Tracking contingent workforce comes with benefits, challenges

As more and more companies turn to a contingent workforce to fill vacancies and staff short-term projects, HR should consider tracking them in their HRMS if they are not doing so already. This presents many benefits to both HR and the organization, but it can also lead to some challenges.

Measuring a company's true headcount

In many organizations, knowing how many people work for the company is important because employee-related costs can be one of the biggest expenses for an organization. Also, budgets often indicate how many employees are approved for a certain department or division.

However, because the contingent workforce may be acquired independent of HR, it is not always included in the headcount. By including this hidden workforce in the HRMS, you can start to measure its size and get a clearer understanding of the workforce required to run your business.

Evaluating the overall cost of the contingent workforce

A segment of the contingent workforce, such as consultants, freelancers and gig workers, is often paid out of a department's operating budget rather than one attributed to employees. Therefore, it is not easy to measure the overall cost of the contingent workforce.

By tracking contingent workers in an HRMS, HR can collaborate with finance to ensure that the contingent workforce and its associated costs are captured in a reportable manner.

Include the contingent workforce in org charts

If your organization already provides org charts to employees, adding the contingent workforce to your HRMS should follow a similar process. Also, with certain org chart applications, you can configure employees and non-employees differently to distinguish one from the other, such as by coloring the employee box blue and the contingent workforce box orange.

While many in the contingent workforce may be individual contributors, there are times when they are leading a team. Without including contingent workers in the HRMS, you likely won't be able to indicate who the employees report to, and, therefore, the org chart would be incomplete or inaccurate and require manual workarounds.

Take advantage of existing HRMS functionality

Your HRMS is designed to track information about people. Whether they are employees or contingent workers, the information is comparable.

Your HRMS may require you to implement new features that capture information specific to the contingent workforce. However, once added, you should be able to use all the existing HRMS functionality, such as reporting, capturing personal information -- i.e., address, contact information -- and tracking emergency contacts.

Evaluate individuals in the contingent workforce and agencies

If you use your HRMS to evaluate employees, you may be able to extend that functionality to include the contingent workforce. For example, you may want to set up a separate and simplified performance review. When the need for a contingent worker arises in the future, you can look at the people who had the best reviews on past projects.

You may also want to capture the name of the agency that referred the contingent worker so it can also be measured based on the quality of the people it supplies. Over time, you will be able to identify your preferred contingent workers and agencies.

Streamline internal processes

Many organizations use their HRMS for additional internal processes, such as notifying IT, finance and security about a new employee requiring setup. With a few modifications, this existing process can also be used for the contingent workforce to ensure a consistent process for anyone working for the organization.

Broader view when doing workforce planning

Workforce planning helps a company determine the number of people and skill sets it will need over a given time period. By excluding the contingent workforce, you are ignoring a segment of your workforce that may be costly. Also, when planning workforce needs, it may be possible to avoid the need for some of the contingent workforce by using internal resources.

While there are significant benefits to tracking contingent workers in your HRMS, companies also need to be aware of and develop a strategy to address potential issues. Depending on the company's current use of the contingent workforce, a detailed change management program may be required to ensure users understand and follow the new processes.

Ensuring that contingent workers don't get classified as employees

A significant concern is having non-employees classified as employees by a tax or legal authority. To avoid this, companies should take steps to ensure there is a clear divide, such as only inviting employees to company events or excluding the contingent workforce from their HRMS.

While this is a legitimate concern, it should be possible to clearly identify who in your HRMS is an employee and who is not while maintaining all the other differentiations.

HRMS configuration changes

While your HRMS will be set up to capture employee data and your needs for capturing the contingent workforce may be similar, it is likely that some changes will be required. This may be as simple as adding a field to identify contingent workers or it may require a significant configuration change in your HRMS.

Internal agreement on new policy

In many organizations, segments of the contingent workforce, such as consultants and freelancers, are not hired or tracked by HR. This provides the operating groups with the freedom to hire as needed. Imposing new regulations that limit their flexibility may incite pushback. For this to be successful, support from senior management will likely be required in most organizations.

Tracking the casual contingent workforce

Despite changes to the HRMS, it may remain difficult to track everyone in your contingent workforce.

For example, there may be contingent workers who are placed at your organization by a third party. These workers are supplied on an as-needed basis, and you may not always know ahead of time who they are. Examples include cleaners and laborers, but they may also be software developers or consultants from several other disciplines.

Additional HRMS cost

Many HRMS vendors charge a monthly fee based on the number of employees in the system. If you begin adding the contingent workforce, especially those who are casual, you will incur additional costs.

Including the contingent workforce in your HRMS has larger implications than simply entering a contingent worker's information as you do for employees. While there may be challenges initially, the additional insight and reporting provided by this change can help organizations manage costs and better plan for headcount needs in the future.