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How tech plays a role in contingent worker payroll

Nov 09, 2020

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The contingent workforce comes with many cost saving benefits; however, it also presents its own unique set of challenges when a company must process contingent worker payroll. Fortunately, for employers who engage temporary talent, advancements in technology are allowing for greater flexibility than ever before. Today’s payroll solutions and Vendor Management Systems are providing access to more complete, accurate data on contingent and traditional workers as well as greater visibility into these vital analytics. The technology allows a company to manage all worker and talent types in one central ecosystem, allowing employers to make better, data-driven business decisions.  

However, before answering the question of how technology plays a global role in contingent payroll, it's important to learn just what, exactly, contingent workers are and the problems presented when paying them.

Why do companies use contingent workers?

Employers familiar with the phrase, "The rise of contingent labor' once associated the term with advancements in tech, bridging talent skills gaps, shifts in employment attitudes and a growing younger workforce. In today's gig economy, however, new drivers of change  are forcing employers to engage non-traditional workers, similarly named Independent Contractors, temporary talent, gig workers and contract workers, since the pandemic swept across the globe.

As effects of the pandemic continue to drive business and talent strategies, it’s critical for companies to become more agile, and a contingent workforce is the widely-adopted answer to bridging skills gaps and driving both growth and innovation.

Contingent workers are not on a company's payroll in the same manner as traditional employees, but they still provide important services to the organization.

This type of workforce comes with both benefits and risks to the employer engaging them.

What is the difference between a contingent worker and a traditional employee?

In today's gig economy, a contingent worker is a highly specialized expert in their field who is typically engaged when an organization has a project or a contingent position that requires a niche skill or a high level of expertise. When completing the project or contract, contingent workers also have more control in how and when they do their work than traditional employees do. 

Unlike a traditional employer relationship, contingent workers operate as their own businesses and do not work directly for the organization that engaged them to perform the work. As such, they are not on a salary and are not entitled to benefits or other workers compensation afforded full-time, traditional employees.  

Workforce management and payroll processing challenges 

While operating a contingent workforce in today's gig economy is fast-becoming the norm in an uncertain business climate, it also comes with payroll-specific issues that require complex management, beyond accounts payable.

Without an effective contingent labor management program in place, payroll challenges might outweigh the benefits of engaging contingent labor for some companies. Some of these challenges companies must overcome include:

Compliance

The greatest contingent payroll management risk companies face is legal compliance, most specifically, worker misclassification.

Unlike full time employees, companies must define a contingent worker's employment status before they can begin work. The first thing to understand about classification is that a worker is not classified by their title or by the wording in their contract (e.g., “Independent Contractor Agreement”). Instead, it’s the context of the worker’s role that determines their classification. Furthermore, Contingent worker labor classification can vary greatly across states, countries and regions; as compliance regulations continue to evolve, properly classifying workers is a critical step in contingent workforce management.

Inconsistent rates

When companies bring gig workers into their contingent workforce to complete specific labor or perform certain services, payment for work can also present an issue for employers. Unlike full time employees, Independent Contractors are more likely to be paid through accounts payable rather than payroll, as such, it can be difficult and time consuming to manage rates being offered. This can create work payment inconsistencies that can vary far more than with standard payroll.

Lack of visibility

Having visibility over your workforce is critical to getting insights into contractors' payroll time and costs.

Technology has enabled engaging remote and international gig workers easier than ever. However, payment for a job can often be a challenge for many companies and contractors alike, as depending on the volume of temporary talent, getting an accurate headcount can become difficult when workers are managed between two separate department functions and on a global scale.

When contingent worker payroll isn't processed through a centralized payroll system, and are sourced by many different managers, visibility can often be lost.

Technology in contingent worker payroll

In order to operate a successful contingent workforce, a company must have effective management and technology in place to track, monitor and pay temporary talent for a job and achieve business goals.

Technology has enabled employers to gain many benefits, such as maximizing productivity while streamlining business operations and decreasing compliance risks; however, with the increasing number of organizations engaging contingent workers as part of their post pandemic recovery strategies, more adequate management options are required to meet compliance, payroll and tracking needs.

Payroll solution features

Managing and paying a contingent workforce requires a platform that has the technology capable of administrating, automating and managing the entire engagement lifecycle. An effective payroll solution should include a centralized ecosystem that will accurately and timely process payments while also providing workforce management over the following for a company:

Work orders
Time sheets
Expenses
Invoices
Payments
Reporting
Collection of contractor documentation
Digital contract signing

Contingent workforce management is a complex and often confusing process, with processes that greatly differ from managing employees. As such, many companies often engage the services of an external third party vendor like a staffing agency or a Managed Services Provider (MSP) to inherit all or part of the management of their contingent talent.

Will MSP technology help your business better manage payroll processes?

The Managed Services Provider will help manage an organization's payroll with a Vendor Management System (VMS).

For an effective program, The MSP will require organizations to have a minimum amount of contingent spend in order for the program to be successful and self-sufficient. When deciding whether or not engaging a Managed Services Provider (and their VMS technology) is the right solution for your organization’s workforce and its many needs, there are first some basic and more complex factors to consider.

First, it’s critical to understand how much your contingent workforce are currently costing your organization. It’s a unique number to an individual business, yet can be difficult to account for, as nearly 60 per cent of contingent costs is unaccounted for by management in the average business.

Operating a contingent workforce in the United States or on a global scale comes with many benefits to businesses. However, the challenge with temporary talent resides in understanding the need to facilitate a solid, flexible and compliant payment solution for these worker types.

Are you interested in learning more about technology and contractor payroll?

View our Case Study to gain insights into how Procom's VMS and Payroll solutions helped one client partner achieve cost savings and more:
View Case Study

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