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Are you spending more than you need on contingent and temporary workforce?

1 February 2023

Contingent workforce can add significant value to the output of your organisation while also saving you money. Temporary work allows for flexibility and bridges skill gaps. However, if you are not cautious, it may cost your company more than you think. In fact, labour is almost always the most expensive indirect procurement spend category. To get the best return on your investment, you must exercise spending discipline.

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What unexpected costs can you incur with your contingent workforce?

Problems with Compliance

Human resource and procurement teams frequently collaborate to manage contingent workforces to ensure success. Human Resources is concerned with talent opportunities, while Procurement is concerned with cost and compliance, resulting in increased complexity in managing traditional and contingent workforces as separate entities, resulting in fragmented processes, inconsistent hiring practices, and additional costs.

If neither department understands the needs of the other or connects their priorities, they will be unable to work toward their common goal of filling skill gaps by hiring the best, most cost-effective employees.

Also, when contingent workers aren't screened using the same assessment criteria as full-time employees, they may lack the soft skills or cultural fit factors that a traditional hiring strategy would uncover during the screening and qualification process, which can lead to compliance issues. As a result of this situation, the company is vulnerable to noncompliance because some contingent workers may not have the legal right to work in the UK or may provide false documentation that the staffing agency or HR may overlook during the recruitment process.

Unexpected and Hidden Costs

Do you know how much you pay for contingent labour? Have you thought about the expenses associated with this category? It's critical to remember that it's not just about how much you pay contractors per hour or how much you pay your staffing agency in markup/margin fees. If you don't keep track of the hidden costs associated with using contingent labour, they can quickly add up and have a negative impact on your bottom line.

Hidden costs include compliance, the costs of processing multiple invoices, productivity, added value (or lack thereof) to the business, and risk management.

Using contingent workers entails a number of risks, and if your company's risk management is inadequate and you fail to comply with the specific regulations that apply to contingent workers, you may face costly fines, penalties, and legal costs that could severely harm your profits and brand.

Lack of Visibility

Siloed business operations, regionalised P&L reports, incorrect cost coding, and a lack of consolidated reporting, resource constraints — specifically, a lack of procurement time and resources, as well as supporting technologies — make visibility difficult goal to achieve.

Many large corporations are not organised to effectively control the spend on their contingent workforce and the agencies that support them. Prior to engagement, many Datum clients found that they were actually spending a lot more than expected with their agencies. This was only discovered after analysing invoices from hundreds of thousands of transactions.

Cost inefficiencies caused by a lack of visibility can reduce a company's bottom line, EBITDA, and earnings per share. It should come as no surprise, then, that an increasing number of large corporations are looking for new solutions and resources to help them provide more responsive and effective workforce management.

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