For years, total rewards — encompassing compensation, benefits, flexibility, well-being and career development — has largely been measured, tested and refined with full-time employees in mind. And while this approach has served many organizations well, more recently, companies are finding themselves faced with new challenges as work is redefined by technology advancements and changing expectations of employees, and the definition of traditional employment is evolving.
The traditional total rewards model is rapidly becoming outdated. Recent economic conditions, coupled with an aging workforce and an evolving reliance on gig work, have shaken the bedrock of the traditional employer-employee relationship. Businesses are struggling to fill open positions and looking to a variety of nontraditional work arrangements to support key functions. The pace of change in workforce composition is accelerating, and total rewards systems need to keep up with the new realities of rewards for nontraditional workers.
To attract and retain quality workers, employers must remake the pillars of total rewards in ways that recognize and reflect the evolving complexity of their workforce. Forward-thinking companies will tailor and optimize their rewards strategy for all categories of workers and recognize that a one-size-fits-all approach may no longer be the most effective model.
Growing demand for nontraditional talent
Worker shortages will likely continue in the short term, creating both challenges and opportunities for companies as they streamline and redefine their workforces.
Consider these statistics:
- In 2021, 79% of employers reported difficulty attracting employees, and seven in 10 respondents had a hard time retaining workers. Today, those numbers have crept up further, with 83% of employers reporting difficulty attracting employees and 74% reporting difficulty retaining employees. These are the highest figures over the past 12 years, as shown in Figure 1.
- The attraction and retention difficulties are hitting at all levels, including digital talent, employees with professional skills, and hourly workers. More than 75% of employers have problems attracting or retaining digital talent, according to WTW’s “Reimagining Work and Rewards Survey.” In that survey, about half of employers reported difficulties in hiring or retaining employees in salaried and sales positions.
- Unemployment in the United States hit a 50-year low in August, a rapid recovery from the 22 million jobs lost during the height of the pandemic.
- As unemployment has dramatically decreased, the number of job openings continues to creep up, from 9.9 million jobs in June 2021 to 10.7 million jobs in June 2022. In fact, 66% of employers in North America have further increased their recruiting efforts since the start of last year.
- Quit rates remain at high levels, according to a recent report from the U.S. Bureau of Labor Statistics. This leads employers to question whether the Great Resignation was in fact not a short-term phenomenon but rather an indication that talent shortages are here to stay.
- Labor economists further predict talent shortages by 2030 for entry-level workers (under age 45) and older workers in leadership roles (ages 55 to 64).
As the labor force continues to shrink and the market for talent tightens, businesses are getting creative with their labor strategy. Many companies are looking to a combination of part-time workers and gig or contract workers to backfill open positions, particularly as they move to achieve broader automation and digitization goals. More than 40% of organizations believe that changes to the way they source talent will influence how work evolves during the next three years.
Hiring nontraditional workers may solve a host of short-term problems around talent sourcing, but businesses will ultimately need to ask themselves hard questions that define their long-term strategy around part-time and contingent workers — and how to consider a total rewards strategy that’s fit for purpose and sustainable for these non-traditional cohorts.
Rethinking total rewards to be fit for purpose
In response to external factors such as the increasing reliance on nontraditional work arrangements, more than 80% of employers expect to reset their total rewards philosophy. Further, more than half of respondents said that building new strategies around work and rewards will be one of the most important priorities for their short-term people strategies.
Who sets the standard?
Regardless of how creative, innovative, and inclusive employers want to be in providing meaningful total rewards for nontraditional workers, the reality is that they can only go so far. If the gig economy is going to work, companies and government must come together to solve thorny regulatory issues around employment, pay and benefits, and to avoid inadvertently creating a workforce of haves and have-nots. The International Labour Organization has already identified this concern, writing: “Changes in the composition of employment relationships — such as reliance on informal self-employment to earn a living, the rise in remote work and various trends with regard to temporary work — all risk impairing the quality of working conditions.”
The current atmosphere, and particularly the swift proliferation of gig work, argues for government to take the lead in creating policies that effectively address new ways of working.
To date, California has led the way in attempting some framework around gig employees, particularly ride-share drivers for services such as Uber, but few other states have followed suit. In Massachusetts, a state court cited technical issues in rejecting a ballot initiative that would have provided extra protections for gig workers before it could appear before voters.
The federal government touched on the issues surrounding benefits for contract employees when it extended unemployment assistance to gig workers via the Coronavirus Aid, Relief, and Economic Security Act (2022). Congress has also grappled with expanding and formalizing benefits for part-time workers. In March 2022, the U.S. House of Representatives passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0, which would allow part-time workers to participate in their employers’ retirement plans once they have completed 500 hours of work within two years’ time.
Regardless of whether the government provides better protections for nontraditional workers, companies must grapple with the issues presented by new ways of working. Businesses need to stop treating nontraditional employees as an afterthought or squeezing them into total rewards programs that were designed with only full-time, traditional workers in mind. Employers must consider how to offer benefits on a tailored, “a la carte” — but still cost-effective — basis for part-time and contract employees with whom they hope to build long-term relationships. The world has changed, and employers who are willing to exceed minimum requirements in supporting their nontraditional workers will build the dynamic workforce of the future. Those who don’t answer the call will continue to struggle with sourcing the talent they need.
A version of this article appeared in The Journal of Total Rewards. All rights reserved, reprinted with permission.
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