What’s Wrong With Hiring a Gig Workforce? Pretty Much Everything (Part 2 of 2)

You can’t read a business publication these days without hearing about the gig economy and how it can help companies. However, despite the hype, the concept brings with it numerous hidden management problems. In the worst case, think of the gig workforce as a bunch of temps with low commitment levels competing against permanent teams that have been working together as a cohesive unit for years. In last week’s part one of this two-part series, I highlighted the 10 most important management problems created by a gig workforce. The second part will highlight the remaining major problems.

The Remaining 10 (Out of 20) Problems Associated With Hiring a Large Percentage of Gig Workers

The remaining major management problems related to managing a gig workforce are listed below.

  1. Long-term project completion is more difficult with gig workers — If your work involves a series of long-term projects, the frequent turnover of gig workers makes continuity difficult. In addition, because long-term projects involve a great deal of information sharing, it is difficult when gig workers have restricted access to company databases. And, sharing becomes even more difficult when employees are forbidden from sharing critical/confidential information with gig workers. So, when a team containing both gig workers and employees is working side-by-side on a problem, reaching a consensus will be difficult among those who have different levels of information. Also, because gig workers have a lower status and lack job security, it may be extremely difficult to get honest proactive feedback or information sharing about problems with project leaders who require honest feedback.
  2. Gig workers are more likely to behave badly — Gig workers are unlikely to be fully committed for the multiple reasons already mentioned. Knowing they have no long-term future with your company, they may be less concerned about losing their job when they violate company rules. This means that gig workers are less likely to respond appropriately to disciplinary actions relating to absenteeism, theft, harassment, and safety. In fact, in one recent case, large-scale gig worker misconduct forced a scooter company to shift to permanent employees.
  3. The absence of benefits may cause them to come to work when sick — To limit corporate costs, gig workers seldom get healthcare and sick leave benefits (unless they have held benefits from another source). Gig workers, because they need the money, are likely to stay sick longer and to come to work even when they’re sick. By infecting others, they unwittingly further contribute to a loss of team productivity.

Problems with broader business and HR implications

Some of the problems related to having a gig workforce also have impacts outside of the individual manager. They include:

  1. Training is problematic — with high turnover rates, whatever training you invest in may soon walk out the door when the gig worker inevitably leaves. As a result, some companies offer no training, while others offer only limited training to gig workers. This can cause a company to have under-skilled gig workers because they generally join with less experience and education than permanent employees have. Training so many gig workers is expensive. Failing to provide them with the necessary training may cost more as a result of higher on-the-job error and accident rates. Managers should also realize that the temporary nature of the job may, unfortunately, mean that your gig new hires won’t be motivated to take any offered training seriously, or to learn on their own. And unfortunately, failing to provide new hires with upfront training may discourage applicants for your gig jobs.
  2. Gig workers make it harder to maintain your culture — Gig workers frequently lack engagement and commitment. These two factors might mean that gig workers will never read your mission or corporate values statements, have no interest in understanding, or maintaining your team’s culture. And to make matters worse, with gig workers coming with experiences from many different companies, their many added diverse perspectives may actually contribute to the dilution of your current corporate culture.
  3. Frequent gig departures mean continuously losing company secrets — The loss of company secrets can be an added cost resulting from the constant turnover of gig workers. The loss of secrets is exacerbated in some industries where gig workers freely move between companies. Every time a gig worker leaves, it is another opportunity for them to take company plans, new ideas, secrets, and customers with them. This continuous leakage makes it harder for a firm to maintain its competitive advantage.
  4. With so many leaving, it will also be difficult to retain corporate knowledge — In addition to losing secrets, high gig turnover makes it difficult for the company to retain its acquired knowledge, which is an important issue at many companies. Just like any employee, gig workers are continually gaining knowledge, and developing solutions. However, with their high turnover, it means that whatever knowledge that gig workers have acquired regularly leaves with them. And because many knowledge capture systems ignore gig workers, a great deal of valuable learning is lost.
  5. A smaller leadership pool will be available — A company must continually develop leaders to grow. Normally a company looks for a percentage of new hires to become future leaders. High-potential programs ignore gig workers, which means that when a significant percentage of your new hires are gig workers, your potential leadership talent pool will be much smaller. And because managing a large population of gig workers is extremely difficult, some of your permanent employees may even be discouraged from seeking a leadership role.
  6. Reference checking and onboarding become even more critical and expensive — Even though gigs are contingent workers, you still must be able to trust them. That trust only comes after thorough background checks. Many companies conduct only minimal reference checks on gig hires. To avoid the bad PR resulting from bad new-hire behavior, gig reference checking must be robust. The high volume of gig hires, the number, and the cost of thorough gig reference checking will be high. This is especially true for companies involved in transportation, education, childcare, or medical care. The reference-checking process may have to be continuous to ensure that a good hire doesn’t go bad months after they are hired. Effective onboarding is also critical because it gets all new hires up to speed quickly. Once again, many companies don’t onboard gig hires, and even when they do offer it, the lower engagement levels of gig workers might mean that they will pay little attention during it.
  7. Current and future legal issues will be a continuous concern — Workforce planning around the gig workforce model is extremely difficult because the high volume of legislative and legal challenges surrounding “contractor versus employee status” creates a great deal of uncertainty. Executives need to be aware that misclassifying new employees has already resulted in significant economic liability at several companies. Executives should also be aware that if these U.S. legal and legislative efforts are successful, employing a large percentage of gig workers may no longer even be possible. Incidentally, if you have a global company, the laws of many countries already make gig work extremely difficult to defend.

When Does Gig Labor Add the Most Value?

If you’re considering a gig workforce option, be aware that this model adds the most value in four cases. First, when you need to rapidly scale up or scale down your talent capabilities. Second, gig workers also make sense for peak time and seasonal needs. Next, they make sense when the work itself is relatively repetitious or boring so that work quality can only be maintained by a worker for a few hours. And finally, in the case of startups where there just isn’t enough money to pay more and to make a long-term commitment to your workers.

The Bottom Line — The ROI of a Gig Workforce May Not Be Positive

Build a strong business case before you take any steps toward creating a gig workforce. As a first step, talent leaders should work with your CFO to ensure that your business case analysis includes all of the mostly hidden added costs and risks outlined in the checklist above.

Be aware that at most companies, in my analysis, the actual costs from managing a gig workforce often exceed the cost savings from avoiding payments for Social Security, unemployment, workers’ comp, and retirement payments.

At companies that really need the savings resulting from not offering benefits to workers, the actual savings are real. In many cases, your failure to offer benefits may hamper recruiting, retention, and lead to vigorous unionization efforts.

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If you operate a startup, then the payroll, benefits savings, and increased scalability combined can provide a positive ROI for a year or so. But those savings must be weighed against the definite reduction in innovation. Once a company gets to medium size, in my analysis, is the only time that the benefits will likely outweigh the real total-management costs that occur when your company operates in a highly volatile VUCA environment where scalability is the most critical factor.

Final Thoughts

It’s hard to argue against the fact that traditional workers with longer tenure and higher engagement are superior, when you need workers that you can trust and that are committed to growing, learning, and building relationships with your customers. Having a stable employee workforce not only increases productivity and work quality, but it also allows managers to avoid spending a significant portion of their time dealing with the increased recruiting, retention, scheduling, and control issues that occur with gig workers. Offering gig-work opportunities may have some advantages for individual workers who want flexibility. From the company standpoint, the burden added under the gig model in most cases seems to far outweigh the few benefits that a gig workforce can provide.

 

Author’s Note: If this article stimulated your thinking and provided you with actionable tips, follow or connect with me on LinkedIn, subscribe to the ERE Daily, and hear me and others speak at ERE’s Recruiting Conference in October in Washington, D.C.

Dr. John Sullivan, professor, author, corporate speaker, and advisor, is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high-business-impact talent management solutions.

He’s a prolific author with over 900 articles and 10 books covering all areas of talent management. He has written over a dozen white papers, conducted over 50 webinars, dozens of workshops, and he has been featured in over 35 videos. He is an engaging corporate speaker who has excited audiences at over 300 corporations/ organizations in 30 countries on all six continents. His ideas have appeared in every major business source including the Wall Street Journal, Fortune, BusinessWeek, Fast Company, CFO, Inc., NY Times, SmartMoney, USA Today, HBR, and the Financial Times. In addition, he writes for the WSJ Experts column. He has been interviewed on CNN and the CBS and ABC nightly news, NPR, as well many local TV and radio outlets. Fast Company called him the "Michael Jordan of Hiring," Staffing.org called him “the father of HR metrics,” and SHRM called him “One of the industry's most respected strategists." He was selected among HR’s “Top 10 Leading Thinkers” and he was ranked No. 8 among the top 25 online influencers in talent management. He served as the Chief Talent Officer of Agilent Technologies, the HP spinoff with 43,000 employees, and he was the CEO of the Business Development Center, a minority business consulting firm in Bakersfield, California. He is currently a Professor of Management at San Francisco State (1982 – present). His articles can be found all over the Internet and on his popular website www.drjohnsullivan.com and on www.ere.net. He lives in Pacifica, California.

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