that further company goals; incentives matched to corporate culture, whereby employees are rewarded according to what the organization genuinely values; clear and simple group incentives that are understandable, easily measurable, and frequently delivered; widespread communication, in which company goals, culture, and rewards are made transparent and employee feedback is encouraged; and recognition for the work itself, in which employee performance is clearly acknowledged (Hale & Bailey, 1998).

Conclusion

Byars, L. L., & Rue, L. W. (n.d.). Human Resource Management, Ninth Edition, Chapter 13: Base wage and salary systems. Retrieved February 2, 2014.

Caudron, S. (1994, November). Calculating the cost of contingent workers. Retrieved February 2, 2014, from ProQuest database.

Hale, J., & Bailey, G. (1998, July/August). Seven dimensions of successful reward plans. Retrieved February 2, 2014, from ProQuest database.

Lawrence, T. (2012, January). Integrating contingent workers. Retrieved February 2, 2014, from ProQuest database.

Sheehan, C., & Cooper, B. K. (2011). HRM outsourcing: The impact of organisational size and HRM strategic involvement. Retrieved February 2, 2014, from ProQuest database.