There’s a number on your P&L that you almost certainly sign off without being able to tell me what’s inside it.
Not because you’re not paying attention. You are. You pay close attention to your permanent workforce costs, your property costs, your technology spend. You have people whose job it is to understand those lines in detail, and you trust that detail.
The external labour line is different. It’s often significant — somewhere between 20 and 35 per cent of total workforce cost in the organisations I work with — and it tends to sit there, accepted as a given, without anyone in finance owning it in the way they own other comparable cost lines.
I want to explain why that happens, because once you understand the structural reason, the gap becomes a lot easier to close.
It fell through an organisational gap that was nobody’s fault
Permanent headcount has a natural home. HR owns the people. Finance owns the cost. There’s a clear ownership between them, and it’s been practiced for decades.
External labour has never had that. When it first grew into a meaningful category, it sat with procurement — because it looked like a supplier relationship. Agencies, contracts, rates, PSLs. The vocabulary was commercial, so it landed in a commercial function.
The problem is that contingent labour isn’t purely a supplier relationship. It’s a workforce relationship, with cost and compliance dimensions that finance should own, and governance dimensions that HR needs to understand, and commercial dimensions that procurement handles. Three functions. One population. No single owner.
In most organisations, that ownership gap has never been formally resolved. It’s just been managed around. Procurement handles the suppliers. HR handles the IR35 determinations. Finance sees the total spend line and relies on the other two to tell them if something needs attention.
What that means in practice is that nobody has a complete picture. And the CFO — who signs off the number — is often the person furthest from the detail.
The data exists. The process to make sense of it usually doesn’t.
Something I find consistently when I start working with an organisation: the information needed to build a clear picture of the contingent workforce is almost always already available. Access logs, timesheet systems, agency invoices, payroll data. The trail exists.
What’s missing is the framework to pull it together. Worker definitions — what type of engagement is this, why was this person brought in, how long have they been here. Without those foundations, the data sits in separate systems, owned by different functions, and nobody can run the analysis that would tell you something useful.
Finance ends up working with an aggregate. Twelve million pounds on external labour this quarter. But twelve million pounds of what, exactly? Staff augmentation through agencies? Specialist consulting engagements? Long-tenure contractors who have effectively become permanent? Umbrella company arrangements that carry compliance exposure?
Each of those is a different commercial and governance question. Treated as one number, none of them gets the attention it deserves.
It’s not a procurement problem. It’s not an HR problem. It’s yours.
I’m not saying procurement and HR should have done this differently. They’ve been managing the parts they could see, with the tools they had. That’s entirely reasonable.
But the ownership of total workforce cost — not just the headcount line, but the full picture of what it costs your organisation to get work done — is a finance question. And right now, in most organisations, the finance function hasn’t yet staked that claim.
The CFOs I see beginning to get on top of this tend to do a few things in common. They establish that finance has a seat at the external workforce table — not to take over from procurement or HR, but to ensure the cost and compliance picture is owned with the same rigour as everything else they sign off.
They ask for spend visibility by engagement model, not just by supplier or business unit. And they start asking about the tail — the off-PSL (Preferred Supplier List) spend, the long-tenure contractors, the statements of work that are really staff augmentation with extra steps.
None of that is technically complicated. It’s a question of deciding that the number is worth understanding. And it’s knowing that it’s going to become increasingly important as the shape of work changes.
What changes when you do understand this number
The organisations that have done this work find that the gap between what they thought they were spending and what they were actually spending is meaningful. Not always in the headline total — though sometimes that too — but in the structure. Where the money goes. What it’s buying. What it costs fully-loaded compared to what the day rates suggest.
More than the cost, they get decision-making capability they didn’t have before. If you don’t know what’s in that external labour line, you can’t make a genuine workforce mix decision. You can’t assess whether direct engagement would be more cost-effective. You can’t identify which suppliers are actually performing. You can’t plan or make best decisions for your business.
That’s the real cost of not owning this number. Not the leakage — though there is usually some but the decisions that never got made because the information wasn’t there to make them.
The external labour line is large enough, and complex enough, that it deserves the same ownership discipline as any other comparable cost in the business. The structural reasons it ended up unowned are entirely understandable. They’re also entirely fixable.
That usually starts with someone in finance deciding to ask what’s actually inside it.
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Written by:
Strategic Operations Director
I joined my twin sister Jools at RedWizard in 2017 — and if you know Jools, you’ll understand why someone with a head for detail and an eye for the practical was probably needed.
I came to RedWizard from teaching, where I spent years watching people navigate change with very little support. Academy restructures, new leadership, shifting priorities — and almost no thought given to how the people in the middle of it all were supposed to feel, adapt, or succeed. That experience stayed with me. It’s probably why I instinctively look at any workforce transformation through the eyes of the person it’s happening to, not just the organisation driving it.
That human lens shapes everything I do at RedWizard. I lead on operations and service development, making sure that what we promise actually works in practice — and that clients build real capability, not just compliance. I’m also passionate about education as a tool for change. When people understand why something matters and how to navigate it, everything shifts. That’s the thinking behind Educate 2 Enable, our growing library of training content and resources for workforce professionals.
People growing into their potential — whether that’s a manager learning to lead a blended team or an organisation finding its feet with extended workforce governance — that’s what gets me up in the morning.