5 Key Strategies for Controlling Contingent Labor Costs

5 Key Strategies for Controlling Contingent Labor Costs

With contingent workers now comprising 40.4 percent of the U.S. workforce and growing, it’s imperative that MSP program managers help their clients manage and control the cost of contingent labor. But a company’s total staffing expenditures are driven and influenced by so many factors, that program managers and buyers may miss the forest for the trees if they focus on agency markups alone.

In fact, once you’ve squeezed every last drop of savings out of supplier margins, total expenditures may continue to rise while service delivery suffers. Understanding the impact of hidden cost drivers, that often have interdependent relationships, is the best way to identify untapped cost-savings opportunities.

If you’ve run out of ideas, don’t worry. Here are five key ways that program managers and staffing suppliers can work together to keep the total cost of contingent labor down and under control.

Control Indirect Costs

While providing contractors with benefits such as paid sick leave, health insurance, workers’ comp and unemployment insurance can help them thrive in the “gig” economy, burgeoning indirect labor costs increase staffing firm overhead and mark-ups for contingent workers.

For instance, unemployment claims increase the experience modifications of staffing firms. Giving contingents encore assignments not only increases productivity and line manager satisfaction, the practice minimizes hiring costs and unemployment tax rates for staffing firms.

Leverage Economies of Scale

Rather than purchasing drug screens, background investigations and insurance coverage for a client’s specific needs through hundreds of staffing suppliers, why not aggregate purchasing power and maximize economies of scale by using the same firms across multiple supply chains and clients?

Small staffing firms may not have the clout or volume to negotiate lower pricing on their own.By consolidating expenditures, MSPs can garner price concessions, better payment terms, smoother communication and express handling from vendors and pass the savings along to their staffing partners and clients.

Right-size Your Contingent Workforce. 

Hiring managers often think that requesting a senior-level contractor guarantees success. In fact, a rock star may be bored and leave for a more challenging project if he’s over-qualified. Worse yet, sliding a candidate into a higher category to boost their hourly pay can result in pay inequality that causes friction and disrupts team harmony. Both under- and over-estimating the talent requirements for an assignment have negative financial consequences. Ensure that the job description aligns with the candidate experience and skills by right-sizing roles.

Lengthen Tenure Policies. 

The average cost of replacing an employee ranges from 30 to 150 percent of their annual salary depending on their level of expertise. And two-thirds of those costs are related to rehiring and lost productivity, which definitely applies to contingent workers.

So does it really make sense to impose tenure limits on top performers who have acquired valuable institutional knowledge and skills? The rewards of extending assignment limits often outweigh the co-employment risks. Your staffing supplier may even give you a reduced rate if you reassign tenured contractors to new projects

Consolidate Your Supplier Base. 

Consolidating suppliers is a proven strategy to concentrate buying power, reduce bill rates and lower operating costs according to research from The Hackett Group.

When you stop to think about it, having 50 suppliers chasing the same candidate is not only inefficient, the tenacious pursuit may cause the contractor to demand a higher hourly rate. Plus, disjointed recruiting efforts could inadvertently damage the employment brands of staffing suppliers and clients.Optimizing the supplier community and limiting competition may actually work to your advantage, especially in markets where talent is scarce.

Working as a team to identify the hidden cost-drivers associated with contingent staffing can be the key to substantial savings for staffing firms, MSPs and their clients.

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