Freelancers and contingent workers form an increasingly important part of an organization’s workforce. According to Staffing Industry Analysts (SIA), there were 51.5 million contingent workers in the US in 2021, representing more than a third (35%) of the region’s workforce and generating $1.3tn in revenue.

This number is almost certain to grow. Companies have weathered an unprecedented level of chaos over recent years, from the impact of the Great Resignation and skills gaps to rising interest rates and heightened production and supply chain costs. At the same time, demand for talent remains high, with 1.9 jobs available for every unemployed person in the US in January, according to data from the Bureau of Labor and Statistics.

The consequence of this state of flux is that companies are increasingly attracted to the flexibility provided by contingent workers. The ability to access experienced, readily available talent at the right variable cost offers employers the agility to meet current talent requirements without the cost of full-time employees. It is also the perfect marriage with more and more workers wanting flexibility in the post pandemic age.

“After the 2008 financial crisis, we saw heavy utilization of contract workers. At that time, it was driven by necessity, but not strategic in most cases. This time around is proving to be different. The organizations that get it right will find ways to use budget wisely in place of headcount. Instead of just filling roles reactively, companies are taking proactive measures like building talent pools and equipping their teams with access to on-demand resources,” says Dustin Talley, CEO and founder of Talent Simplified.

However, if done without proper thought, the growth in contingent hiring also brings challenges for organizations – not least in terms of reputational risk and potential damage to existing employees’ engagement.

Skills not silos

One of the main challenges with contingent hiring is that it is often run in a silo, separate from other talent functions. In the US, contingent hiring is often the remit of the procurement department with permanent recruitment run by human resources. The reality is that these two functions often operate individually and with little interaction, making the integration of contingent hiring into strategic workforce planning difficult.

“The operational reality shows that the idea of total talent management is still theoretical,” says Mark Jones, Executive Vice President at AMS.

“One of the challenges of contingent labor is that it is by default a tactical solution to find people quickly. When you do that, you use a staffing agency. It is ingrained in how supply chains including internally and externally run MSP’s operate. So, this whole concept of brand and loyalty is nice in theory but will only work if talent acquisition leaders genuinely change how resources are procured.” He goes on to add: “It requires an extra layer of thought, joined up planning and thinking which until recently, often is simply put into the nice to have, but not now category.”

Progress may be slow, but the move towards a more innovative approach to contingent hiring is undeniable. The growth in skills-based approaches to hiring – which puts an individual’s skills profile above employment method, experience and location – is furthering this trend.

“A lot of this is about undoing an existing mindset of needing to hire someone versus needing to get something done. As we enter the skills-based economy, work is about getting a project done rather than completing a 40-hour working week,” says Talley.

According to a SIA report released in May, while only 28% of organizations currently have a strategy for contingent workforce planning as part of their corporate strategy, more than half (55%) are exploring it. The same study indicated that 27% of organizations have a talent pool of some description in place to source contingent workers but 46% were considering it.

“Skills-based companies will win in the future. It will be slow, but it will play out. I see mid-sized companies gaining market share as they’re being smarter around talent and tagging the skills so they know what they have. They are the ones competing and winning, as they’re quick to respond to both clients’ needs and their own internal talent requirements,” adds Talley.

“We’re in the first innings of a nine innings game and skills-based hiring is a part of that,” agrees Jones.

“However, the best time to outsource is in an environment like today, where organizations are coming off all-time highs in hiring. There is a reduction in open roles and all our clients are hiring less, which means there is more capacity in the contingent market,” he adds.

Part of the challenge in integrating contingent hiring into a more holistic approach to talent management is the need for change management. Moving away from a historic way of working with staffing agencies to a direct sourcing strategy requires a different approach across the talent acquisition supply chain. This is where strong leadership and a fully thought out workforce planning strategy is needed.