What is Rogue Spend in Contingent Workforce Management?

In the fast-paced world of contingent workforce management, businesses rely on temporary workers, contractors, and freelancers to stay agile and competitive. This flexible labor model allows companies to scale their workforce quickly to meet demand without the long-term commitments of permanent hiring, especially with the use of an Employer of Record (EOR) platform. However, managing this workforce can bring its own set of challenges, particularly when it comes to managing costs. One of the biggest threats to efficient contingent workforce management is rogue spend.

What is Rogue Spend?

Rogue spend, also known as “maverick spend,” refers to expenses that occur outside of an organization’s established procurement processes or without adhering to set guidelines established by their contingent workforce program. In the context of contingent workforce management, this usually happens when hiring managers engage contingent workers—such as freelancers, contractors, or temporary staff—without going through approved vendors, systems, or protocols.

This type of unapproved spending can happen for various reasons:

• A department needs a worker quickly and bypasses standard channels to expedite the process.
• The current approval process is arduous and requires the hiring manager to jump through many hoops to get the talent they need.
• A manager believes they can secure a better rate independently.
• Lack of awareness or understanding of the organization’s procurement policies.

Regardless of the reason, rogue spend can be costly and risky for businesses.

The Hidden Costs of Rogue Spend

While it might seem harmless for managers to make quick, off-book hires, rogue spend can lead to significant problems over time. The most prominent issues include:

1. Increased Costs: Without adherence to a formal procurement process, the business loses its ability to negotiate standardized rates and track costs effectively. Managers hiring freelancers or contingent workers on their own might pay higher rates than if they went through an established vendor or procurement system.
2. Compliance Risks: When contingent workers are hired outside of official channels, they might not undergo the necessary vetting or background checks, increasing legal risks. This can also lead to issues like worker misclassification, which can result in penalties, fines, or lawsuits.
3. Lack of Visibility: Rogue spend diminishes visibility into the organization’s total workforce, making it difficult to track performance, understand spending trends, or ensure quality control. This lack of insight can hinder strategic decision-making.
4. Supplier Fragmentation: When different departments use different suppliers or vendors for contingent labor, it can result in fragmented supplier relationships. This diminishes the company’s leverage when negotiating with staffing agencies, EORs, or other contingent workforce providers, potentially resulting in higher costs and inefficiencies.
5. Impact on Culture and Brand: If contractors and freelancers hired outside of official channels have a poor experience, it can damage the company’s reputation. Negative reviews or feedback from contingent workers can harm employer branding, making it more challenging to attract high-quality talent in the future.

Why Rogue Spend Happens in Contingent Workforce Management

Rogue spend often occurs due to the fast-paced, decentralized nature of contingent workforce management. Here are some common reasons it happens:

1. Urgency: Sometimes, businesses need to bring in contingent workers quickly. This urgency can lead to shortcuts in established procurement protocols.
2. Complexity of Processes: If the internal process for securing contingent labor is too complex, managers might avoid it altogether. Many organizations have cumbersome procedures in place that managers view as bottlenecks rather than safeguards.
3. Lack of Standardization: In some companies, procurement practices are not standardized across departments. Without a consistent approach to managing contingent labor, rogue spend can proliferate.
4. Technology Gaps: A lack of integrated systems for workforce management can result in managers engaging with contingent labor outside of approved systems. In the absence of a centralized solution, workers may be brought on board with little oversight or record-keeping.

How to Reduce Rogue Spend in Contingent Workforce Management

Reducing rogue spend requires a proactive approach to contingent workforce management. Here are some strategies businesses can implement to curb unapproved spending:

1. Streamline Procurement Processes: Simplify and expedite the processes for hiring contingent workers. Ensure that the approved systems are user-friendly and reduce unnecessary red tape that might encourage managers to bypass protocols.
2. Invest in Technology: Implement workforce management software that integrates procurement, HR, and financial data to give full visibility into contingent workforce expenses. An automated, centralized platform makes it easier to track spend, improve compliance, and enforce procurement policies.
3. Engage a Managed Service Provider (MSP): MSPs can help manage an organization’s contingent workforce by serving as a single point of contact between the company and its temporary labor providers. They help enforce consistency, streamline vendor management, and reduce rogue spend by ensuring all hires go through approved channels. However, working with an MSP can also increase red tape and create more friction for hiring managers. Understanding if an MSP is right for your organization prior to working with one is key.
4. Use an Employer of Record (EOR): An EOR like FoxHire takes over compliance, payroll, and HR functions for contingent workers. By centralizing these processes, businesses ensure that hiring practices adhere to regulations, and rogue spend is minimized. FoxHire’s EOR platform, for example, helps staffing agencies and mid-sized businesses maintain compliance while managing the complexities of contingent labor, without increasing red tape or manual processes.
5. Educate and Communicate: Ensure that hiring managers are aware of procurement policies and the potential risks of rogue spend. Regular training and clear communication about the importance of staying within the established process can reduce off-the-book spending.
6. Monitor and Audit: Regular audits can identify instances of rogue spend, allowing businesses to intervene before they escalate into larger issues. Monitoring contingent workforce expenses and compliance regularly is essential to maintaining cost control and minimizing risk.

Conclusion

Rogue spend in contingent workforce management is an often-overlooked problem that can have serious consequences for businesses. From increasing costs to risking compliance and damaging reputation, the impact of rogue spend can be far-reaching. However, by streamlining procurement processes, implementing better technology, and partnering with an Employer of Record or Managed Service Provider, companies can reduce rogue spend, ensure compliance, and gain better control over their contingent labor force.

Effective contingent workforce management is about more than just filling seats—it’s about protecting your organization from unnecessary costs and risks. By staying vigilant about rogue spend, you can ensure that your contingent workforce contributes to your company’s success, rather than detracting from it.