Benefits Costs for Contingent vs. Regular Employees

Introduction

A contingent worker is a person who works for an organization on temporary, freelance or contractual terms instead of a permanent or full-time employment basis. One of the presumed benefits of using contingent workers is flexibility.

An organization uses contingent workers for a specified period, by the end of which it ceases its services and hires others if necessary. However, it is important for organizations to understand and acknowledge both the advantages and disadvantages of contingent workers by recognizing what it can achieve or fail to achieve with their help. This paper will discuss the compensation of contingent workers in comparison to regular employees, including their effect on business and outsourcing of HR functions.

Given the different levels of pay and benefits, how may an organization create a sense of internal equity?

When hiring contingent workers, it is important to ensure that a sense of internal equity is maintained in relation to the satisfaction of both sets of employees. In a bid to enhance internal equity, it is important for managers to carefully assess the real cost of using contingent workers and their effects on labor costs vis-à-vis regular workers. Organizations are embracing the use of contingent workers in workplaces to either add value to certain departments or curb capacity building.

Because contingent workers exceed labor costs within an organization, HR managers have the mandate to determine compensation strategies. In many cases, contingent workers have consistently been paid lower wages than regular workers (Hipple & Stewart, 1996). One example of a company that employs contingent workers is IBM, which uses a workforce management system that enhances the effective management of its contingent and regular employees (Global firms in 2020, 2010).

Another example involves Coca-cola Company, which has HRM programs and procedures that involve hiring contingent workers in its sales department to complement the permanent employees, especially when faced with the high demand of orders, for instance, during major sports events such as the upcoming World Cup tournament. In this sense, Coca-cola maintains internal equity since contingent workers are only hired upon necessity but do not interfere with the functions of regular employees.

Specifically, how has the employment of contingent employees affected an organization’s business, its HRM responsibilities, its overall costs, as well as its organizational culture?

The employment rate of contingent workers in the US has been growing and has consistently continued to be part of workmanship within the employment agencies. Contingent workers bring little bargaining power to the labor market because they have fewer resources than regular employees, thus enhancing business performance. For example, T-Mobile realized the only way to beat the competition when intruding on a new system was to hire contingent technicians (Zappe, 2005).

The work benefits and salaries of contingent workers have mainly per hour and per day compensation options. Talented and experienced contingent workers have continued to contribute to the growth of companies in different ways. However, in cases where contingent workers are hired as independent contractors or temporary workers, a company has no obligation to pay employment taxes or provide company benefits. Nevertheless, staffing companies may offer benefits to these workers in some rare cases (Vaiman, Lemmergaard, & Azevedo, 2011).

In terms of productivity, managers should not be surprised if contingent workers do not perform quite well as regular employees. Productivity, in this case, depends on the skills of the workers; here, contingent workers generally have less education and presumably less training and experience on the job compared to regular workers. Contingent workers may be less motivated to put forth the maximum effort. Moreover, corporate culture may be interrupted when many contingent workers are hired, especially when there is a high turnover of workers. In a workplace that depends on teamwork, the group process may be disrupted due to the frequent changing of contingent workers (Vaiman, Lemmergaard, & Azevedo, 2011).

In your educated opinion, should the compensation of contingent workers be the same as regular, full-time employees doing the same work? Discuss

The main reason for hiring contingent workers is to minimize costs and increase profitability. Therefore, it will be pointless to hire contingent workers if their compensation is similar to regular workers for the same job. Generally, legal, institutional and external pressures, as well as possible labor cost savings, have been cited as probable reasons for increased use of contingent work arrangements.

Increased litigation in areas of employment discrimination and wrongful discharge has caused some of the employers to avoid permanent employment; however, EEO Act also outlaws discrimination against contingent workers (Mitchell, 1999). Institutional factors, such as management, limit the number of permanent workers in the company. In addition, the existence of unions restricts permanent employment in a way that hiring temporaries becomes more cost-efficient and flexible, as they have no collective bargaining in terms of employment agreements.

How would you, as the CEO of the company, create a sense of engagement with the infusion of regular employees and contingent workers?

Contingent workers may feel inferior to regular workers as they do not receive the same benefits. As the CEO, it is important to ensure all workers find themselves working in the same background of work. This includes ensuring the contingent workers are involved in different activities within the organization. The involvement of contingent workers in the workplace may help in ensuring that all workers cooperate to increase the output of the organization.

Managers would need to train contingent workers to ensure systems continue operating normally. Staffing is one of the major functions of a human resource manager, which can be cumbersome due to its processes. Staffing in a company requires a well-structured budget to ensure workers selected through this process are, in fact, qualified and are aligned to goals and objectives. The employment of contingent workers has, in fact, become a popular outcome in many industries and service companies. Most companies use contingent workers to increase sales or the capacity of products manufactured in the industry (Hipple & Stewart, 1996).

Outsourcing HRM Functions

A company outsources its services due to a number of factors, one of them being cost-effectiveness. Some other reasons include bringing new talent and experiences that will in turn help to develop the company. Outsourcing of services to other companies helps the organization to focus on growth of the company. By outsourcing, the company saves on time and money when it comes to emphasis in the roles of the different pertinent issues in the company. I agree with this trend as many corporations outsource this service to ensure they are able to continually deliver quality products and services (Sheehan & Cooper, 2010).

Outsourcing of different functions to other organizations is a trend that will continue to grow in the corporate industry. Costs of certain services are reduced to a small percentage of company’s budget when outsourcing a contract to outside firms (Glaister, 2014). The importance of reducing the number of employees is another reason why this trend will continue growing in the corporate industry. For example, Coca-coal has a HRM program of outsourcing accounting services.

In my opinion, the regulations imposed on international vendor supporting local US companies should be slightly reduced. In the US, I have witnessed that many companies outsource labor from abroad, especially from developing countries such as China and India due to law wages they demand. In addition, existence of well-defined labor laws pertinent to outsourcing must be clear to help organizations seek and outsource their services to corporate industry.

Another example of a company that has embraced outsourcing is Unilever, which has many franchises around the world. This company uses the services of payroll administrators to make sure its employees are paid on time. Unilever also outsources auditing services for its accounts each year, thus maintaining only a small and manageable number of workers. This not only reduces costs of operations, but also increases productivity as the management can perform effective supervision of available employees.

Conclusion

Many employers in contemporary labor market are turning to contingent workers in order to maximize potential benefits of reduced costs and lean management. Compared to regular workers, contingent workers are less expensive because they demand few benefits and are only hired when a need arises.

Although Equal Employment Opportunity Act may deem the difference in compensation between regular and contingent workers doing the same work as discrimination against the latter, it is obvious that companies hire contingent workers in order to save costs, improve HR management effectiveness and enhance profitability. Indeed, as evidenced by Coca-cola’s HRM program and procedures, a company employs regular workers in core business segment and outsources HR services for non-core areas.

References

Glaister, A. (2014). HR outsourcing: the impact on HR role, competency development and relationships. Human Resource Management Journal, 24(2), 211–226.

Global firms in 2020: The next decade of change for organisations and workers. (2010). Economist Intelligence Unit. Web.

Hipple, S., & Stewart, J. (1996).Earnings and benefits of contingent and noncontingent workers. Monthly Labor Review, 119(10), 22-30.

Mitchell, A. T. (1999). Contingent workers hold potential liability. Business Press, 11(49), 33.

Sheehan, C., & Cooper, B. (2011) “HRM outsourcing: the impact of organisational size and HRM strategic involvement”, Personnel Review, 40(6), 742 – 760.

Vaiman, V., Lemmergaard, J., & Azevedo, A. (2011). Contingent workers: needs, personality characteristics, and work motivation. Team Performance Management, 17 (5/6), 311 – 324.

Zappe, J. (2005). Temp-to-Hire is Becoming a Full-Time Practice at Firms. Workforce. Web.