“Contractor workforce models are a cost-effective solution for many companies,” explains Dr Magdalena Cholakova, Associate Professor of Entrepreneurship in the Department of Strategic Management and Entrepreneurship at Rotterdam School of Management. “They work not only for companies that were originally set up with a flexible model in mind, but are also a model that other, more traditional companies are switching towards as well.”
But in an increasingly competitive labour market, many organisations will find themselves competing for talented contractors, in much the same way as they do for permanent employees. There is good reason for this: a 2020 study by Ceridian, a global HR software company, suggests that, while 76 per cent of “alternative workers” are satisfied with their employment arrangement, more than half (54 per cent) felt they did not earn enough and 41 per cent were dissatisfied with the benefits they got. A lack of training is also an issue: global research released by City & Guilds Group in 2019 suggests that 22 per cent of employers do not carry out any training whatsoever with contingent workers.
It’s likely that in future, employers will need to think about developing a “contractor value proposition”, in much the same way they do for permanent employees. “Traditionally, companies have treated their relationship with contractors and contingent workers as transactional rather than strategic,” says Kristofer Karsten, Head of Human Resources at Ceridian. “To truly unlock the full potential of this cohort, employers need to view them as more than a quick fix to an existing problem.”
It’s essential that the business has committed to engaging contractors as a starting point, says Keith Robson, an HR leader who has worked at companies including M&G Investments, NATS, Rolls-Royce and Aviva. “Unless the business has set out the high-level strategy explaining why agile working is important to the whole organisation and how they are to achieve it, contractors may never be embraced on arrival as an asset to support agile working,” he warns.
There are also specific measures that organisations can take to help develop a contractor value proposition. Ensuring they feel welcome is a good starting point, says Rebekah Tapping, HR Director at employee engagement provider Personal Group. “It’s important that the onboarding process is the same for both full-time and contingent workers,” she says. “These people still wear the uniform and are representing the company so you don’t want them to feel any less engaged because they aren’t fulltime.”
It’s also vital that the quality of work they are given is at the level they would expect, warns Dr Zofia Bajorek, a research fellow at the Institute for Employment Studies, who looked at the use of contingent labour in the UK’s National Health Service for her PhD. “Organisations need to recognise that these people are providing them with a service that they actually need,” she points out. “Give them that good quality work, remunerate them properly, reward them fairly and give them the same voice as permanent staff.”
Karsten says that there are also valuable lessons to be learnt from the challenges presented by the COVID-19 pandemic: “Ceridian’s Pulse of Talent report, released in February 2020, found that contractors value the flexibility the working arrangement brought, but cited not making good pay and a lack of support with their mental health as problems.
“Companies have a duty of care over everyone that they work with. The challenges of 2020 imposed an even greater responsibility on employers to prioritise workforce morale and mental health, and for the most part, they have risen to the challenge.
“As we transition into a hybrid workforce – with some working from the office and others not – businesses would be well-served to remember the lessons learned during this period and apply them to their contractor workforce as a valuable extension of their brand and culture.”
Giving contractors a main contact at the firm can also help them feel wanted and part of the team, as well as making life easier for permanent staff, says Ross Meadows, partner and head of the HR and employment team at Oury Clark Solicitors. “The primary contact can resolve any issues the contingent worker may have and provide easy access to other staff within the organisation who can assist where needed,” he says. “Ensure that contingent workers are given feedback from the organisation on the work they are carrying out, and arrange catch-up meetings to iron out any issues.”
Some firms are now going further, starting to offer contractors specific benefits. For example, calls for on-demand pay are becoming more prevalent for contractors in the US, and Ceridian has responded accordingly in this geography. “Both inside Ceridian, and as a feature for our US clients, we are now able to pay employees their wages as they’re earning them,” explains Karsten. “With this payroll system, it helps our contractors avoid working in arrears and be financially stable through the month. Such a feature can be a compelling element for the contractor value proposition.”
It’s worth remembering that many contractors follow portfolio career paths, and will look for employers that can offer them interesting opportunities – as well as good pay and benefits. Businesses must ensure that they communicate why their projects are compelling, in order to attract the best contingent workers.
Yet there are also legal issues that organisations must consider when it comes to using contractors. “Self-employed contractors are in business on their own account and do not have the right to many of the benefits and protections to which workers or employees would be entitled,” points out Claire Brook, employment law partner at Aaron & Partners.
There are also challenges around legislation. In the UK, for example, the introduction of reforms to IR35 legislation in the private sector in April 2021, following their implementation in the public sector in April 2017, aims to close a tax loophole that allows contractors, operating through an intermediary such as their own limited company, to avoid some of the taxes paid by permanent employees. Under the reformed legislation, employers are responsible for determining the tax status of their contractors so must now carefully consider their processes so they can continue to engage with limited companies.
“Where a contractor is deemed to be caught by IR35, tax and national insurance should be deducted in accordance with the requirements,” adds Brook.
Inevitably, legal nuances will differ from country to country, says Meadows, with different rules around employment and tax law, and the protection they can expect. “Local advice should always be sought,” he says.
The reality for many employers is that contractors will continue to be an important part of the mix. For those that don’t get their value proposition right, however, there are very real risks. “The bottom line is they will quickly gain a reputation in the market as a business where contractors aren’t welcome,” says Robson. “They could potentially find key work projects not being delivered, as they won’t have the talent or resources in place to execute them. With social media, and contractors being well networked, any business that doesn’t get it right will become known very quickly.”
Click here to discover more articles like this in the Hays Journal 19
Matthew joined Hays in the UK in 2002, initially working as a Consultant in Hays Taxation in London before moving to Hays Talent Solutions where he was responsible for designing, presenting and negotiating RPO and managed service solutions. Having structured solutions across multiple industry sectors with both onsite and offsite models, Matthew relocated to Australia in 2009 where he was responsible for Hays managed service business across APAC. Matthew subsequently moved back to London to take on the role of Global Managing Director for Talent Solutions.
Check out the latest market insights in our Spring Quarterly Update.
See full insights
Whether you are looking for a new job or a pay rise, it helps to understand what the typical salaries are and what your potential earnings could be.
Take a look
Looking for a new role? Search here for your ideal job or get in touch with one of our expert consultants.
Looking to recruit? Fill in your details here and we'll help you find a candidate.
Hays Ireland has offices in Dublin, Galway, Limerick and Cork. Use our office locator to find the one closest to you.