Freelance workers could make up 50% of the UK workforce by 2020 ©123RF
Freelance workers could make up 50% of the UK workforce by 2020 ©123RF

Procurement's role in the gig economy

6 October 2017

With the gig economy growing, procurement needs to be aware of various employment statuses, in order to mitigate risk and add value

Logging into an app to hail a taxi, order a takeaway or manage our money is something many of us now do almost without thinking. Would you do the same to find work? An increasing number of people are – and some of them are working in your business. In the words of Matthew Dickason, global managing director of Hays Talent Solutions: “The emergence of app-based employment models is radically changing the employment market.”

Between 2008 and 2016 the number of freelancers in the UK increased by 43%. Self-employed people now make up around 16% of the UK workforce. Perhaps no surprise then that a study by Deloitte found some large companies estimate up to 30% of their procurement spend goes towards contingent workers.

There are several reasons why the use of such labour is growing, explains chief executive of the Recruitment and Employment Confederation Kevin Green: “We have a talent crisis in the UK and are close to full employment. Employers are struggling to find labour, skills and talent. Organisations need to think about flexible workers because it enables them to manage workload pressures and respond to peaks and troughs and changes in customer demands. And it allows them to plug [skills] gaps.”

Dickason adds that the evolution of technology is also driving the trend, especially through the so-called gig economy (online marketplaces for services). Not only do platforms such as Uber, Deliveroo, Freelancer.com and People Per Hour allow anyone to buy and sell services quickly and easily, but the digital revolution also means traditional businesses are being forced to rethink how they operate.

“Organisations have to change so much faster, and as a result they are having to bring in lots of different skills,” he explains. “That means running more small projects to drive transformation. Skills need to be bought in that may not be required for the long term. There is more of a strategic imperative to have flexibility around non-permanent workforces.”

So what does this growth mean for procurement? With the function traditionally involved with the buying of temporary labour services, there is a clear knock-on effect. According to John Lewis Partnership CPO Paul Bestford: “We’re seeing huge fragmentation and gig economy models springing up in a range of organisations that we source from, including law firms, management consultancies and call centres. So many industries have either already been disrupted by gig models or are on the verge of it.”

 

Managing risks

Bestford acknowledges that “the gig economy has a slightly bad name”, and he’s right. Those companies that were not so long ago celebrated as innovative disrupters now stand accused of exploiting those who work for them. Earlier this year two Uber drivers won a case to be classed as ‘workers’ (meriting more employment rights) and a group of Deliveroo riders have also taken the food delivery app to tribunal over bogus self-employment.

Such cases and a rising tide of media and public awareness – mainly over the lower paid end of the gig economy – led the government to task Royal Society of Arts CEO, and former Tony Blair adviser, Matthew Taylor, with carrying out a review of modern employment practices. The Taylor Review, published in July, focused on the need to provide good work for all, said companies should report on use of agency workers, and advised the creation of a new employment status: dependent contractor.

The abolishment of employment tribunal fees at the end of July also needs to be considered. The number of cases taken to employment tribunal fell by 70% in the four years after fees were introduced, so now cases will rise, experts warn.

“For the last few years internal grievance systems were the de facto way of dealing with any issues,” says Andrew Stephenson, people director at car dealership Lookers. “That will change: we are going back to the world of ‘let’s go to court’. We will face many more challenges, which at best will eat time and resource and at worst could cost a lot of money and destroy reputations.”

“Procurement managers need to be aware that when they are procuring labour services there’s now more liability, with the absence of fees and people being more aware of their rights,” adds Alan Price, CEO of HR compliance firm Croner. He adds that in particular he has seen an increase in contractors claiming holiday pay recently, due to changes in employment legislation.

Often, he says, procurement isn’t aware it is creating worker status through the requirements it is putting into the contract, such as telling people to wear a uniform or work a strict set of hours. “If someone claims five weeks’ holiday pay based on an average salary, it would amount to around £2,500,” says Price. “That is quite a big chunk out of a £12,000 contract, for example.”

However, before you panic, Barry Stanton, partner at law firm Boyes Turner, reassures that although more people will bring claims, “it will take a while to ramp up”. What’s important, he says, is to keep abreast of regulatory changes and “be aware that it is not straightforward”. Green adds that legislative changes related to the Taylor Review – although none had been confirmed at the time of writing – will not come into effect before April 2018 at the earliest.

Stephenson advises procurement to think beyond the contract, particularly at the lower paid and lower skilled end of the labour market, where there can exist disturbing links to bad employment practices and even modern slavery.

“Doing the paperwork doesn’t mean it will tick all the boxes,” he says. “In previous businesses I’ve had issues where we had the paper chain saying people would be treated well, but had anyone actually looked around? When our cars are sold, they are valeted, which is outsourced and managed by procurement. You can get the vibe that [procurement] don’t think they need to worry about modern slavery, but of course they do.” 

Green adds that “you get what you pay for” and so procurement must be wary of driving everything by price. “Recruitment agencies are lean and you need to understand the detail and what is covered by the margin,” he advises. “If you don’t, you can end up with workers who haven’t been checked [for right to work, for example].” A recent study by the University of Sheffield and the University of Bath found many firms’ checks on workers were “not fit for purpose”, running the risk of forced labour in, or on the edges of, their businesses.

 

Buying in skills

In higher paid, more highly skilled roles, such as IT contracting or freelance creative work, such risks are less inherent, and gigging is viewed more positively. Ludvik Thorsteinsson, sourcing and procurement lead EMEA at marketing group IPG says in his industry the services advertisers provide has become more complex but “the value of the idea has remained”, putting a premium on freelance specialist talent. “Freelancers help the firm to be nimble and deliver complex requirements,” he adds.

But that doesn’t mean there aren’t other risks to consider, such as losing strategic or specialist capability at a key time, or process failures leading to a disengaged workforce who then can’t – or won’t – deliver valuable work. For example, Dickason says, you need to make sure people are being paid correctly and on time: “You don’t want to end up with a disgruntled workforce because of what your provider is doing.”

There are opportunities for procurement to add value in this area beyond reducing costs. “It will create an interesting dynamic for procurement,” believes Bestford. “Competitively, procurement needs to be on the front foot. If you get to the gig first, the opportunity to take cost out of the supply chain is enormous. If procurement is not ready to take advantage of that, you could leave your business at a disadvantage. But it’s not just about cost. It’s about the essence of a business and how it creates sustainable value.”

There are four dimensions to balance: cost, risk, efficiency and quality, says Dickason. He adds that while procurement used to be cost-driven, that has developed. “We’ve seen a shift to talking about risk mitigation and quality of resources. That makes procurement more aligned to HR and operational objectives.”

And as the number of temporary workers in organisations grows, this alignment is critical – and sorely needed. According to the latest Ardent Partners State of Contingent Workforce Management report, only 30% of businesses have struck an ideal balance in their contingent workforce management programmes, despite 56% viewing collaboration between HR and procurement as vital to such a programme’s success. Is the traditional split of HR looking after permanent staff and procurement owning contingent labour no longer fit for purpose? Some of those SM spoke to believe so.

“Today many organisations allow HR to manage permanent hires and procurement to manage the augmented workforce. This is a decision made early, defining the requirement for resources with no strategy on what the mix should be,” believes Philip Thomas, a CPO with experience in the banking and technology sectors. “A business needs to define its strategy for internal to external resources, allowing agility in workload and skills transformation, but few have done so.”

Thomas thinks that procurement should do more via supplier relationship management to work with contractors. “Many corporations spend a lot of time and effort defining corporate values and implementing a robust performance management system, yet usually more than 25% of their organisation is excluded, as they are external,” he explains. “This needs to be managed through SRM to ensure sufficient clarity and demarcation between managing the resources as a supplier rather than ‘part of the team’, where there is a risk of employment claims. Ensuring suppliers are briefed correctly and performing the correct level of resource engagement is critical.”

However, Gareth Nugent, CPO at television group Discovery Networks, which like IPG relies on freelance talent, believes all contracts, whether permanent or contingent, should be the responsibility of HR. “They then need to work with procurement to decide on the best supply chain model for meeting these resourcing needs,” he says. “Procurement can help negotiate consistent, value-for-money rates and contract terms.”

At Lookers, HRD Stephenson is encouraging HR and procurement to work more closely. “Procurement looks at the contract, the spend and the rules, but we want to work on making sure [the outsourcing experience] feels more like the organisation, without making them employees,” he says. “Yes, we want to cut the price, and part of that is not having them as employees, but it needs to feel fair and in line with our culture.”

The gig economy is not going anywhere. Some predict freelancers could make up 50% of the UK workforce by 2020. This is an opportunity for procurement to collaborate with HR on workforce strategies that take out costs, mitigate risks and add value through flexible access to the right skills at the right time. Bestford, for one, is excited. “There will be lots of additional responsibilities on the CPO’s shoulders,” he predicts. “The gig economy will cause a shift in how procurement sits.”

 

Employment terms demystified

Employee

Works under a contract of employment ie they must provide personal service; the employer must provide work and this cannot be turned down. The employer controls when, where and how the work is done.

Worker

 

Works under a contract to provide personal service and is not in business on their own account. There may be either an element of mutuality of obligation – ie the employer has to provide work and the individual cannot turn it down – or an element of control, but one or more of the core elements will be missing.

 

Dependent contractor (New category suggested in the Taylor Review).

A reformation of the worker status: someone who does not meet the employee criteria but is not in business on their own account.

 

Self-employed individual

Someone in business on their own account and acting in a professional capacity. They can negotiate their terms, submit invoices for work done, can send someone to do the work in their place and have no restriction on declining work.

 

Using technology to manage freelance workers

At marketing group IPG, freelance workers represent the company’s second largest spend, with $35m a year spent across marketing agencies in the UK. At its peak, about 535 freelancers work across IPG’s brands. “It’s about embracing a highly skilled and efficient workforce,” says EMEA procurement lead Ludvik Thorsteinsson. “The creative industries wouldn’t function without freelancers.”

Previously, the company had 235 different recruiters on their books, and Thorsteinsson says there was some “opaqueness” about how some contracts were run. Implementing software platform YunoJuno has enabled IPG to reduce the number of agencies to 39 within six months and reduce recruitment agency fees by 42%.

“It used to take three weeks to fill a role, now the quickest we’ve done it in is five minutes,” says Thorsteinsson. Having one platform also improves payment times and, as it is more transparent, freelancers “get the rates they deserve”. 

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