Why you should be budgeting for your contingent labor program

11/01/2021

Matt Yeager

Vice President, New Business Development

When was the last time you had a good free meal?

That’s not how it works, right? You go to a restaurant and you pay for the service, the ingredients, the cost of keeping the lights on. You don’t question it. So, why are so few organizations budgeting for contingent labor programs? My last blog on terminating the supplier-funded MSP (managed service provider) model had an overwhelmingly positive response – suppliers, leaders, workers, technology providers – I was floored by the conversations it sparked and the overwhelming sense that things have to change. This time, I want to look at why every organization needs to start budgeting for contingent labor programs and how – in a talent-short market – failure to do so is going to cause big problems down the line.

No budget. No value.

Great service and great tools cost money. That’s not groundbreaking, but it sometimes feels like it in the MSP world. You wouldn’t put in a new HR system without budgeting for overall cost and the same is true of any contingent labor program. If you want change management, if you want great service, if you want access to the latest tech and automation, it has to be paid for, and supplier-funded models are leading to woefully underpowered and under-resourced programs. A great contingent labor program should bring visibility and expertise, empower hiring managers, and deliver outstanding talent experiences. Organizations want more value from their providers, but this has to be budgeted and paid for.

The great supplier squeeze

If you had the choice as a supplier to serve a supplier or client-funded program, which would you choose? Supplier margins have been squeezed hard in the race to the bottom and for many, a further fee is too deep a cut. Suppliers are already operating on razor-thin margins and it’s not sustainable. As an industry, we get greater value from suppliers who have the room to innovate and develop their businesses, and we have a duty to support those who invest in great employee care. We are also operating in a world where many skills are getting harder and harder to find. Almost two-thirds of the most successful organizations we identified in our recent Workforce Agility Report expect to employ more contingent workers, but those with supplier-funded programs may find it difficult to get suppliers to pick up their requisitions.

A changing talent world

The talent world looks very different today than it did two years ago. Scratch that, the whole world looks very different than it did two years ago. 60% of the leaders we spoke to in our Workforce Agility Report said that talent has never been more important as a competitive advantage. And contingent labor is critical to effectively providing goods and services in a challenging business environment. We’ve probably all visited a store or restaurant that was closed due to staffing issues in the past few months, and talent is getting tougher and tougher to find. It’s also getting more expensive. Pay rates for certain skills categories are going up about eight percent every 90 days. This all adds up to organizations needing contingent talent programs that work really well, not those that limp along doing the bare minimum. To power these exceptional programs, we need to turn toward client-funded models. I also truly believe that the money organizations budget for and invest in these programs will be returned in savings and overall value.

As an industry, we need to start challenging expectations around client-funded models and have conversations with organizations about the benefits they can deliver. I’ve already had positive discussions with business leaders who are looking to future-proof their contingent talent approach. For organizations, I’d say start budgeting now – the industry has changed, the world has changed – if you don’t prepare for a future where you’re investing directly into a program then you may be in trouble. You’ll certainly be at the back of the queue for the best suppliers and talent. Get ahead of the trend now to ensure you have the tools and expertise you need to access great contingent talent in the future.

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