External workforce management is the process by which businesses manage their non-payroll employees. Rather than the staff who are working full-time and hired through traditional recruitment methods, the external workforce includes a wide range of workers – freelancers, consultants, and more. Here’s everything you need to know.
This article is part of our guide on contingent workforce.
Why is External Workforce Management so Important in Organizations?
According to Forbes, between 40% and 50% of the workforce are external workers. In and of itself, that would be enough to ensure any business should be paying attention.
For many companies, external workforce management is even more critical. Many do not have a predictable workload coming in, and may get a sudden request from an existing or new client at any time. To fill these gaps at a quick turnaround, you’ve got to rely heavily on an external workforce that can be scaled up and down easily.
Without freelancers and temporary workers, businesses can be left paying a full-time salary for staff that they don’t need, or risk not having the right talent to hand to serve their own clients.
What Types of External Workforce Are There?
The Bureau of Labor reports that more than 10% of the U.S. workforce are self employed, which in real numbers is over 16 million people. However, not all external workforce staff work in the same way. While there may be some overlap, consider these four categories while you decide what you need:
Freelancers: A freelancer usually works on a per-project basis, and will have other clients that they are engaged with at the same time. They choose their hours, their location of work, and how much they are compensated for the work they complete. While you can establish long-term relationships with a freelancer for repeat projects, the work tends to be short-term in nature.
Contractors: A contractor also works solo, and the term independent contractor is often used interchangeably with freelancer. However, usually a contractor is hired for a longer-term project, such as a UX specialist to oversee the design of a new website. It’s normal for a contractor to work for a company for months at a time to deliver on a project.
Consultants: Consultants are hired to provide solutions and support to a company, and they usually have specialist knowledge of a specific industry or vertical. They may be less in the details of a single project, and instead give support, advice and strategic insight over a longer period of time. They often give training and coaching to the internal workforce.
Temporary Workers: Temporary workers come in to fill a specific gap, perhaps due to seasonal demand or a leave of absence by full-time employees. They may work full-time during a specific period of time, and often fill less skilled roles than knowledge workers, such as making sure shelves are stacked during the holiday season.
9 Best Practices for External Workforce Management
Getting external workforce management right is no easy task. Here are 9 best practices that can help your agency take it to the next level.
- Leverage diverse sourcing channels: Where are you sourcing your external talent from? Consider building a talent pool of suitable skills and niche expertise, drawing from existing freelancers, those who have applied for positions in the past, and talent profiles vetted and pre-approved by a reputable Freelance Management System (FMS).
- Conduct thorough screening and assessment: As an agency, when you send staff to work for your client, that’s your own reputation on the line. Make sure your freelancers are screened and vetted, and that you’ve seen examples of their work and references, too. KYC definitely applies to the external workforce.
- Ensure compliance with legal and regulatory requirements: The buck stops with you, and that includes regulations and local laws. Gathering all the right documentation such as W9 forms at the start, and ensuring you get quick signatures on freelancer contracts, NDAs, and non-competes can make handling all the legal bells and whistles so much easier.
- Facilitate open communication between internal and external teams: At the end of the day, you want to be one big happy family. Making sure that freelancers feel like part of the team can be hard, so onboard external workers to the same systems and processes, such as the weekly meeting or the office Slack. (That includes the channel where you share cat memes.)
- Establish performance metrics and KPIs: External workforce management is a two-way street. In order to support independent contractors better, create goals and key performance indicators for all workers, and hold them accountable for productivity and output. Make sure you’re transparent about expectations from day one.
- Offer relevant skill enhancement and training opportunities: If you want to build relationships for the long-term, professional development is important for both you and your freelancers. It shows staff that you’re serious about working with them moving forward, and helps to boost their ability to meet a broader range of needs for your own clients.
- Implement performance-based incentives and rewards: Who doesn’t like a bit of praise and recognition? Your external workforce needs to feel like they are doing a great job! Consider creating a bonus package for those who have gone above and beyond, or even implementing something as simple as freelancer of the month! 🏆
- Ensure proper classification of workers: Aimed at protecting the freelancer, if the IRS feels that your 1099 workers should actually be employees, you’re going to be facing some serious penalties. Depending on the kind of role your external worker is filling, the freelancer may need to have established behavioral and financial control over how they work for your business to stay out of the line of fire.
- Utilize project management tools for effective coordination: When you’re working with an external workforce, tasks can slip through the cracks. Using a single system to coordinate projects, stay on top of milestones, and establish clear communication is a game changer.
A robust freelancer management system (FMS) like Fiverr Enterprise offers complete visibility and control over your freelance workforce. When it comes to external workforce management, it checks all the boxes from hiring and ongoing management, to compliance and payments.
Related content: Read our guide to contingent workforce management
Related content: Read our guide to contingent workforce solutions