The State of Contingent Work 2023

Leverage better practices, partners and technologies to maximize the performance of contingent work arrangements

In today’s age of business uncertainty, contingent work has come to play a critical role. Not only do the large majority of organizations leverage contingent work arrangements, but well over a third of organizations have also increased spending on such workers over the last two years and plan to increase it over the next two, according to the latest research from the HR Research Institute (HRRI).
 

To better understand why organizations contract with contingents and to determine how organizations source, employ and manage them, HRRI investigated the following areas:

• how widespread the contingent workforce is today, why organizations are using contingents and whether companies plan to spend more or less on contingents in the future
• the types of contingent workers companies most often staff, and how the cost of contracting a contingent worker compares to that of employing a full-time employee
• who is responsible for acquiring and managing contingent workers today, how well companies are managing them and the key challenges associated with contracting with providers of contingent workers
• the extent to which technology is used to acquire and manage contingents, and how companies plan to use technology in the future
• how organizations commonly source/acquire contingent workers, which sources HR thinks are most valuable and effective and the key criteria used to select third-party sourcing providers
• the practices and outcomes most closely associated with organizations that have large contingent workforces relative to those that have smaller contingent workforces

To What Extent Do Companies Use Contingent Workers?

Finding: Most companies today incorporate contingent workers but to varying degrees

We asked respondents to indicate what percentage of their overall workforce is made up of contingent workers. Only 14% chose “none,” indicating that most companies today use contingent workers. A little over half (54%) of responding organizations say that contingent workers represent 1% to 19% of their overall workforce.

Is the Contingent Workforce Growing?

Finding: Organizations are twice as likely to say spending on contingent workers will increase rather than decrease over the next two years

Asked to look two years into the future, 36% say that spending on contingent workers will increase, whereas just 17% say it will decrease.

There may be various reasons for these predictions. Those who feel spending will increase may be foreseeing more skills and/or full-time talent shortages. Others may be thinking more about economic slowdowns and how they will spend more on contingent work due to hiring freezes or even downsizings.

Why Do Companies Use Contingent Work Arrangements?

Finding: Companies most commonly use contingent workers to staff short-term projects

We asked respondents to indicate the primary reasons their organization uses contingent work arrangements. They most commonly say it is because they need to staff short-term projects (65%), the only response chosen by over half of the respondents. One reason for this is probably the trend from individualized work toward project-oriented and team-based work. For example, many companies today structure their internal full-time teams according to specific projects. This has often led to a better-defined, more results-oriented workflow. It is especially the case when developing or evolving product and service lines due to flatter hierarchies.

This less directive approach can lead to a more creative end product as well higher engagement and productivity. But project-based work is just one of various reasons participants cite for using contingent workers. The other most widely mentioned reasons are:
● increase business agility and flexibility (45%)
● boost skill levels (34%)
● increase speed of talent acquisition (29%)
● vet possible employees (25%)
● reduce costs (22%)

How Do Contingent Worker Costs Compare To Full-time Employee Costs?

Finding: Many think full-time workers are more expensive than contingent hires

Historically, contingent workers were often viewed as a cost-effective alternative to traditional, full-timers because companies do not need to pay benefits. However, in the previous question, only 22% say the need to reduce costs is one of the primary reasons for using contingent arrangement.

We also asked the question more directly, asking whether full-time or contingent workers are more expensive. We found that 46% indicate that full-time workers tend to be more expensive while somewhat fewer (37%) say contingent workers tend to be more expensive.
This difference is not as stark as we expected, and we think this may be related to the type of contingent worker used as well as the length of the arrangement and scope of services.

What Types of Contingent Workers Are Most Often Used?

Finding: Independent contractors are the most common type of contingent worker that companies acquire:

Contractors and consultants

The most widely utilized types of contingent workers are independent contractors (cited by 55%) and consultants (cited by 41%). The distinctions among categories are difficult to make and, in practice, the boundaries can be blurry. Consultants typically have many years of experience and broad expertise in an industry, often work as problem solvers and provide expert advice to evolve an organization’s business with best practices and
recommendations.

Independent contractors tend to be hired to handle a specific job or project-focused task. They typically usually have their own trade, business or profession and often focus on tasks that are temporary, although the length of the term often varies.

As we noted earlier in the report, the most widely cited reason for employing the skills of a contingent worker is staffing short-term projects. Therefore, it makes sense that we see correlations between independent contractors and the need to staff short-term projects.

Temp agencies and staffing firms

Temp agencies and staffing firms also play a key role in many organizations. Nearly a third say they use temporary workers from temp agencies, and a little over a quarter say they use contingent workers from staffing firms. What defines a temporary firm/agency from a staffing firm/agency is sometimes unclear because it is possible for each group to offer services that compete, depending on their scope of work for a client.

That said, temp agencies are typically structured to provide labor for short-term projects, often for entry-level positions.