A Procurement Manager’s guide to reducing the cost of their contingent workforce

There is a saying that goes, “There’s more than one way to bake a cake.” This is doubly true when trying to control your contingent workforce spend. Recruitment Agencies and MSP providers will often quote large percentage figures when it comes to cost savings.

While there are clearly many great savings to be had, it's important not to double count; for example, if you reduce your overall number of workers, then this will change the savings you make from National Insurance (NI). The savings calculations can become very complex very quickly and although it can be frustrating, it's hard to put a meaningful figure together without a deep dive into the data. Sorry.

So, putting the actual figure to one side for now, let’s look at 6 ideas for reducing Contingent Worker Costs and their potential impact on your business.

Harmonisation of NI contributions: If you are not doing this, then you need to ask why not? For organisations operating in the UK, aligning your contingent workers' working arrangements to minimise National Insurance contributions can be really cost-effective. Consider using an MSP provider who takes responsibility for NI contributions rather than your company directly.

Pay Rate Negotiation: Ensuring your Pay Rates are competitive can be challenging. In addition to this, the longer a Contingent worker stays with your business, the deeper they may understand your business, including things such as proprietary systems and software. This can be hard to value. However, good agencies and MSP providers can really help here. Morgan McKinley, for example, has some great information on pay rates that can really support those tough negotiations, making sure you are paying competitive but not excessive rates within your industry.

Supplier Management: To some extent you have already done this, right? But every now and then you get a call from a senior manager in your business asking if they can add another agency to the list. A supply list is very static for a long time. Consider using an MSP provider who can manage the list for you. MSPs can use their buying power across their customer base to drive down better rates through volume discounts. Also, you can redirect any new agency sales calls to the MSP procurement team!

Role Rationalisation: In principle, this is a way to make large savings. The idea is that you utilise a third party, e.g., an MSP or a consultancy, to evaluate the roles within your business that contingent workers are filling and determine if there are any overlaps or redundancies. Streamlining roles and responsibilities can reduce the number of contingent workers needed. However, this is very hard to implement. Your third party must have an in-depth understanding of how your organisation works. You may find that members of your organisation are not always keen to share such information and, in extreme cases, can grind the process to a standstill. Yikes!

Optimise Worker Utilisation: Although a variation on the above, the principle here is, where possible, to negotiate part-time or flexible arrangements with contracts to align hours more closely with the work your business needs completed. In recent years, this has become less fashionable, with many workers seeing the extreme case of “Zero Hour” contracts in a less favourable light. As of writing this article in October 2024, the current UK government has stated their intent to ban zero hour contracts under its Employment Rights Bill, which could take effect as soon as late 2024.

Strict Time and Scope Management: A clearly defined project scope and deliverables can help avoid contingent workers extending beyond the original agreement. We are all aware that in real life projects can overrun. To some extent, it is human nature to be optimistic when talking about deliverables. But I would argue that the “observer effect,” i.e., the fact that observing a situation necessarily changes it. can have a positive impact on your overall project costs. Time tracking tools could potentially be of help here by monitoring worker hours in real time.

So, in conclusion, there are lots of ways to reduce costs. But it’s not always a piece of cake. The good news is that there is help out there.

This article was written by Ed Bushnell August 2024

Ed Bushnell