In 1880, mechanical engineer Frederick Taylor made an interesting observation. When watching factory workers shift piles of sand, one shovel at a time, he thought: "What could make them more productive?"
Taylor eventually came up with his now-classic Scientific Management theory. The premises: Split work into smaller tasks, supervise people to do them in the best way possible, divide work between managers and executioners — and match the job to the worker’s capability and motivation.
In 2022 some of these principles still hold true, but the nature of work has changed significantly. Our “spades” are mostly digital tools. Workers are empowered to find their own efficiency formulas — and many teams aren’t even sharing the same space.
The modern world of work is a patchwork of full-time and part-time staffers — and the growing external workforce. Still, many try to apply century-old management principles to drive these people to success.
If you feel your external workforce management practices need a refresh, this guide provides the tips, tricks, and checklists to get started.
The external workforce is an umbrella term for all people who aren’t legally classified as permanent, payrolled employees. In other words: an external workforce means people you engage with on a temporary, on-demand, or flexible basis.
Categories of external workers:
All of these people represent a growing segment of the workforce. In the European Union, self-employed people account for 14% of the total labor force. In the US, over 12.7 million work independently.
On the business side, global organizations spent an astounding $4.4 trillion on contingent workforce last year, with the US alone footing a $1.1 trillion bill.
Source: SIA Staffing Industry Analysis
The analysis includes work commissioned from
Freelancers and independent contractors are now employed by everyone from government agencies to Big Tech firms, which is mostly a good thing.
But the growing external workforce market also has a darker side to it.
In 2019, NYT journalists found that Google surprisingly employs more independent contractors than full-time staffers despite publicly claiming that they comprise “less than 0.5% of our overall workforce.” They also pay them significantly less than FT people.
So before we move further this needs to be said:
Do not attempt to “pass-off” contractors as full-time employees to save on payroll taxes. Independent contractor misclassification is a legal offense in many countries (not just the US) and can lead to hefty compliance fines.
If you are not sure who you need on your team, check our primer on employee vs independent contractor classification. Apart from staying on the good side of compliance, knowing the difference between employees and contractors also helps you manage contingent workers better.
People are collectively tired of rigid employment models.
Per Gartner, 64% of workers would consider a new job only if it offered flexible hours. Also, about 10 million Americans now consider freelancing. Among them, 73% cite the ability to work remotely or flexibly as a driving factor.
Since setting up as a freelancer has never been easier, talented people leave the traditional workforce in droves and set up independent operations.
Where does this leave employers? Deeply puzzled. 87% of executives surveyed by McKinsey, say they are dealing with skill gaps in the workforce. But less than 50% know how to address the problem. Or should I say — they don’t know how to adapt their operations to external resource management.
Companies that recognize this shift don’t struggle as much with talent shortages. They get the missing skills from a contingent worker pool.
Data from SAP suggests that:
Surveyed business leaders also name faster time-to-market, greater agility, and improved financial performance among other benefits of using external workers.
The takeaway: Great people aren’t disappearing from the market — they just change their employment terms and choose to work independently. So when you exclude this cohort from your hiring pool, you’ll be short on good people.
The freelance economy has been growing since the mid-2010s. Yet, a good number of companies are yet to profit from this trend.
On the employers’ end, Deloitte notes the following issues:
All of the above are pressing constraints, but they aren’t deal-breaking barriers.
Imposed transition to remote work pushed many companies toward digitizing processes and “discovering” cloud apps. These changes created a technical pillar for welcoming the digital external workforce. Now you have to make a consolidated effort to adapt your operating practices to external workers.
We’ve got three checklists to help you make this transition significantly easier, covering HR, finance, and management tasks.
Work with your HR department on setting up the optimal external talent pipeline. If you plan to extensively rely on independent contractors, you need to build a documented process to ensure faster and more consistent hiring decisions.
Read more about onboarding freelancers.
External workers' payouts may seem like a complex issue (but it’s actually not). Ask your Finance team if your current accounting process fits shorter payouts (e.g. NET 0, 7, 15), plus if the needs better payment tools.
Read more about paying freelancers and other external workers.
We’ve arrived at the fun stuff: day-to-day external workforce management. To retain your best people you need to make ‘em feel included and appreciated. Collaborate with HR and department heads on the next steps:
Read more about managing freelance teams.
Drop “external” from workforce management. In high-performing organizations, 69% of managers say that they treat external workers the same as internal employees.
That’s the optimal path forward. Greater inclusion leads to higher engagement. Happy contractors stay with you longer and get progressively better in the work they do for you. (Plus, you save on the re-hiring costs).
To get you onto the right track here are four extra best practices for external workforce management.
External workers have more exposure to different management styles and operating practices. Still, your new hires don’t know how you prefer to get the job done.
Employees have the advantage of progressively learning the right way to do things and meet the set expectations. Independent contractors, in turn, are often expected to come and make work happen fast.
A 2022 Microsoft study of knowledge workers found:
For freelancers, the burden of knowing how work is done — and providing support for that work — is transferred largely from the client to the individual freelancer.
This mostly happens because clients (and contractor managers) lack awareness of the independent’s work, while the freelancer doesn’t understand the “inner kitchen.” Hence, external workers often resort to “guesstimation” — and not every “guess” is right.
You can deal with his information asymmetry and discrepancies in expectations with …. several plain Word documents.
Cultivate a culture of writing down:
Then turn all of the above team knowledge into a set of SOPs (Standard Operating Procedures) that every new hire — external or internal — can follow. Doing so reduces repetitive communication (as your team continues to grow) and improves the quality of delivered work through clear direction.
Questions will still come up. So give your external workers a list of the right people to contact in each case. Once again, this can be a plain text doc or a spreadsheet with names.
In some companies, external workforce management looks like a game of “hot potato.” Independent contracts get bounced between HRs, direct managers, and anyone in between all the time.
Obviously, this leads to a ton of issues:
Break this vicious cycle by creating a clear ownership structure for managing external workers. It can be either:
Compliance-wise, your external workforce operates “outside” of your organization. But contractors should not be kept out of all company events on a cultural level. That’s a recipe for high turnover.
Remember: you are competing for contractors’ time and attention with their current clients — and other opportunities on the market. Loyalty is hard to cultivate when your approach to management assumes keeping your people in the dark about future work, structural changes, or major shifts within the company.
So make an effort to include your contractors in the “bigger picture” by:
Also, as an HR consultant Josh Bersin rightfully notes:
“Each contingent worker touches your product, customers, and business processes in some way, with positive or negative effects.”
A better internal cohesion ensures consistency in your company's external presentation.
You’ve trained people in management. You’ve set better collaboration processes — now you need technology to pierce everything together.
The good news: a lot of your current tech stack can (and should!) be used for independent contractors. At the basic level, you’ll need:
As a next step, you should add a knowledge management tool — a virtual space, where you store all onboarding documents, SOPs, company- and contractor-specific guides.
Here are several collaborative knowledge management platforms:
And to speed things up on the admin end, consider an external workforce management solution.
You don’t need to go for an advanced and expensive vendor management platform (unless that’s what you need). If your main concerns are fast onboarding, contract management, and streamlined payouts go for a lightweight option like Xolo.
Through one sleek interface you can:
No licenses, no subscriptions. We charge a flat-rate fee based on your billing tier (which you can split with your freelance team). That way you don’t have to worry about extra charges when your collaborations go on hold.
Every other “future of work” report hammers down one idea: the days of rigid roles and linear career paths are numbered.
People now want portfolios of projects they did full-time and dabbled in as a freelancer. Employers can now assemble distributed and hybrid teams, featuring talents from all over the world. The roles within such teams don’t have to be static. They can evolve over time and assume both vertical and horizontal growth.
And if you want to get an upper hand in this brave new world of employment, you need to get your independent contractor management act right. With checklists, tips, and tools this post provides, it should no longer seem that hard!
Elena Prokopets writes content for tech-led companies & software development businesses, marketing to them. Her empathy for the customer, expertise in SEO, and knack for storytelling help create content that ranks well and drives industry conversations.
Elena uses Xolo so she can focus on her solo B2B content writing business without stressing over the compliance and admin overhead.
and get the latest updates and expert
business tips straight to your inbox.