We live in world of ecological constraints, and this acknowledgement has led to the rise of the sustainable organization: companies that embrace the triple bottom line of people and planet alongside profit. Human Capital Management (HCM) leaders are a key partner in transforming companies into sustainable organizations, given their unique position at the nexus of business strategy and the businesses’ largest asset: people. Key competency areas for HCM include leadership development, talent management, and organizational effectiveness, all of which are critical to the development of an organization, ensuring strategic business goals are met, and driving an organization’s sustainable transformation.
In parallel to the rise of sustainable organizations, we are also seeing the growth of the gig economy. While even the US government does not have a clear definition for the gig economy, these jobs are generally thought of as contract-based non-permanent work assignments. Currently, economists roughly estimate that between 3% and 14% of the workforce — approximately 20 million people — are contract workers.
Cost savings is a primary driver for the shift in employment practices. Some researchers estimate that classifying a worker as an employee can cost 20-30% more than classifying him/her as a contractor. Savings are due to lower overhead costs, as employers are not required to follow minimum wage or overtime laws; to pay workers’ compensation, unemployment insurance, or payroll taxes; or to provide benefits. For these reasons, the consulting firm Accenture predicts that one of the world’s leading companies will be fully outsourced except for the C-suite within the next ten years. Big changes lie ahead. How can HCM leaders ensure their company embraces this market shift in a sustainable way?
Sustainable organizations see their workers as assets instead of liabilities and strive to grow their business while providing living wages, good benefits, and other employee-friendly policies. However, contractor workers have a different legal status vis-a-vis the company and different compensation policies (such as being paid hourly and not receiving benefits such as paid time off). HCM leaders in sustainable organizations can view all workers equally in terms of compensation regardless of their legal status vis-a-vis the company, can ensure that contractors are paid fair wages that support workers having their own benefits, and can work to convert contractors to full time at a rate surpassing the current 18% conversion rate of contract to full-time positions.
This extends into training as well. Contract employees report a lack of employer investment in their professional development; this is aligned with findings from a 2016 Aspen Institute study in which half of employers indicated that they should not be responsible for providing training or education to contractors. This can lead to a lack of career growth and skill development among workers; similarly, companies that rely heavily on gig employees experience a hollowing out of in-house skill-sets. Sustainability-focused HCM leaders can embrace the long term view and advocate for training for contract workers and full-time employees alike, as a way of building a prepared workforce.
Leveraging the gig economy is becoming a tactic used by companies wishing to scale quickly without the overhead requirements for large slate of full-time staff. Counterintuitively, sometimes this growth comes before the company is actually profitable (see: Uber). This rapid growth puts companies at risk should their capital sources dry up unexpectedly. HCM leaders can help prevent this by encouraging sustainable growth (see: Jill Bamburg’s Getting to Scale). Further, sustainable growth not predicated on legal-but-predatory employment practices will also help protect companies from regulatory changes such as the forthcoming ones in California. The California Supreme Court recently passed a ruling that restricts who can be called an independent contractor. Anyone who performs a job that is part of the usual course of the company’s business must be deemed an employee and thus subject to all regulations governing that relationship (e.g., overtime pay, etc.). This will have a huge impact on companies like Uber whose entire business model is now at risk.
By maintaining a strong sense of the principles of the triple bottom line — people, planet, and profit — and by advocating for them within the C-suite, HCM leaders can help position organizations to be sustainable, to minimize risk, and to create an environment that benefits all employees, both full-time and contract.