8 October 2021

How to Manage Contingent Workforce Costs With a VMS System

John Clark
John Clark

A growing number of companies use contingent and temporary staffing, sourced through staffing agencies, to fill their workforce needs. In fact, the percentage of most companies' workforce filled by contingent resources is increasing. 

According to an Intuit 2020 report, roughly 25-30 percent of the US workforce is contingent, and more than 80 percent of large corporations plan to substantially increase their use of a flexible workforce in coming years.

That’s because the benefits of contingent workers are huge. They provide organizations with the ability to access hot skills, achieve workforce objectives in a competitive market, increase business flexibility, and realize significant cost savings.

Yet, without the right contingent workforce management program, organizations simply cannot achieve the above benefits. 

A vendor management system (also known as a VMS) provides your business with the platform it needs to manage both your staffing agencies and contingent workforce. By acting as a system of record for your company’s entire staffing agency process, a VMS centralizes, automates and consolidates all of the processes and data associated with managing your vendors.

A VMS gives you complete visibility and control over staffing agency performance and your contingent workforce. 

With increased visibility and control over your contingent workforce program, your organization now has the ability to optimize its use of VMS software to manage contingent workforce costs and save money.

Here's how to use your VMS to directly save your company money:

#1 - Choose the type of contractual agreement that works best for your organization

There are three common types of contract types for contingent workers, staffing, time and materials (T&M), and milestone contracts. 

A staffing contract is the payment of time worked to a staffing agency, time and materials is where the worker is billed per hour at the agreed contractual rate, while a milestone contract is where pricing is fixed and based purely on the competition of a specific project or length of time. 

It’s important to find the most cost-effective contract type for your organization. Most companies that use contingent workers will likely have them on staffing contracts, but if you do hire any contingent workers directly, then T&M vs. milestone contracts is an important consideration. 

Time and material contracts generally work with more flexible schedules and budgets, while milestone contracts only pay workers for the actual work done. Both contracts have their pros and cons, so it’s important to find the one that works best for your company’s processes.

In the staffing industry, agencies quite often will use milestone arrangements to hide higher than normal markups. Traditional time based staffing agreements typically require the agency to disclose, and adhere to a capped markup.

#2 - Set a cap on staffing agency markup 

If your contingent workers are hired through staffing agencies and your business is located in the US, then they are more than likely employees of the staffing agency. That means they are paid directly by the agency, and not your business. However, if your business is in Canada, then this will depend on the category of worker (whether they are a T4 worker or independent contractor).

If your contingent workers are paid through your staffing agency, then your organization will pay the staffing agency a markup - which is a payment to the staffing agency for its services (overhead costs and profit) on top of the wages (pay rate) that you will also be covering for the contingent worker.

A staffing agency bill rate is the addition of the pay rate and markup.

To keep contingent costs under control, use your vendor management system to establish a maximum bill rate and a maximum markup. This will ensure that staffing agency payment is standardized across your entire organization, minimizing the risk that hiring managers will go rogue with overpayments.

#3 - Develop a rate card for all hiring managers to follow

Similarly, to standardized contingent costs across your entire business, it’s important to design a well-defined rate card for hiring managers to follow. This will minimize the risk of rogue spend across your contingent workforce management program. 

Use your VMS to build a rate card that clearly defines the maximum rates allowed for various job titles, locations and experience levels. By doing this, you’ll prevent hiring managers from overpaying for workers.

#4 - Measure staffing agency performance

Measuring, analyzing and managing the performance of your staffing agencies ensures your organization is able to alleviate supplier risk, cut costs and drive continuous improvement within your contingent workforce management program.

A VMS solution puts data and insights at the forefront of your contingent workforce program. The visibility and control you gain of your contingent workforce through a VMS allows you to clearly analyze key metrics such as turnover, time-to-fill, fill rate and many more. 

The better your staffing agencies perform, the better access your organization has to top talent. 

Interested in learning more about the benefits of a vendor management system? Get in touch with Conexis VMS today for a demo of our innovative VMS solution

Conexis VMS Case Study

John Clark

John Clark

A Co-Founder of Conexis, and Staffing Industry Analysts’ (SIA) top 40 under 40 recipient, John has more than 15 years experience in the Contingent Workforce, Managed Service Provider and VMS technology space. John has designed, built and run dozens of client workforce programs across multiple industries, managing over $1bn in spend. John’s expertise sits in both program design and delivery as well as VMS technology implementation and management.

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