Every now and then a business trend comes along with “ignore at your own risk” written all over it. The external workforce falls squarely into that category. It’s a burgeoning business reality, currently accounting for 35% of the total workforce and growing, according to an October 2015 survey by Ardent Partners, “The 2015-2106 State of Contingent Workforce Management Report.” For a variety of compelling reasons, including cost control, efficiency, and regulatory compliance, CFOs and the finance team must play a more hands-on role in strategies, policies, and procedures as they apply to the contingent workforce.
A quick definition and a look at the numbers
The external workforce goes by many names and includes contingent or temporary workers, statement of work (SOW) and other project-based services, and independent contractors. This external workforce is everywhere, filling important roles in a variety of businesses and industries including contingent, on-demand nurses, project-based IT contractors, and oil rig workers at high-risk job sites, to name just a few.
There are three major drivers contributing to the move away from the customary nine-to-five model:
- Companies are increasingly making the choice to extend their employee network to include external talent.
- Technology has facilitated the ability of an organization to find the right vendor and the right talent from anywhere in the world.
- The workforce has significantly evolved. More workers, especially Millennials, are choosing to engage differently with their employers.
According to the survey by Ardent Partners, a number of problems and opportunities arise from this shift away from the conventional workforce:
- 95% of companies view the contingent workforce as vital to corporate growth and success.
- 70% of companies expect their contingent workforce to grow rapidly over the next year.
- 40% of businesses face a lack of intelligence regarding their global contingent workers.
- Only 51% of contingent labor is formally accounted for in planning, budgeting, and forecasting.
Why CFO involvement and oversight are needed now
As contingent workers change the face of customary approaches to planning, budgeting, and project execution, involvement by the CFO and the finance team can have a profound, enterprise-wide effect on maximizing the benefits and decreasing the risks of using external workers.
1. Visibility into costs and performance
The ability to have ongoing, real-time information about the contingent workforce is a major challenge. Who and where are they, exactly? What projects are they working on? Are projects being delivered on time? How much do they cost? What’s being billed and how? Are targets being met? The analytical and forecasting expertise and capabilities of the CFO and the finance department can be major contributors to answering these types of questions. As a result, the organization will enjoy enhanced decision making that can be applied to both current and future talent management strategies.
2. Cost control
While talent provides the competitive edge for most enterprises, it is also a key driver of costs. This area is sorely in need of what CFOs and their teams do best. For example, finance can pinpoint and analyze overspend areas that are not worth the costs, thus freeing up monies for resources that are better contributors to organizational growth and success. Finance can also bring to bear its talents for improving cash flow management, cost accounting, and managing reserves. Cross-industry standards show that imposing tighter cost controls on management of the external workforce results in savings of 10%-12%.
3. Efficiency for accounting staff
Accounts payable staff can spend an inordinate amount of time chasing down vendors, agreements, and paid versus agreed-upon fees. Streamlining and automating these processes can be of value to both the department and the organization, freeing up staff to handle more strategically beneficial initiatives.
4. Compliance with regulations and tax laws
According to the Ardent Partners survey, only 22% of organizations have a robust compliance program that prioritizes minimizing labor risks. If left undefined and unhandled, issues such as employee misclassification and co-employment (the relationship of the worker to the hiring company and the agency) can undo the benefits of using a contingent workforce. With their emphasis on – and understanding of – compliance issues, the CFO and finance team can be key players in mitigating risks both nationally and internationally, especially as tax laws and global regulations continue to rapidly shift.
As the use of contingent workers continues to gain momentum across organizations and across borders, the CFO and the finance team are well poised to support the business in workforce management.
For more information on this topic, please read “The 2015-2016 State of Contingent Workforce Management Report.”