June 4, 2019

Are You Paying Your Contingent Workforce All Wrong?

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The term “contingent worker” is used to describe “work arrangements that differ from regular/permanent, direct wage and salary employment.” In other words, contingent workers join your team on a temporary or fixed-term basis.

Statistics show that these days, companies increasingly rely on fixed-term or temporary workers to operate efficiently. For example, the large majority of Google’s administrative workforce are temps, admins and contractors.

What does this mean for you? Consider if all of your contingent workers disappeared tomorrow. You’d probably have to rework some things at best, or at worst, shutter your whole operation. Managing your contingent workers should be a key focus, and that means paying them properly.

How should pay for a contingent workforce be managed, and how does it relate to permanent employee pay policy?

When to Aim for Pay Parity

Your end goal might be direct pay parity between permanent and contingent workforces. After all, if you’re compensating all types of workers equally, that’s the “fairest” approach. It won’t work in every case, though. The following factors indicate when pay parity is required and/or desirable:

  • When it’s legally required– In some countries, pay parity is driven by legislation. Probably the highest profile example is the European Union Agency Worker Directive. This has been adopted as legislation in EU member countries in a variety of forms, such as the Agency Worker Regulations in the UK.
  • When workforces are unionized – There are a variety of circumstances where the role of a union, works council or equivalent organization requires pay parity. Such organizations have different levels of influence in different countries and industries, but the equal rights of workers of all types is often a key driver.
  • When your organization requires it– Even when there is no legal or operational reason to implement pay parity, some organizations build parity into their operating standards.

Typically, parity is looked at through the lens of making sure contingent workers receive comparable pay and benefits to permanent employees. Sometimes, the situation is flipped.

Permanent employees with specialized knowledge and skills might be tempted to jump ship and become a contractor. Contractors tend to have more flexibility and higher hourly pay rates, especially when they have a niche expertise. When it’s in your organization’s best interest to retain permanent workers and their institutional knowledge, consider parity of salary in terms of making sure it’s equal to contingent worker rates.

Managing Rate Cards

Here’s what you need to consider to incorporate parity into a rate card:

Parity Value The parity value is the pay rate (hourly/daily etc.) for a contingent role that equals the salary (typically annual) of the equivalent permanent worker doing the same job

Scope – Have a clear definition of the roles where parity applies, as outlined in company legislation and policy

Rate Card Model – There are many ways of constructing rate cards, from single value cards to min to max ranges with a target value; the rate card model decision needs to be made before implementing a parity strategy

Enforcement Strategy – Is adherence to rate card values strictly controlled, or do rate card values serve as flexible guidelines?

Minimum Values – Parity values will help define either the singular rate card value or the minimum value in a pay scale

Technology Capabilities– The capabilities of an organization’s VMS or chosen technology platform to administer the role of rate cards

Max Values – The level by which the rate card/maximum rate card value exceeds the parity value

Refresh Frequency – How often are rate cards reassessed and refreshed? Some organizations wait multiple years to reassess rate cards. By the time reassessments come around, the permanent salaries upon which parity values were based may have changed. While quarterly reviews would be ambitious for some organizations, an annual review should be the goal

Gender/Ethnic Pay Parity

Pay parity also deserves a mention in the context of contingent workers of different genders, ethnic groups, and other designations. Even though organizations increasingly rely on contingent workers, these workers don’t often have access to an organization’s social impact initiatives. Activities that are considered standard practice in relation to a permanent workforce, like diversity monitoring, are seldom, if ever, applied to contingent workers.

There’s lots of talk, debate, and writing on diversity pay gaps – but this debate tends to leave out the contingent workforce. If up to 40% of the workforce isn’t represented, the figures and practices proposed don’t accurately portray the working landscape. The contingent workforce industry, and organizations that utilize contingent workers, have a long way to go in this area.

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