External Workers Are Valuable but Worrisome, HR Says

Research finds need for overall strategy, better governance for blended workforce

Roy Maurer By Roy Maurer June 24, 2019
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​LAS VEGAS—Nearly all HR professionals surveyed by the Society for Human Resource Management (SHRM) agreed that external, independent workers—whether contract, freelance or gig-based—add value to their organizations, but most still have concerns about the legal implications of hiring and managing these workers.

The research, released June 24 at the SHRM 2019 Annual Conference & Exposition, is based on a survey of 1,172 SHRM members across the United States. NORC at the University of Chicago polled 464 managers who supervise external workers. The data was gathered and analyzed by SHRM and the SAP SuccessFactors Human Capital Management Research group.

[Read the white paper at www.externalworker.com, or download the PDF at www.shrm.org/extwork.]

Uncertain Legal Landscape

Eighty-three percent of the SHRM members polled said their organization uses external workers.

While 88 percent of the HR respondents agreed that external workers positively contribute to the business productivity of their organization, about 75 percent of that group also said that they are concerned about the regulation of external work. When asked what was the biggest issue or challenge that they would like to see resolved, HR professionals cited the legal ambiguity regarding the use and management of these workers.

"It would be one thing if there were harsh but clear guidelines making it difficult for employers, but at least there would be clarity," said Autumn Krauss, an organizational psychologist and principal scientist on the SAP SuccessFactors Human Capital Management Research Team. 

"The legal landscape is in flux, and it's not clear where it's heading."

Liz Supinski, director of research projects at SHRM, added that there are contradictory legal positions and regulations and, thus, there's no single set of safe recommendations that can be made.

[SHRM members-only toolkit: Employing Independent Contractors]

Of the 17 percent of employers who reported not using independent workers, the majority said they simply preferred managing internal employees. Only 7 percent indicated that they do not hire external workers because of legal risk or difficulty maintaining compliance.

Gig Workers: Few but Flexible—and Probably not Convertible

In most organizations, external workers make up a small portion of the workforce. Ninety percent of HR professionals responding said that external workers make up less than 20 percent of their workforce, and more than half said that external workers make up less than 5 percent of their workforce.

Cost is usually presumed to be the main reason companies turn to external workers, but less than 20 percent of HR professionals indicated that their organization uses independent workers to save money. 

Instead, flexibility, access to specialized talent and the need to accomplish specific projects were the three most commonly cited reasons for utilizing external workers.

The study also showed that external work can be a gateway to internal placement—almost 90 percent of the HR professionals who responded said that their organizations often or sometimes convert external workers to internal employees.

"External workers are not necessarily anxious to become internal workers, but HR and managers typically love the opportunity to 'try before you buy,' " Supinski said.

But the SHRM/SAP research revealed a serious flaw with that idea.

Krauss explained that the external workers that employers really want to convert—the ones with specialized skills and knowledge—typically don't want to be internal employees. But companies should still have a plan for how to make the transition.

"In the long run, the try-before-you-buy model can be costlier than hiring outright," she said. "The best advice is to have a strategy for these workers beforehand and a transparent, formal path to internal opportunities. Regardless of how likely or not it is that workers will be converted, be clear up front about the company's philosophy and policy on the process and what it takes to make it happen."

The Manager's View

Managers of blended teams generally reported positive experiences, but 26 percent agreed that legal requirements limit their ability to manage independent workers, and 32 percent said it was difficult to engage and motivate these workers.

Managers said that turnover, logistics and cultural alignment of external workers were their top management challenges. 

The top benefit to managers is the flexibility and agility that external workers bring to their teams.

"Turnover is a fact of external worker utilization," Supinski said. "These types of workers are generally never employed for more than a year, to avoid co-employment liability, while external consultants are likely to get new contracts and be unavailable when you want them. Most organizations are not very mature in their use of external workers, so sourcing, hiring, paying, and exiting them can all be logistical nightmares, and, depending on how prescriptive an organization's policies and procedures are, it can be very difficult to find ways for them to successfully collaborate with your internal workers. And external workers in customer-facing roles who are not part of your culture can do real damage."

Krauss added that logistical issues like scheduling hours and tracking time are significant concerns, but there's an easy solution—technology can handle these administrative tasks.

Obstacles Include Lack of Strategy, Governance

Nearly 20 percent of managers said that their organization was not very effective at "attracting, sourcing, and selecting the right quantity and quality of external workers," and the same amount also felt that their organization was not effective at onboarding external workers.  

"The most basic obstacle is that most organizations have no planning in place around strategic use of external workers," Supinski said. "Much external work happens more or less by accident. Many organizations told us that they don't even know for sure how many external workers they have."

Krauss added that there isn't enough governance of the external worker management process. "Companies often have a myriad of stakeholders involved in the process of hiring and managing external workers, and they haven't really figured out who owns what piece of the puzzle and how to build a strategy and associated practices."

She said various departments within one organization could be using different agencies and vendors to bring in external workers, all using their own budgets and reporting systems. Onboarding is often left to managers, without any input from HR.

"Many organizations deliberately choose to do no real onboarding of external workers, because that might mean that they're employees," Supinski said. 

"Some of the organizations with the most mature external worker models have built onboarding specifically for external workers, which provides information that workers need to be effective when they start, but also makes clear from day 1 what is different about their role because they are external."

Help Is on the Way

SHRM and SAP SuccessFactors are developing an External Worker Toolkit to enable organizations to understand their approach to external workforce management and engagement, and create policies, programs and practices that maximize results while fostering positive outcomes for external workers, their internal employee colleagues and their managers.

The complete toolkit will be released in September 2019.

Representatives from SHRM and SAP SuccessFactors will be presenting on recruiting and managing the growing segment of external labor in the workforce at the SHRM 2019 Annual Conference & Exposition on Tuesday, June 25, at 10:45 a.m. in the Las Vegas Convention Center, Rooms N258-260.

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