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Total rewards for new ways of working

Remake total rewards to reflect the evolving complexity of today’s, and tomorrow’s, workforce

By Monica Martin | January 18, 2023

As work is redefined by technology advancements and changing employee expectations, employers must recalibrate their approach to total rewards
Future of Work|Employee Experience|Ukupne nagrade
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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The traditional total rewards model is rapidly becoming outdated.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.

  1. 01

    Who Makes Up the Nontraditional Workforce?

    As organizations embark on reshaping total rewards for nontraditional talent, it is important to understand who makes up the nontraditional workforce, and how that is expected to change.

    Statistics show that that the nontraditional workforce, for both part-time and gig workers, represents more women, more young and old workers, and more people of color than the full-time workforce. As of 2020, women made up 63% of the part-time workforce. The part-time workforce is also more likely than the full-time workforce to include students and people of retirement age.

    The gig economy likewise depends more heavily on people of color. For example, Pew Research found that, compared to White adults, higher percentages of Hispanic, Black and Asian-American adults reported earning money through an online gig platform. Non-White gig platform workers were also more likely to earn money from multiple jobs.

    However, the prevalence and makeup of nontraditional workers are likely to change. Part-time and contingent employment makes sense for a growing number of workers who need and desire flexibility, and in fact WTW’s research shows that flexible work arrangements are one of employees’ top priorities when searching for jobs. As flexibility in how, when and where work is done continues to grow, we are likely to see not only growth in the number of part-time employees, but also in the demographic profile of these workers. Older workers will look to use part-time work as a way of phasing into retirement, and younger workers may also use part-time strategies to create a better work-life balance for themselves or pursue “side gigs” as they continue to explore different career paths. Part-time work will no longer be limited to certain jobs, but rather a new way that employers build flexibility into their total rewards programs.

    Similarly for gig and contingent workers, new technologies and platforms support the growing base of contingent talent and also create a more diverse profile of what a typical contingent worker is. Contingent workers are no longer limited to jobs that involve limited skills (e.g., driving, administrative work). New contingent platforms that specialize in placing digital skills, executive talent, etc., will continue to emerge and reshape the contingent worker marketplace.

  2. 02

    What Are Current Pressures Facing Nontraditional Workers?

    Safety and stability remain a critical challenge for part-time and contingent workers, and these workers are particularly vulnerable to change. They are often open to financial risk exposure due to variable income and expenses. Many are not able to access affordable healthcare or disability insurance to help protect them from life events and/or do not have tools or support to help them build financial resilience and save for retirement.

    For example, about 1 in 7 gig workers reports earning less than the federal minimum wage on an hourly basis. Eight in 10 workers who identify gig work as their primary source of income say they would struggle to cover an unexpected expense of $1,000 or more, and more than half say they work harder for their income than those in traditional work arrangements. Almost two-thirds of freelancers report borrowing from savings at least once a month, versus 20% of full-time workers.

    Further, a third of contract workers surveyed by the reported feeling “unsafe” or being treated rudely while performing their work. Workers who rely on freelance or gig work also report dramatically higher levels of anxiety and feelings of financial insecurity than non-gig workers.

    Part-time employees face similar challenges. Many of these workers are financially constrained and do not have access to employer-provided benefit programs or flexible work arrangements to help them in times of need or change. In fact, WTW’s “Global Benefits Attitudes Survey” of part-time employees indicates that a top priority for these workers is to have more flexibility in their work (including more options in when they work, more generous paid time off and sick leave, and the option to work from home), better retirement benefits and more support in helping them manage their health.

  3. 03

    How Do Employers Reshape Total Rewards to Respond?

    When done right, an effective total rewards strategy delivers value to the business (i.e., allowing employers to compete for talent/skills, retain and engage talent, and incentivize performance), fosters a positive employee experience (i.e., where employees make informed decisions, are engaged in programs, are supported from a well-being perspective, and feel a sense of belonging and connection to the organization and its purpose), and optimizes the cost and risks of rewards programs. Total rewards leaders must consider how all elements of total rewards — including pay, healthcare and retirement benefits, flexible work and leave, well-being programs, and career programs — have a role to play in reshaping the strategy for nontraditional workers.

    So far, employers have been slow to adapt to this new environment. Only about a third of employers surveyed in 2021 reported adjusting their total rewards strategies based on new ways of working; about a quarter of employers say they have adapted their pay programs for nontraditional workers.

    To begin, organizations need to come to the table with a better understanding of their future work strategy and the role that nontraditional workers will play. Have you modeled how you expect your workforce to change in the next five to 10 years? What you need from your workforce in terms of skills to deliver on your business objectives? And, what the external talent pool (surplus or shortage) may be for those workers and/or skills at that time? Where do you expect shortages of particular skills in your business, and how do you intend on filling those jobs? How are nontraditional workers used (and managed) today within your organization? How do you expect that to change in the future?

    Next, companies should understand what these nontraditional workers need and challenge existing barriers to supporting those needs. At a universal level, all workers, whether traditional or nontraditional, need the following from their employer in order to thrive:

    • Safety and security. This includes physical safety, psychological safety, financial security, job and work stability.
    • Equality and justice. This includes a feeling of inclusion, belonging and fairness.
    • Financial and social mobility. This includes the support needed to grow both in work and in life.

    However, elements of the traditional relationship between organizations and their nontraditional workers have historically served as barriers to achieving these goals. For example, gig workers work on demand or by project, creating a volatile income situation and lack of work stability. Part-time employees may find themselves under pressure from their employers to cap hours so that they do not qualify for benefits. “Scope creep” can drive up the hours that part-time or gig talent needs to work to complete their projects. Both gig workers and part-time workers rarely have access to the level of benefits that full-time employees do for health and well-being, leaving them on their own to manage their physical, financial, social and emotional health, and causing them to miss out on tax savings from using employer-sponsored programs, at least in the United States. Similarly, these workers often do not have a chance to participate in an employer-sponsored retirement savings program, which may limit their ability to effectively save for retirement. And finally, career growth programs are often tailored to traditional workers and/or traditional career paths, curbing nontraditional workers’ opportunities to participate and disengaging them from career growth that could be extended to them in the form of career recognition.

    In response, employers should take a more purposeful approach in how they design total rewards programs to attract and retain these workers and deliver on the above core tenets.

    Attraction and retention: Part-time workers are attracted by pay, flexible work arrangements and health benefits when deciding to take a job with an employer. Further, the research shows that the top driver of retention for part-time employees is flexible work, not pay (which came in second in the survey ranking). What’s more, those same workers count “work with purpose” as one of their top three reasons for staying with an employer — even more so than their full-time colleagues, who rank it fifth among their retention priorities. Savvy employers who are looking to gain an edge in this talent market will get their pay and flexible work strategies right. They will use culture and purpose to engage these employees in their work and cement a long, retentive relationship.

    Safety, equality and mobility: Beyond offering a living/thriving wage for these workers, employers can go further into making sure that total rewards are fit for purpose for these nontraditional workers.

    For contingent workers, employers can use platforms to offer access to healthcare and savings programs in an accessible and cost-effective way.

    For part-time workers, employers can shift the focus from whether these employees have access to benefits programs to whether the programs themselves are the right programs to even offer. Traditional benefits and well-being programs claim to offer value to part-time workers by simply giving them access, but the programs themselves may be designed with a full-time employee in mind. Programs that are fit for purpose will shift that focus to determine what’s also best for this unique cohort of employees. In fact, high-performing organizations — those with higher return on assets and return on equity than their industry peers — are already 80% more likely to enhance their retirement and well-being programs in support of their employees. For example, does it make sense to provide a part-time employee with access to save in your retirement program but only receive a partial retirement contribution (prorated by pay)? Is it appropriate to say that the life insurance benefit of a part-time employee is less than a full-time employee? (Is their life worth less than the other?) Are there places where you can introduce minimums in these programs to foster a more equitable experience for these employees?

    Additionally, organizations should tailor well-being programs — physical, financial, social and emotional — with the unique needs and circumstances of nontraditional workers in mind. Examples could include programs focused on managing health to prevent catastrophic health events, access to financial/tax planning or coaching that specializes in workers with multiple sources of income, and emotional support programs focused on achieving better work/life balance for a contingent worker. And, given that caregivers make up such a large portion of part-time workers, programs that provide better support for caregiving (childcare, eldercare, etc.) can offer meaningful value to these employees.

    Organizations can further create value for nontraditional workers by designing career development tailored to their needs by: building flexibility into training opportunities; helping these employees acquire new skills that can demand higher pay: and redefining how performance is measured/managed for these workers. For example, rather than asking all employees to show up in person at a set time for a training workshop, an employer could provide online learning for the nontraditional worker to complete on their own schedule and make sure that they are paid for their time to complete that training. Such accommodations tangibly demonstrate that an employer values the time, energy and effort of its nontraditional workers and makes those workers feel like a company’s long-term investment rather than its short-term solution. And consideration should be given to the type of training offered to these workers. Will it provide an opportunity to acquire a new skill that will not only add value to the organization but also add to the worker’s brand and capability set? Organizations should also consider how performance is managed. Even recognition programs can be shaped for nontraditional workers. In these instances, focusing less on the day-to-day management of time and instead on output and outcomes would show thoughtfulness and tailoring to their needs.

    Companies would also do well to better understand these individual’s career ambitions. McKinsey & Co. (2021) found that 62% of contract, freelance and temporary workers said they would prefer permanent employment over their current work arrangements. The preference for permanent employment was particularly pronounced among first-generation immigrants, as well as Hispanic, Asian-American and Black participants. Much in the way that businesses develop career ladders for more traditional workers, they should also consider creating pathways for contingent workers to become employees. Nearly six in 10 employers report that their companies have a growing emphasis on diversity, equity and inclusion. At the same time, about half of those surveyed say that they have experienced moderate or great difficulty with attracting more diverse employees. Finding ways for nontraditional workers to transition to permanent employment could help employers fulfill their own goals in diversifying their workforce.

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.

Author

Senior Director, Integrated and Global Solutions,
Total Rewards Leader

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