The Surprising Benefits of Aligning Contractor Rates with your Permanent Workforce Remuneration

I was very fortunate to attend Paul Martin’s break out session “Reducing Costs through Rate Alignment” at the ATC’s Contingent Workforce Management conference last week. Paul is currently an onsite RPO/MSP manager for Hudson RPO and has worked on-site in Talent Acquisition and Contingent Workforce leadership roles for several of Australia’s largest employers.
Paul discussed his approach to achieving rate parity in his various roles where he has been responsible for his organisation’s Contingent Workforce Management strategy.
Please keep in mind that the following applies to non-award based Contingent Workers (i.e. professional contractors) and is not about eating into rates paid to award workers!
Paul’s approach is to define the ‘work’ required of the Contingent Worker using similar terms to that of a permanent worker.  This enables you to align the positions.  Then, assuming you have salary bands in place for permanent workers, you should be able to set a rate range in place that is aligned to the permanent remuneration, taking into account leave and superannuation, as well as perhaps adding a premium given the fact that the contingent role does not offer continuous employment.  Hence you have role alignment, and rate/salary alignment (easy peasey!).
Paul highlighted the benefits of this approach, and they are not all about cost savings:

  • But of course, cost saving is one huge benefit J.  In general, a little over 80% of the total cost of a contingent worker is the pay rate to the worker.  Often, the rate that goes to a contingent worker depends on many variables including:  The budget that the hiring manager is able to offer, the negotiating skills of the contingent worker or his/her recruitment agent.  The result is that you can have a wide range of rates for similar work.  Aligning rate ranges based on the work to be carried out, will help to remove extreme rates on either side of the bell curve, and will ultimately reduce overall costs, including on-costs as these are usually a percentage of the base rate.
  • Happy suppliers:  Usually, when implementing a streamlined contingent workforce solution, the first piece of the pie that organisations target to reduce costs, is the ‘margin’ that goes to the suppliers.  However, you can only do this to a point until eventually the quality of service may be impacted.  Paul’s approach removes the focus on squeezing the supplier, to focusing on achieving parity on the rate to the contingent worker based on the work to be done.
  • Enhances internal mobility and redeployment of permanent staff who may be up for redundancy.  So when a requirement for a contingent worker is raised, and the work is defined and aligned with how permanent work is defined, the internal mobility team should be able to better match existing permanent staff to that role instead of engaging a contractor.  This saves money, time and time to productivity.
  • Assists transition of contractor to permanent:  If the rates are aligned to permanent rates, then the transition should be easier to negotiate.
  • Improves rate negotiation:  Most people want to know that they are being paid a fair amount for the work that they are doing, aligned to the market.  As with salary banding for permanent roles, rate alignment for contract roles provides the organisation with a fair and transparent way to set the rate range for a position.

I really liked this presentation.  Paul’s approach was simple, practical and logical, and whilst cost savings was a key driver, there were other valuable benefits to be achieved.  Thank you Paul for sharing your knowledge and experience.
You can view Paul’s presentation here


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