Contingent workforce

Five Ways to Utilize Contingent Labor During an Economic Downturn

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By Damian Scandiffio

Regional Director of Business Development

Economic forecasts show that the odds of a recession are 64 percent. However, this recession is expected to differ from the ones experienced in 2001 and 2008 in that it could be quieter, slower, and longer, making flexibility in talent strategy even more critical. Organizations in all industries are searching for ways to maximize their workforce efficiency while managing costs without overloading their employees. Projects and goals must be assessed and prioritized to ensure your company has the workforce necessary to maintain critical business operations to fuel growth.

By 2027, it’s predicted that 86.5 million people will be working as temporary or gig workers or independent contractors, also referred to as contingent workers. Organizations are looking toward contingent labor to help bridge their talent gaps, provide greater flexibility, and optimize their workforce. In fact, contingent workforce participation is projected to increase by 53 percent globally and 26 percent in the U.S. in 2023. Contingent labor provides a more streamlined approach for human resources and operations to identify workers and quickly adjust to unexpected changes.

Here are five ways to utilize continent labor during an economic downturn:

  1. Transition away from the direct hire model: The COVID pandemic and Great Resignation induced an overly used direct hire workforce model. The job market bounced back quickly, causing employers to hire permanent employees with inflated wages due to talent scarcity. With a possible recession, companies are returning to a more temp-to-hire-focused contingent labor model, allowing them to maintain flexibility in their staffing levels without committing to a large permanent workforce. This approach:
  • Enables organizations to hire temporary workers on a trial basis before deciding whether to offer them a permanent position.
  • Offers a cost-effective way to assess workers’ skills and alignment with your company culture before committing to a long-term employment agreement.
  • Provides a more flexible workforce reduction solution and less public sign of a company’s financial situation when required to cut costs or restructure. Reducing the number of contingent workers is simpler than conducting mass layoffs.
  1. Learn from the 2008 recession: Keeping a flexible 30 percent contractor headcount using contingent labor became a widely implemented model during and after the last recession. In 2008, many companies were forced to make difficult decisions about their workforce to reduce costs and maintain profitability. Those companies that had already developed a variable workforce and utilized contingent labor were better positioned to manage these challenges. By keeping a flexible 30 percent contractor headcount using contingent labor, companies can maintain the agility and flexibility needed to respond to changing market conditions to help them better manage their costs and maintain profitability during economic uncertainty.
  2. Protect your organization from a double-dip recession: A double-dip recession is a term used to describe a recession that occurs in two distinct phases, with a period of economic recovery between them. In a double-dip recession, the economy experiences a period of decline, followed by a brief period of recovery, and then another period of decline that’s typically worse than the first. A double-dip recession can be particularly challenging for businesses, as it can create a sense of uncertainty and make it difficult to plan for the future.

Contingent labor can be a valuable tool to protect your business from the impact of a double-dip recession because you’re not committing to direct placements before having a grasp on economic conditions ahead. During a downturn, utilizing contingent labor allows you to make quick and difficult decisions about your workforce to reduce costs and stay competitive.

  1. Leverage payrolling/employer of record (EoR) services to help slowly bring back valuable staff as contingent workers for short-term project work while minimizing risk. By serving as the employer of record, a recruitment agency (like Acara) takes care of critical administrative work and assumes responsibility for various costs and liabilities—like taxes, unemployment insurance, workers’ compensation, and benefits—associated with these non-permanent workers. This can be a significant relief for your company, help your bottom line, and allow your permanent employees to focus on other areas of your business.

Related: What is Employer of Record—and Why Is It So Beneficial in Today’s Recruitment Landscape?

  1. Benefits: Staffing firms can be relied on for affordable contingent labor when your company wants to cut back on benefit payments. Staffing agencies may be able to negotiate better rates for benefits like health insurance or retirement plans due to their larger size and bargaining power. Using a staffing agency can also help to reduce the administrative costs associated with managing employee benefits. For example, the staffing agency may handle enrollment, claims processing, and other administrative tasks, saving your business time and money.

Related: Why Utilize Temporary Staffing Services

The bottom line

Developing a variable workforce consisting of temporary contract workers and permanent employees can provide your company with greater flexibility and resilience during times of economic uncertainty. Therefore, a contingent workforce should be a critical component of your talent strategy, not just a short-term solution. Engaging with temporary workers gives you the flexibility to adjust your labor needs quickly and strategically while reducing costs and minimizing your risk to win out over your competition and grow your business.

Related blog from Aleron Group partner Broadleaf: Using an MSP Solution to Recession-Proof Your Talent Strategy

Acara can help

Strategic business and talent planning are more important than ever. Acara consults with you and your team about your contract employment needs, taking stock of your entire workforce. Acting as your temporary employment agency, we assess your challenges and pain points and work to pinpoint the most qualified candidates who are the best fit for your business. Contact us here to learn more about how we can improve your organization’s workforce and operational efficiencies.

This blog was authored by Damian Scandiffio.