Employers Lack Data to Make Best Use of Contingent Workers

Workforce Data

The contingent workforce has made greater inroads into the global economy than most people recognize, and the attitude of workers themselves hints that they, as well as businesses, are changing the way they view their relationship.

A report by the ADP Research Institute said technology’s advance is transforming why, where and when people work as much as it’s impacting how they work. Among other things, this indicates that the spread of contingent work is taking on a more structural aspect than many employers may have realized.

Between 2010 and 2019, the share of gig workers at enterprise companies increased from 14.2 percent to 16.4 percent, ADP said. The company expects this proportion to grow, especially with the labor market being as tight as it is.

The spread of the contingent workforce is taking on a more structural aspect than many employers may have realized. #HR #HRTech @ADP Click To Tweet

ADP’s report, Illuminating the Shadow Workforce: Insights into the Gig Workforce in Businesses, defines “gig” workers as both 1099-MISC and short-term (one to six months) W-2 employees. Although many describe “gig” workers as those who undertake single, one-off tasks—such as Uber or Lyft drivers—we’ll stick with ADP’s definition for our purposes here.

Whatever you call them, these workers usually fall outside of HR’s bailiwick. In terms of administration, they’re often hired and overseen directly by line managers or provided by staffing vendors who’ve negotiated an agreement with Procurement.

In terms of issues such as culture and engagement, gig workers are likely to be left out of social events (like holiday parties) and given less, if any, attention in areas such as communications. Also, ADP noted, gig workers are often paid through a variety of channels—such as accounts payable, payroll or a staffing agency—which makes it difficult to track their overall cost.

Holistic Workforce Data

In a sign that the definition of “employee” may itself be evolving, most contingent workers under the age of 34 see themselves as traditional employees. More than half of the 1099s surveyed would prefer to have W-2 status, but not for the reasons business leaders might expect—benefits. Nearly three-quarters of them, 74 percent, said they’d keep working as an independent contractor even if that meant losing health insurance.

Employers believe many of these 1099 workers have made a conscious decision to remain independent for higher pay while their spouse works for benefits and lower pay, ADP said. That way the household receives both benefits and a higher total income. 

ADP also found a number of similarities between gig workers and traditional employees. For example, conventional wisdom says gig workers are employed less frequently, work for multiple companies and earn a higher hourly wage than traditional W-2s. However, the report found more than half of 1099 workers are engaged by the same company for 12 months, while 23 percent of traditional W-2s remain with the same firm for less time than that.

Challenges to Company-Wide Solutions

Despite all this, organizational and legal challenges are impeding progress toward managing the entire workforce from one place, vendors, analysts and attorneys say.

One result: Employers lack “a single source of truth” for managing their entire workforce. For example, ADP said most companies don’t track their gig workers in terms of cost, where they’re working or what types of skills they have. Most leaders don’t understand the value that information would have in terms of decision-making, corporate strategy and talent management. For example, they may not realize the talent they need to address skills gaps may already be close at hand.  

Employment attorneys and workforce analysts say that while traditional HCM systems do a good job of helping companies manage and interact with their full time employees, few attempt to do the same for gig and contingent workers.

One reason may be compliance. “You could have [gig and FTEs] in the same database tool, but from a compliance standpoint, you’ve got to be extremely careful with what you’re doing and how you’re facing your contingent workforce,” said one attorney. “If you start treating your contingent workers the same way as you’re treating your employees—giving them tools to see the way they’re paid and all those things—it feels a lot like employment.”

ADP already serves a range of customers that includes microbusinesses and enterprises, so it’s not surprising it would take an interest in the gig workforce’s dynamics. In January, the company acquired WorkMarket, a cloud-based workforce management system that allows companies to build and manage a workforce of W-2 employees, 1099 contractors, vendors and others.

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