As the contingent workforce continues to grow, the complexities of managing the spend and the talent become a continual challenge for both HR and Procurement teams. To assist with the management of contingent workforce spend, Managed Service Provider (MSP) and Vendor Management Systems (VMS) have become more popular over the last decade. While these models help with managing traditional temporary labor and Statement of Work or complex staffing, little has been done to manage Independent Contractors or Freelanced positions.
To effectively manage this growing area of the workforce, it is important to understand the different technologies available to your organization. Specifically, looking at how the emerging technologies coincide with the growth of more independent, non-traditional staffing models, targeting the freelance market with a Freelance Management System (FMS).
Recently, Gartner released a report titled, Getting Ready for the Next Generation Workforce and the Impacts of the Freelance Economy which takes a look at emerging technology to coincide with the growth of these more independent, non-traditional staffing models, specifically targeting the freelance market with a Freelance Management Systems (FMS).
What is a FMS and what type of workers fit into this subcategory? A Freelance Management System (FMS) is a cloud-based workforce solution that helps companies manage their independent contractors and freelancers. The FMS will support independent workers that do not want to become W-2 employees of a staffing agency and instead choose to be paid by 1099 (in the US). According to Gartner research, this type of worker has been growing steadily in the US and is currently around 30 million workers.
Why is this model of employment so attractive to today’s workers? The biggest reason for the increase in freelance workers is flexibility. An employee is not tied to a company, a desk, or even a specific job while working as a freelancer. They make their own hours and often times determine what their pay rate will be. Additionally, the independent worker does not need to utilize a 3rd party staffing agency to find placements and therefore, are able to retain a larger percentage of the salary they are earning, especially in a high demand position.
There is also a risk in taking on this type of work, but to most of the younger workforce (who are the largest demographic of freelancers), this is a risk they are willing to take. The 2 biggest risks include, not receiving a steady paycheck and difficulty of breaking into larger companies to obtain projects. Both the positive and the negative for the worker can be impacted by utilizing a FMS.
How does the FMS benefit companies? As with most new technology solutions there are positives and negatives. Currently the FMS will not replace your existing VMS, however, it will allow for a more holistic management of your contingent workforce. Included in the holistic management, is the mitigation of risk associated with bringing on independent/freelance workers to your organization, making it easier to find and onboard qualified workers.
For example, in the US, hiring an Independent Contractor or Freelancer has tax implications and legal consequences if done incorrectly. Employers are not required to pay social security or Medicare taxes, paid time off, or health insurance for independent workers. If classifications of independent workers are incorrect, companies may be liable for back taxes and even have been required to pay millions in back pay or benefits to previous independent workers. By using a FMS, freelancers are put through a thorough screening process to determine if they are truly able to classify themselves as freelancers.
Now that the risk has been mitigated, what other advantages could utilization of a FMS produce? First, it will allow for a reduced cycle time for candidate sourcing. With access to a system of pre-approved freelancers for your organization, choosing the talent becomes more streamlined. Managers will be able to log-in and query on the specific requirements of a position and length of assignment. From that search, the potential candidates profiles are listed, including candidate profile details such as background checks, right-to-work paperwork and tax ID number verification.
Additionally, utilizing a FMS system will enable buyers to rate individuals and review performance write-ups, which are posted anonymously, to assist with their hiring decision. Some systems will also allow for the storage of previously completed work for review by the potential buyer or hiring manager.
Finally, management of spend of the freelancers is contained within the system. Invoice consolidation is also possible with a FMS. By having all spend in one system of record, faster turn-around on payments based on deliverables through an escrow account is accomplished, as well as the ability to track deliverables and ensure you are paying for services received. This makes both the worker and the buyer happy.
Is there any downside to a FMS? The biggest downside to using freelanced workers is there is no staffing agency to act as the workers employer. Without using a 3rd party as the employer, it becomes even more important that the workers are classified correctly and all work is running through the system.
Who should be using a FMS? The ideal candidate for a FMS would be a company using around 100 or more Independent Contractors or Freelancers per year. The most widely used areas for this type of work is in IT and for creative work within agencies or internal marketing teams. However, highly specified skill sets are being targeted for freelance work even outside of the IT and Marketing space. Overall, managing a contingent workforce can be an arduous task for both HR and Procurement and is a growing topic of discussion among organizational leaders, including at the Institute for Supply Management’s Annual Conference.
If you are already using a VMS, then having the added layer of FMS is the logical next step. If you are not using a VMS, do not shy away from looking into different ways to manage your contingent workforce and spend. By utilizing new tools your organization as a whole will increase your ability to find highly skilled talent, mitigate risk and ensure correct payment for the talent you need to take your organization to the next level.
For more on freelance management, Source One the exclusive sponsor of ISM2016’s Exec IN forum, will be sharing additional insight as presenters during the annual conference, discussing how to manage responsibilities and effectively succession plan by leveraging new tools, market data, and on-demand resources in an increasingly contingent workforce.
About the Author: Tracey Horrocks is a Project Manager at Source One Management Services, LLC with years of experience in procurement and strategic sourcing in an array of categories including Professional Services, Marketing, and Facilities Maintenance. In her role, Tracey serves as a pundit for developing RFPs and executing strategic sourcing strategies. Her detailed approach to supplier identification and vendor management helps clients achieve sustainable costs savings and operating efficiency.