Economic downturns happen. History tells us periods of highs and lows are part of life, and it’s up to us to ride the waves. And yet, our knee-jerk reaction to market uncertainty is often to clench up, hold back, and fear the worst. It’s understandable, no company wants to go through layoffs or budget cuts. But there are ways to position yourself to overcome economic ebbs and flows. One way to do that is by leveraging contingent workers.
Why a varied workforce matters to companies
Bringing in focused support from a contingent workforce is not a new concept, but it’s being leveraged more today than it ever has. More people are choosing the life of a freelance worker or consultant and companies desperate to find talent are bringing them on board. The ability to ramp up with independent contractors becomes especially important for companies unable to fill full-time roles because of hiring freezes or tight budgets.
We also know that companies lean on contingent workers during times of economic uncertainty to avoid adding full-time employees in a recession. Contingent workers fill roles for a set period of time and make the fixed costs associated with employee wages more manageable. This strategy has a lot of benefits, as these workers allow companies to save on employee compensation and benefits. A variable workforce, especially when managed through an HCMS partner, will also minimize liability, regulatory procedures, and overhead costs associated with adding/removing employees.
With a variable workforce, companies can ramp up when needed and pull back when projects close. Freelance workers, independent contractors, and consultants also allow you to bring in on-demand access to specialized, highly competitive skills. This can be especially important when a tough job market bounces back quickly – as was the case in 2021 – leaving employers in a bidding war to hire back talent. If you have a trusted pool of independent workers, it’s easier to re-engage them when you need them. You know they work hard and align with your company culture. This reduces time to fill and results in higher-quality work because you’re bringing back talent familiar with the organization.
The flexibility from a variable workforce is just as valuable when the road to economic recovery is long. When cuts have to be made, cutting back on a contingent workforce is more straightforward and is a less public sign of your company’s financial situation than a mass layoff of full-time staff. If you have taken the time to develop a variable workforce ahead of time, you can make cuts in ways that don’t have as much of an impact on productivity and provide less of a risk of losing intellectual property.
Position your organization for whatever comes
Research published in July by Bain & Company showed that companies who come out of recessions stronger do so because they restructure costs before a downturn and act offensively by reinvesting for competitive outperformance. It should be noted that M&A opportunities abound in a recession, and companies in a position to act aggressively can see gains that are even more dramatic than during boom times, according to Bain & Company.
The pandemic caused seismic shifts in the way we work, wreaked havoc on the supply chain, and caused all companies to re-evaluate the way they do business. If there is good news about a possible recession, it’s that it will happen relatively gradually (unlike the events of March 2020). We’ve seen recessions before, and we know it’s not good business to be so afraid of what’s coming that we stop innovating and growing. Don’t operate out of fear and don’t plan for a worst-case scenario that may not happen. Building a workforce program that will get work done while providing flexibility in the event of a downturn just makes sense.
Analyze your current workforce sooner than later
Because the largest line item in a company’s budget is people, it’s something that can’t be ignored when it looks like a recession is coming. Take time now to evaluate and optimize your staffing plans. It’s a lot easier to make decisions before a crisis than during one.
A logical first step is to assess company-wide work output and document your current percentage of full-time workers and independent workers. From there, analyze talent availability, costs, and determine areas where it makes sense to increase use of flexible workers. Over time, you’ll gain a better understanding of the ideal breakdown of your organization’s fixed versus flexible workforce.
Get your house in order by pulling contingent worker data into one place so you have a tight handle on analytics. As you are diversifying the positions in your workforce, take this opportunity to manage new hires through an external payrolling partner. This puts the liability on the payrolling provider, which mitigates risk and helps protect intellectual property.
Taking a thoughtful approach to analyzing the work that needs to get done and who can do that work going forward, along with setting up new processes and tracking, will put your company in a strong position when financial events force other changes.
Get help from an experienced partner
You’re already headed in the right direction simply by starting to take steps toward a strategy that will help you get ahead of a downturn. Make sure you put yourself in a good place by partnering with someone who can help you engage your contingent workforce compliantly.
People2.0 can help you build operating flexibility with a variable cost structure so you can respond quickly to changes in your workforce strategy. Contact us today.