Digital transformation and the deconstruction of work have emerged as among the most disruptive forces to traditional business models. These trends are largely due to the Fourth Industrial Revolution’s rapid advances in artificial intelligence (AI) technologies and the democratisation of work. We expect the workplace of the future to be a more specialised and democratised environment that will be heavily reliant on both workers, who are equipped specialist skills, and leaders, who possess a broad set of enabling capabilities and can orchestrate the new ecosystem of work. The talent of the future will perform more innovative and creative work, alongside AI-powered processing systems that take on a majority of the predictable, routine work. Such professionals will demand a high level of flexibility and remote working arrangements, and will most likely even prefer to be engaged on a contractual basis.

In fact, we have seen alternative working arrangements grow in popularity over the last few years thanks to advancing technology and evolving workforce attitudes. Our 2016 Global Talent Management and Rewards Study found that 54% of the largest employers around the world intend to change more of their process and systems over the next three years to increase their flexibility. Many companies have also begun to take stock of their organisational model and human capital strategy to embrace this new plurality of means for work, beyond traditional employment, as they look to optimise skill shortages and surpluses.

Currently, organisations are responding to this imbalance of skills through increased use of highly-skilled contract-based specialists, particularly as it relates to accessing digital talent. Twenty-four percent of managers globally have at least one independent contractor on their team today. This practice is expected to grow to at least 50% by 2018 in response to the global skills shortage.1

The imbalances in today’s talent landscape require HR professionals to maximise their creativity in ‘getting the work done’ beyond meeting the talent needs of the organisation. Creative solutions can also reduce labour costs and develop a more agile working environment.

The question right now is – is your organisation ready to align your HR strategies to this new reality? Can your organisation capably and efficiently manage non-traditional talent?

Skills based pay

Our 2016 Global Workforce Study shows that base pay is the number one attraction and retention driver for talent – this includes employee and non-employee talent. However, while the science of rewarding employees is well established, many organisations today have yet to identify appropriate methods for compensating non-employee or contractual talent. Willis Towers Watson’s Contingent Workforce and Crowdsourced Pay Data Report confirms that a traditional approach to pay still prevails – at least 65% of respondents said they extrapolate the pay levels of contract workers based on compensation data for full-time employees.

Traditionally, compensation for a contractual role is based on the full-time equivalent and the specific skills required for that job. These are of course dependent on the function/discipline/career band and global grade within the organisation. However, the hiring process, scope of work, and employment duration of a contractual worker is very different to that of a permanent employee. Particularly, when a contractual worker is hired to undertake a specialist project that must be completed within a defined time frame. While some full-time employees may be capable of performing the same job, specialists often have unique skills that set them apart, which could justify the need for a more attractive compensation package.

For these reasons, employers who engage contractual specialists need to move from a job-based pay system to a skill-based pay system. This means rewarding them for the skills that they bring. It is difficult to benchmark such jobs, which is why the default practice is to compare them to the closest full-time equivalent. This practice may suffice when there are only few such arrangements. However, as we move towards the aforementioned plurality of means for work, the need for more accurate benchmarking becomes crucial.

A skills-based approach is considerably different and it may be difficult to even know where to start. Forty percent of respondents in the Contingent Workforce and Crowdsourced Pay Data Report recognised the importance of having access to pay rate data for contractual workers and best practices for procuring and managing this talent. This demonstrates that an increasing number of organisations are looking for more precise approach to pay benchmarking for contractual workers.

Such benchmarks need to be based on specific skills, contract duration, experience and past recommendations, among other factors. This can create a challenge for even the most seasoned compensation professionals. But evaluating contractual workers based on their skillset will help organisations find the best fit for critical jobs, both now and in the future. As business structures continuously change, organisations need talent that can easily adapt and be readily available to take on new work.

Contractual workforce management

The fleeting nature of the contractual workforce makes it very difficult to manage. One issue is the minimal or lack of benefits offered to contract workers. Another question is the on-boarding process for contractual employees – is it necessary to orient them to a company’s culture and goals? Many companies assume that since contract workers may only be team members for a short time, there is no need to invest in performance or career management.

In the U.S. alone, contract workers already comprise 35% (around 55 million) of the total workforce.2 The rapid growth and utilisation of this workforce segment, across virtually every industry, makes it all the more essential to have an effective Contractual Workforce Management (CWM) strategy in place. This will enable employers to understand the complexities of managing contractual talent and improve operational performance to effectively lessen labour cost. Without a proper CWM, employers might face potential legal and regulatory risks that negate the benefits of engaging contractual workers. Poor management of these employees could increase baseline costs without a discernible increase in value.

A CWM strategy can enable your organisation to effectively leverage contractual talent to help realise your business objectives. One effective action is to extend a comprehensive Statement of Work that clearly defines your expectations from contractual talent, including their role and goals. This can ultimately lead to saving time, effort and cost for complex projects.

An undervalued and often neglected activity with contractual workers is providing feedback and evaluation after the job has been completed. An increasing number of these individuals now request feedback for their work. Did they meet what was expected of them? Did they finish the job professionally and on time? These are just some of the things contractual workers want to know. The Statement of Work can form a sound basis for this feedback.

HR taking charge

Managing contractual workers may appear complex because it is still a largely unfamiliar process. The undefined role of HR and hiring managers in this process can add to the confusion. The task of hiring and managing contractual workers is often handed over to procurement, as they are traditionally deemed as vendors or suppliers. However, the rising prevalence of contractual workers has created a shift towards redefining them as human capital. HR professionals need to identify and clarify their role in this process.

Among the HR professionals in our survey, 58% admit that they have no involvement in managing contractual workers and have limited clarity on their role in such arrangements. Their responsibilities are usually limited to identifying where to post job openings and recommending pay rates. But they are often not informed as to when or why contractual workers are needed. Hiring managers are often relied on to trigger these needs and to oversee the process. There are often no checks and balances to justify the time and costs of recruiting this talent.

There is a clear gap in the current situation that explains why there are problems with determining appropriate pay and benefits for contractual workers. Not to mention a risk of overlooking the communication of company guidelines and values while ensuring compliance with legal and regulatory policies. These are among the important reasons why HR is best placed to take leadership of the management of the contingent talent process from end to end. Although transient, contractual workers can comprise a significant part of an organisation's business and goals.

A key takeaway here is that organisations should realise that dipping into the contractual talent pool is not simply a way to deal with talent shortages. There can be far greater long-term gains – if this activity is aligned carefully with HR and business strategies. When contractual workers are regarded rightly as an HR responsibility – just as their full-time counterparts are – it could propel your organisation towards greater innovation and even give you a competitive edge.

1 'The world is changing:' Why the contingent workforce isn't going away
2 How The Gig Economy Will Change In 2017


About the Authors

Towers Watson Media

Jasbir Singh

Willis Towers Watson

Sambhav Rakyan

Willis Towers Watson


Jasbir Singh is the Global Leader for Willis Towers Watson Data Services, Sambhav Rakyan is the Data Services Practice Leader in Asia Pacific. To connect with Jasbir or Sam, email wtwapdata@willistowerswatson.com.