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Contingent workforce grows, as does battle over its future

Increasing reliance on the contingent workforce is prompting changes in HR software. It is also fueling a political debate about the future of this independent labor.

Independent contractors go by any number of terms: contingent workers, external workers, extended workers, freelancers, gig workers, flexible workers. Regardless of the label, the job description is often the same: They work temporarily, usually without benefits, and employers are increasingly relying on them. The rise of the contingent workforce is a trend affecting national politics and the development of HR software.

Earlier this month, San Francisco-based Utmost Software Inc. received $21 million in new funding for what it calls an "extended workforce system," which draws a distinction from vendor management systems that are widely used to manage contingent labor. Despite its more common use, Utmost considers the term contingent as a pejorative, dismissive of the value of these workers.

Utmost's approach, in its Workday-specific platform, is to treat the contingent worker in a personal way. An onboarding process welcomes workers and allows them to populate an app with data about themselves to help make the worker a visible and active participant at a firm. "It's treating the worker as a valued part of the workforce, not as a rate card," said Dan Beck, COO and co-founder at Utmost.

In March, Beeline Inc., a 20-year-old vendor management system provider headquartered in Jacksonville, announced its own extended workforce platform. "We purposefully use extended workforce because it's like extended family," said Colleen Tiner, senior vice president of strategy and product at Beeline.

Vendor management systems were managed mainly by procurement and IT, but contingent labor is increasingly being managed by HR, and extended workforce management platforms are designed with talent management -- instead of vendor management -- in mind, Tiner said.

Extended worker data is kept in a separate record system because they are not company employees, Tiner said. But as companies increasingly rely on contingent workers as part of their workforce, separate record systems become cumbersome. Extended workforce management systems create integrations, such as connecting to HR, as well as procurement systems. That might mean making a contingent worker's contact information with business continuity and emergency response systems available to the business.

We purposefully use extended workforce because it's like extended family.
Colleen TinerSenior vice president of strategy and product, Beeline

A means to access talent

The contingent workforce expanded following the 2008-2009 recession because employers were cautious about resuming full-time hiring. Since then, they've continued to rely on contingent workers year after year, said Christopher Dwyer, vice president of research at Ardent Partners, which is an advisory firm based in Boston that studies contingent workforce.

According to soon-to-be-released research, 46% of the average firm's workforce is now considered contingent, based on Ardent's recent survey of 440 global firms, Dwyer said.

Contingent labor has allowed firms "to scale up and scale down their workforce as economic and market conditions allowed," he said. But increasingly, employers are seeing a contingent workforce as giving them access to "top-tier talent," as well as bringing in people with the skills and diversity of ideas "to help us figure out what's the next big great step for our business," he added.

Estimates on the size of the contingent workforce in the U.S. might be more than 10%, according to a 2017 government estimate. It said it was a slight dip from a decade earlier. There is a dispute among researchers about the government's methods for counting this workforce.

Nonetheless, recent surveys of corporate leaders all report planned increases in the use of contingent labor.

In its recent survey, Aptitude Research, an HR advisory firm based in Middleboro, Mass., found that one in three firms have plans to increase investment in contingent workers in 2021.

The shift to contingent work is not a recent trend, Aptitude reported, "but the pandemic has accelerated the urgency and forced companies to think more strategically about the composition of their workforce," according to a recent study.

Last year, a Gartner survey reported that 32% of organizations are replacing full-time employees with contingent workers as a cost-savings measure.

Compliance trouble

But the rise of the contingent workforce may also bring compliance headaches.

In 2020, the California Assembly Bill 5 (AB 5) set stricter rules about what constitutes an independent contractor with the potential of reclassifying many gig workers, notably app-based rideshare services and delivery providers, as employees who are entitled to benefits. AB 5 also generated political backlash, leading to the passage of Proposition 22 in November 2020 that exempted app-based rideshare and delivery drivers from the gig-work law.

Following the approval of Prop 22, former President Donald Trump's administration created a rule making it easier for employers to classify workers as contingent or independent contractors under the Fair Labor Standards Act. Advocates for workers said the rule strips many workers of labor protections, such as overtime pay.

"Trump was clearly trying to upend the movement among California and the other states to try to empower workers," said Jonathan Askin, a professor of clinical law at Brooklyn Law School in New York.

This month, President Joe Biden's administration withdrew the Trump administration's rule change.

In its decision, the Biden administration said the rule would have a disproportionate impact on women and people of color working in low-wage independent contractor positions.

The Biden administration worried about the misclassification of employees as contractors without benefits and labor protections. Employers apply a test to determine whether the worker is an independent contractor, which includes whether the worker is "free of control and direction in their work" and the work "is outside the usual course of the hiring entity's business."

The Trump administration's changes to the contingent workforce never took effect. So, for HR managers, not much has changed, "except that everyone still needs to be careful about how they classify these [independent contractors]," said Rhonda Marcucci, vice president of HR and benefits technology consulting practice at Gallagher, a consulting firm in Chicago.

Marcucci said the biggest challenge facing independent contractors and gig workers is healthcare at a reasonable price. But she said she also believes a lot of people want to work as independent contractors.

"More and more work is going to be done that way because technology allows you to do it," Marcucci said.

Patrick Thibodeau covers human capital management and ERP technologies. He's worked for more than two decades as an enterprise IT reporter.

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