Abstract
Employer responses to a changing business environment usually involve measures to reduce labour costs. There are several models that an organisation may adopt to improve labour productivity. These include contracting out activities to external providers/suppliers, and the 'conversion' of employees into independent contractors.
These options achieve cost reduction and transfer risk to the contractor(s). It is suggested that the conversion of employees into independent contractors is a trend that will continue. The use of independent contractors may be perceived as 'easier' than the task of improving employee productivity. A model that represents a compromise between the use of independent contractors and the 'status quo' is one that retains the workforce as employees but forces them to compete for work.
Case Studies explore the experiences of two organisations in the same industry that adopted different models to reduce costs and improve labour productivity and efficiency. One retained its workforce as employees but exposed them to competitive pressure. The other 'converted' its employees into independent contractors. The Case Study organisations' adoption of these models is particularly significant as the workers involved perform a core and essential activity requiring skills that are not readily available elsewhere. Both organisations effectively created a competitive market using their own skilled employees.
Although both models may achieve cost reduction, they also involve risks and disadvantages. The use of contractors has been associated with compromised quality and health and safety. Skills training is often neglected in the drive for cost reduction - this is not limited to the adoption of a competitive model. A sustainable level of competition in the market is paramount. Where an organisation has contracted out, it is exposed to market forces; an organisation that retains employees retains control.
From the perspective of workers, independent contractor status is often attractive and preferred. However, if a contractor is dependent on one employer, their ability to profit may be eroded to a point where they are in a position that demands some form of protection.
This study concludes that any decision of this kind must be made on a strategic basis with consideration for future implications. The risks and disadvantages of a competitive model and the use of contractors suggest that where core or essential skills are involved, retaining workers as employees may be the strategic choice. The trend of converting employees to contractors may be mitigated by long-term strategic considerations.