Cassondra Batz-Barbarich, Steven Hunt, and Autumn Krauss, HCM Research, SAP SuccessFactors
Trent Burner, SHRM Research
A fundamental factor impacting the performance and commitment of external workers (e.g., contractors, contingent labor, and temporary workers) is the reason why they decided to pursue external work. Although their decision-making process might be complex and include several inputs, the most critical distinction is whether the person ultimately becomes an external worker because they feel they have to or they want to undertake this type of work.
Some people choose to be an external worker because it allows them to meet professional and personal goals such as a greater sense of autonomy, flexibility, and work-life balance, not to mention a potentially higher pay rate. These individuals would often choose to remain in an external role rather than transition into a permanent role in an organization even if they were given the opportunity to do so.
Other people feel forced to take on a role as an external worker. These individuals would prefer to have permanent positions but may not be given the opportunity or may have external constraints that limit their ability to accept more traditional work arrangements. A recent study by Gallup suggests that about one third of external workers fall into this category.
From an organizational perspective, companies frequently need to employ external workers in situations where they do not have the financial resources or operational needs to justify bringing someone on as an internal employee. And people in need of a job would certainly rather have external work than no work at all. This means companies employing external workers will inevitably find themselves in situations where they are employing people who would rather have permanent roles. So, how should companies best handle this situation so that both the company and worker view the employment arrangement as successful and the worker is willing and able to contribute during their tenure, even if it is temporary?
There are things that companies can do to make the best of this arguably mis-aligned employment relationship.
Re-examine the strategy to use temporary external workers instead of hiring permanent internal employees. Hiring permanent internal employees makes the most sense for roles for which there is an ongoing consistent need for talent. This may seem like a more expensive approach, but if one considers the costs of contractor agency fees, onboarding of new contractors, loss of contractor institutional knowledge, and disruption to internal employees’ operating rhythms as they need to continually work with new contractors, it may actually make more financial sense to convert some temporary external roles to permanent internal positions.
Develop a clear and consistent strategy for transitioning external workers to permanent employees. In a survey of SHRM members conducted as part of a joint research program between SHRM and SAP SuccessFactors, one prominent reason for hiring external workers that was cited by almost one third of the 1,000 HR representatives surveyed was to assess fit before offering a permanent position. Indeed, this concept of “try before you buy” is often utilized by companies and could be a viable transition route for external workers that do want a permanent position. The challenge arises when a company does not have a thoughtful and clear strategy for when this practice is put in place; instead, company representatives (e.g., managers, HR and procurement representatives) and subsequently external workers can be confused about whether a transition to permanent employment is not possible, unlikely, likely, or guaranteed if certain criteria are met. For external workers to have role clarity, company stakeholders need to get more aligned amongst themselves as far as when this type of practice makes sense and why it is the right approach in those cases (instead of simply hiring for a permanent role from the beginning for instance).
Be honest with external workers about the prospects of permanent employment. If the need for talent in a particular role is not conducive to a permanent position because of its lack of consistent need, it is important that organizations clearly communicate the terms and length of the contract role, making it clear that it is not likely that the temporary assignment will lead to a permanent position. Based on interviews with companies’ HR representatives as part of a research program on the external workforce being jointly conducted by SHRM and SAP SuccessFactors, the wrong expectations about permanent employment can also be set by a company’s employment agency who they hire to source their external workers, resulting in the external workers that are sourced by the agency assuming they will be offered a permanent position at the end of a contract and being frustrated when this is not the case. As such, it is critical that companies work with their agencies to ensure there is consistent communication about the opportunity for a permanent role through all phases of external worker sourcing and management. Remember, research on fairness in the workplace shows that people can accept outcomes they may not like, provided they believe they have been communicated with openly and honestly throughout the process.
Hold yourself accountable for how you treat external workers. It is important that organizations are also honest with themselves regarding the reasons why they utilize external workers. Organizations need to ensure that they are being strategic in their use of external workers, that puts these more dependent workers at a disadvantage. Managers should be given training on how to engage external workers in a way that makes them feel appreciated instead of exploited, even while everyone is fully aware that the employment relationship is temporary and relatively transactional by definition. The more your company relies on external workers, the more important it is for you to maintain a positive brand image regarding the experience that is offered to this segment of your total workforce.
Overall, while the majority of external workers voluntarily chose this type of work, a significant number of external workers do it more because they have to than because they want to. These workers would certainly prefer to be employed externally than not at all, but companies should still be sensitive to their career preferences even if they cannot fulfill them. This starts with being honest and thoughtful about their prospects for permanent employment and continues with treating them with respect as valued contributors, even if their contributions are temporary.
This article is part of an extensive ongoing research program currently being conducted by SHRM’s and SAP SuccessFactors’ research groups on the challenges affecting the use and management of external workers including contractors, temporary employees, contingent workers, and freelancers. If you would like to learn more about this research program, including opportunities to participate, please contact Mitchell Ogisi from SHRM Research at Mitchell.firstname.lastname@example.org or Cassondra Batz-Barbarich from SAP HCM Research at email@example.com.