It’s All About the Numbers – 5 Steps to Measure Your Contingent Labor ROI

Alex Margolin November 30, 2016
Red door in forest

There’s no escaping it; when trying to get management support for your plan- even if it’s brilliant- forget the target, never mind the vision- for most executives it all comes down to the cost- is it worth it for them financially? And how much?

Companies now spend an estimated $270 billion worldwide on contingent labor, with this number expected to rise much higher over the coming decade. And while this is often ranked in the top five spend categories, and despite the growing investment in contingent workforce, nearly 60% of all contingent labor is unaccounted for in financial forecasting and annual budgets.

Nearly 60% of all contingent labor is unaccounted for in financial forecasting and annual budgets.

Unbelievable as this sounds, it means now more than ever, building a solid, comprehensive contingent workforce management program is essential. That growing share of contingent labor in your organization is not going to manage itself- You need to have a detailed financial plan to ensure you’re not overpaying for your contingent labor on the one hand, and getting the return you need on your investment on the other.

5 steps to effectively measure your contingent labor’s ROI:

1. Determine KPI’s and cost effectiveness

Contingent workers are sometimes harder to assess by the classic HR formula for cost effectiveness (gathering data on pay, benefits, training, supervision and productivity), mostly because the productivity measurement is usually subjective when judging a contingent professional. In order to truly asses a contingent professional’s cost effectiveness, you need to compare their productivity with the regular professional staff, and determine your KPI’s by asking these questions:

  • How long did it take to complete the project, and was it as you expected?
  • What was the overall cost of the project all the way from pay, training and supervisory time required?
  • How did the quality of work compare with your regular staff?
  • How does the quality, time and cost of work compare with other suppliers out there? 2

2. Measure non-financial benefits

Monetary gains aren’t the only ones that should be measured under ROI. You need to consider not only the cost you save, but the cost you gain: Though often unrecognized as ROI, other intangible non-financial benefits are as valuable, such as:

  • Satisfied customers due to contingent workers' high performance
  • Reducing legal risks
  • Enlarging and improving overall workforce skills and expertise

And these are just a few of the benefits a well-designed contingent workforce program can produce. 3

3. Consider time to hire

Time to hire a contingent employee can be divided into 3 main categories:

  • Searching for talents. This is probably the most time-consuming factor here, and can take up to months. Searching the global market for suppliers becomes an even more challenging task when you lack the necessary technology and access to reach them quickly.
  • Availability. Most contingent workers should be available in 2 to 30
  • Onboarding. Onboarding a supplier doesn’t happen at once, and may days. cost you more time than you had in mind.

4. Calculate cost of hire

Consider all expenses not directly related to employment, such as HR, accounting, legal, etc. While a regular employee usually costs between 10-15%, a contingent employee may cost up to 50% more.

A major factor here is 3rd party margins sometimes constituting for 10-20% of the overall costs.

5. Include forecast volume in your cost analysis

In addition to comparing the cost of your proposed model to the current state, use forecasts data to analyze your ROI for different volumes. 4

Having said all that, your best chance at gaining valuable, precise, credible ROI insights, is by having true visibility into your contingent workforce management’s process and the right technology to support it.

Truth is, if you’re able to save valuable time and money with the right technology, making your ROI look that much more attractive-

When the cost of the services constitutes a lower percentage of your budget, you can spend more on talents and gain better value from the experience and quality of your contingent workers.

Stop wasting your time and money searching for the right talents – Find global talents quickly and easily. We guarantee it.

1 Fitz-Enz, J. (2009). The ROI of Human Capital: Measuring the Economic Value of Employee Performance. AMACOM. Retrieved from here
2 Nelson, J. (2015, July 15). How To Write A Bullet Proof Business Case For Your Contingent Workforce Strategy. ATC Event. Retrieved from here

Papaya Global payroll platform lets you:

  • Automate payroll with zero processing errors
  • Manage global payroll, PEO & contractors via one platform
  • Make cross-border payments in 100+ countries