It’s fair to say with contingent workers being an integral part of your workforce, the likelihood of rogue spending is reasonably high!
What is rogue spending?
It’s best described as the spending that occurs on engaging and appointing contingent labour in scenarios that are not approved, not accounted for, and have no risk management profile. Here are some examples:
- Where managers in a business engage staffing suppliers outside of the pre-negotiated rate contracts – it’s unapproved spend
- Where managers in a business engage non-approved staffing suppliers (for example, ‘friends’ or known suppliers from previous roles). Not only are these suppliers not approved for use in your business (and so, for example, are not qualified to meet risk, performance or financial criteria set by quality assurance) but the rate of remuneration is completely unchecked (and is often beyond contract rates)
- What Spend Matters calls “one-time, one-off ‘spot’ buys” – where someone in your organisation thinks a one-off engagement won’t be seen or won’t hurt the business
- Expense reimbursement: often plays out in the scenario of point 2 above, a manager uses their own resources to engage a contingent worker, only to then include that activity on their regular expense claim
- No purchase orders issued or approved
Rogue spending on contingent workers has the power to go unchecked, in many circumstances. And the major problem with the scenarios outlined above, is the advanced risk profile rogue spending can put your business in.
I’ve identified three strategies you can adopt to identify and mitigate the risk of rogue spending on contingent workers:
A well-sourced freelancer management system (FMS), not only removes risk, but can also offer your managers valuable functionality that may discourage rogue behaviour. As a single-source solution, the right system for your business may include:
- A functionality that makes direct sourcing simple and effective
- Simplified onboarding and offboarding of contingent workers
- Compliance and legislative management of contingent workers
- Invoicing and payments
- The ability to talent pool, in the cloud, and hence curate and self-select talent
In addition to curbing rogue spending, the Freelancer Management System will offer your line managers, HR and Procurement leadership valuable contract worker data including:
- Improved worker visibility. Rogue spending is commonly achieved through contingent worker’s getting through the process cracks in your talent acquisition system. This visibility allows for improved cost-control: rates are benchmarked, and project deliverables monitored, leading to notable savings. Aberdeen research suggests the potential savings in cost of labour, via the usage of a freelancer management system sits at an average of 16%
- Better visibility also leads to better risk management. Compliance with statutory stipulations is critical, and many of the good FMS systems come with pre-set rules to help prevent misclassification risks like ‘deemed employment’
- Insights into project collaboration and progression. If your freelancers are working remotely or in a different timezone and you don’t have an established remote working culture, the right FMS will make the engagement of contingent workers far more organised, proven, and successful
With an intuitive, easy-to-use technology interface in place, rogue spending on contingent workers will become more difficult to achieve, and less likely to occur.
Purchasing Process Simplification
If the established processes for purchasing in your business are cumbersome, lengthy and difficult to navigate, a process review might be worth considering. Purchasing processes that can be reduced from weeks to days or hours, will ensure your managers are complying with purchasing rules of the organisation.
Technology will absolutely help. A purchasing system, that integrates with, or is a key feature of your Freelancer Management System, will help in the simplification process.
Established enterprise workforce management systems can be hard to detach from, especially if they’re ingrained in the accepted business-wide processes. But if you can integrate with a cloud-based solution (accessible anywhere), you’ll reduce the cost burden, resourcing and time obstacles of sourcing and managing contingent workers. And you’ll see a clear drop – if not elimination – of rogue spending.
Go Back to Basics: The Steps of Robust Purchasing Review and Consolidation
Outside of technology implementation, reviewing the workflows of your business’ purchasing behaviour is a great way to curb rogue spending. By undertaking an audit of your processes you’ll see where contingent labour engagements and spending are off-contract – the critical source of overspend on labour. Not to mention the time-wasting factor associated with accounts reconciliation, and more difficult contract negotiations.
Below we have outlined a pathway to understanding the source of your rogue spending on contingent workers, and the way forward through the extraction of quality workforce data:
STEP 1: Assessment
- Review how, when and where your business utilises all categories of workers: full-time, SOW, independent contractors, temps and freelancers. By understanding the business’ needs, you’re better placed to allocate resources and understand where improvements are needed.
STEP 2: Analyse
- Take the data from Step 1 assessments, and with the relevant stakeholders, analyse the business needs. This can be an invaluable step in optimising workforce allocations, understanding underperforming departments, or where more resources are required. With the right reporting in place, you’ll be able to highlight contingent worker spend anomalies compared to the spend forecasts established, and can then hone in to determine how much of the error is due to rogue spending.
STEP 3: Communication
- Explaining the approved hiring processes to managers will go a long way to driving compliance in their spend behaviour. Listening to the needs of contingent workers is critical too. And, implementing their suggestions (or part thereof) as a means of helping their teams meet KPI’s will help to reign in rogue spending.
STEP 4: Centralise
- Whether through technology or a single approval department – like Finance, HR or Procurement – keep the approvals process centralised and simple. This allows for zero uncertainty as to how managers can expedite the approvals of new contingent workers for the business.
STEP 5: Risk Warnings
- May sound militant, but implementing risk warnings as part of your VMS or FMS will keep rogue spending contained. Warnings can alert users to when their budgets are close to reaching the limit, or if a manager is engaging in off-contract talent acquisition. The systems can also automate and monitor company policies to match invoices to PO’s and ensure compliance with contract and supplier rates, so you’re never off benchmark.
The challenge that exists today is this: the dual issue of increasing demand for contingent workers, coupled with the multitude of options available to access them and their specific outputs (like online talent marketplaces) makes it incredibly easy for managers and others in your organisation to go rogue. As long as contingent labour is duly accounted for in workforce planning, forecasting and financial budgeting, a solid groundwork will be laid.
Progressive organisations are tackling the issue of rogue spending through effective process review and management, and through the implementation of enterprise-wide technology systems, that both restrain rogue spending, but also make life easier for managers.
An integrated, cloud-based approach that specifically tackles pain points of all stakeholders in your business, will help to significantly reduce costs and avoid the risk exposure of your organisation.
Does your organisation have a rogue spending problem?
As one of the world’s top suppliers of contingent worker management solutions, CXC is perfectly positioned to optimise all elements of your contingent workforce strategy. With operations in more than 50 countries across 5 continents decades of experience, we can assist with every aspect of your program.
If you would like to find out more about how we can help with your contingent workforce solutions please contact us here.