Managing a Nontraditional Workforce

High-tech tools can provide effective processes to manage and track non-employee labor.

July 26, 2010 | Jennifer Taylor Arnold

August cover In addition to having traditional employees, many companies rely on temporary workers, independent contractors and consultants.

These workers may:

Connect with your company independently or through a temporary staffing company or consulting company.
Stay for various lengths of time, from one day to several years.
Provide various services, from clerical assistance to highly skilled project work.

With all of these variables, it’s no wonder that many HR professionals struggle to get a handle on the who, what and how much of their non-employee workforce.

While employers have relied on temporary labor for decades, experts say today’s "non-employee" workforce is larger and more varied. HR professionals struggle to keep pace with the terminology, too: While many still refer to this segment of the workforce as "contingent," some argue that the term doesn’t fairly represent consultant and business partner relationships.

"When folks had to downsize, they did, and when demand started picking up a little, they were hesitant to quickly hire," says Arun Srinivasan, vice president of marketing for Fieldglass Inc., a Chicago-based HR software provider. Contingent labor fills that void. "We see a shift in how those new jobs are being filled, how HR is looking at the workforce," Srinivasan says.

Technology has been vital on both sides of the equation—enabling expansion of the non-employee workforce and providing the tools and functions employers need to harness and leverage these resources.

Gaining Visibility, Standardization

Most non-employee labor management systems fall under the heading of "vendor management systems." Within this category, there are two basic camps: those that focus specifically on human labor and those that manage labor as part of a larger procurement solution. Some systems are independent and can manage multiple vendors, while some staffing companies offer proprietary systems to their clients.

Another piece of the puzzle is made up of managed service providers, also called managed service partners. These are outsourcing companies that offer vendor management; some offer in-house software solutions as well.

Vendor management systems have been around for at least a decade, but their capabilities have broadened and deepened in response to the changing workforce environment. And recently, experts say, demand has increased exponentially as the recession has led companies to tighten control on labor costs. Implementing such a system across all divisions allows business leaders to see their total contingent labor volume and, in some instances, to use that data to negotiate volume pricing discounts with staffing agencies.

At Hartford, Conn.-based health insurance company Aetna Inc., hiring managers used to handle contingent labor on their own. But since 2001, Aetna has used a labor-specific vendor management system provided by ProcureStaff Technologies, a New York-based division of Volt Information Sciences Inc. Michael Grise, senior procurement agent at Aetna, says that before implementing the system, hiring managers reached out to staffing companies they knew and negotiated engagements. There was no competitive bidding. Now, agreements with staffing companies are reached through competitive bidding, and then the terms of the final contracts are entered into the vendor management system.

Such systems can also help employers standardize policies and procedures, and ensure that they are followed each time a non-employee is brought on board. For example, recruiters at the Novato, Calif.-based insurer Allianz of America Corp. regularly call on temporary labor for administrative support and insurance-specific tasks. Before a vendor management system was implemented, managing the requisition process and relationships with dozens of staffing companies was cumbersome.

"We had HR policies that we came up with that we had no way to make happen," says Jenny Warioba, talent acquisition program manager for Allianz. The approval process varied, depending on the non-employee position and the fee, and there was no systematic way to verify that the staffing supplier had completed the required background check for each worker.

Now, Allianz’s HR professionals rely on a system provided by Fieldglass that automates and standardizes staffing approvals and background verifications. The system, Warioba says, "brought organization to chaos and visibility where we had none."

Translating Terms

Any discussion of non-employee labor management is bound to include the terms "vendor management system" or "vendor management solution" and "managed service provider" or "managed service partner," so it’s important to understand what they are—and what they’re not.

The first two—vendor management system and vendor management solution—refer to technology. They are computer programs that can help standardize relationships with various staffing suppliers and scope-of-work partnerships.

Managed service providers and managed service partners are outsourcing terms that refer to companies that provide vendor management for a fee.

Vendor management systems and managed service providers are intertwined because there are many partnerships among the vendors, and their services are often presented as package deals. However, the two aren’t mutually exclusive. Most providers will work with a variety of technology vendors, and employers can implement technology without contracting with a managed service provider.

Providers typically handle time-consuming processes such as billing, competitive bidding and contract negotiation. Such arrangements can make sense for companies that contract with multiple staffing organizations and rely on a high volume of temporary labor.

The decision largely depends on a company’s budget and comfort level with outsourcing. Insurance companies Aetna and Allianz of America Corp. use managed service providers and enjoy the benefits of outsourcing the bidding process and consolidated billing. While Jenny Warioba, talent acquisition program manager for Allianz, does not recommend using a managed service provider with a proprietary vendor management system, she does stress that both kinds of vendors must be familiar with each other and must have a good working relationship. Executives at HMS, a health care cost management company, were less comfortable with outsourcing vendor management and chose to implement technology without a managed service provider, says the company’s director of talent acquisition, David Barrows.

Not Just for Temps Anymore

Another factor in the demand for vendor management systems has been the rise in scope-of-work contracts. These contracts are typically drawn up for long-term projects with information technology or accounting consultancies; non-employee workers covered by such contracts may work on-site for a year or more.

There’s increasing awareness of the rules of engagement with project-based services, and scope-of-work services are largely undermanaged, Srinivasan says.

In the past, vendor management systems didn’t accommodate the complexities and long-term timelines of these relationships. Today, such systems offer sophisticated functions that address those issues and enable employers to track workers’ time against projects, as well as manage materials, hardware and licenses related to the projects. HMS, a New York-based health care cost management company, uses its system to manage temporary and scope-of-work labor. Allianz currently uses its system only for temporary workers but is working to bring scope-of-work projects onto the system by year’s end.

These systems have also been enhanced with an eye toward security: Employers need to know who non-employee workers are because "they have access to our assets and our systems," Srinivasan says. From a data security perspective, it’s important to make sure people are off-boarded quickly and their access is terminated, says David Barrows, director of talent acquisition for HMS. To that end, HMS integrated Fieldglass’ vendor management system with its internal identity management system. "We’re able to look at all of the temps we have, see where they are, who has access, and who is turned off," he adds.

HR managers are also concerned about compliance with federal labor laws defining independent contractors and employees. In recent years, the definitions have narrowed, leaving many companies vulnerable to misclassification. A vendor management system can help, with built-in signals to alert managers when non-employee workers are approaching contract expiration dates or other compliance benchmarks.

Know Your Labor Pool

Knowing more about non-employees helps recruiters identify opportunities to use these workers again. "More organizations are looking to have a pool of contingents that are proven resources they can draw on," says Cecile Alper-Leroux, director of global human capital management product strategy for Lawson, a St. Paul, Minn.-based provider of enterprise resource planning software. "Understanding talent and who you have becomes very important," she adds, recommending that HR professionals compare the skills of employees and contingent workers.

Lawson’s vendor management is part of an integrated talent management system that allows employees and non-employees to create talent profiles outlining their experience and skills.

Yesterday’s vendor management systems were largely transactional, automating the process "from req to check." Today’s solutions retain that efficiency but add robust business intelligence tools. The data can enable HR managers to compare suppliers side by side, determine the most effective relationships, and track patterns in staffing volume and spending.

The analytical tools can allow employers to drill down to the number of requisitions by vendor, by time period, by hiring manager or by role; track time-to-fill; and even track use of suppliers that are female- or minority-owned. "We can track metrics we couldn’t before," Grise says. He relies on the ProcureStaff Technologies system to slice and dice data.

Like most HR technology, the majority of such systems are available through an Internet-based software-as-a-service model. Pricing varies widely depending on the complexity of the functions, decisions about the managed service provider relationship and other factors. Most providers charge a percentage of the customer’s annual contingent labor costs.

Experts generally say a vendor management system begins to make financial sense once that spending reaches $1 million to $5 million annually. But other factors can push the issue before the budget reaches that threshold. Alper-Leroux says that in some industries with complex compliance demands, or in environments with highly dispersed workforces, a vendor management system can be a boon even if non-employees make up only 5 percent to 10 percent of the overall workforce. Experienced HR professionals say that savings realized through volume pricing and greater cost transparency often pay for the cost of the system in the first year.

As employers continue to look for creative, cost-effective ways to boost efficiency, the demand for more-flexible staffing solutions will likely increase. At the same time, business leaders want more information and control of the people with access to their information and assets. Experienced HR professionals say that vendor management can satisfy both needs. "It’s really hard to accomplish your overall goals of compliance, reporting and transparency without having this type of tool," Warioba says.

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The author is a freelance writer based in Baltimore.