Key takeaways
Fragmentation happens gradually as workforce needs evolve faster than the systems managing them.
Poor visibility creates the biggest challenges because organizations cannot manage what they cannot see.
Disconnected tools and processes increase costs, risks, and hiring delays across the program.
Targeted fixes are often more effective than major overhauls for reducing workforce fragmentation.
Somewhere in most large enterprise organizations, there is a contingent workforce program that, on paper, is well-designed. A VMS is in place. An MSP manages the supplier panel. Rate cards are negotiated. Compliance policies are documented.
And yet as the contingent workforce program manager, you are still spending a significant amount of time reconciling data from systems that don't talk to each other, chasing approvals that should be automatic, and fielding calls from hiring managers who decided it was easier to go outside the program than through it.
The strategy isn't wrong. The infrastructure underneath it has fragmented , not all at once, but gradually, as the workforce evolved faster than the systems built to manage it.
Ernesto Lamaina, GM of Lifted, has watched this play out at enterprises across a decade of conversations with the people running these programs:
“Large enterprises build their contingent workforce infrastructure based on what matters most to them. For some, that means an MSP or a VMS; for others, it doesn’t. Some prioritize a broad supplier base, while others focus on consolidation. There’s no single right model, each company is optimizing for its own priorities.”
Ernesto Lamaina
GM, Lifted
The fragmentation, in other words, didn't happen because of bad decisions. It happened because each decision made sense at the time it was made. Together, they created a program that covers less ground than the actual workforce requires.
What is causing contingent workforce fragmentation?
Fragmentation in contingent workforce programs rarely has a single cause. It builds from several converging forces, each of which operates independently and compounds over time. Understanding them separately is the first step toward addressing them.
The contingent workforce has diversified faster than the infrastructure managing it.
Ten years ago, most enterprise contingent programs were built around one primary worker type: the temp or contract employee engaged through a staffing agency. That model was well-served by the VMS and MSP infrastructure that was developed around it. Since then, the workforce has expanded significantly. Independent contractors, Agent-of-record(AOR) arrangements, employer of record engagements, statement of work contractors, freelancers on digital marketplaces, and outsourced teams now all sit within what gets broadly called "contingent." Each type has different compliance requirements, different engagement mechanics, and different data needs. The infrastructure hasn't kept pace with that diversification.
Legislation has become more complex, more varied, and more frequently updated.
Worker classification rules differ by country, by state, and in some cases by city. The standards used to determine whether someone is an independent contractor or an employee under California's AB5 are different from those applied under the UK's IR35, different again from Germany's AÜG staffing law, and different again from Brazil's CLT framework. As enterprises expand globally and local legislatures respond to the growth of the gig economy with new rules, the compliance landscape changes underneath programs that were built to operate within a simpler one. Lamaina is direct about the difficulty this creates:
"Legislation is complex and they change all the time. Sure, not every day, but maybe every six months, every year they keep changing. And it's very hard to keep track of all of those, specifically if the business , that's not what they do every day. Their core business is not to run classifications."
Ernesto Lamaina
GM, Lifted
Every new jurisdiction an enterprise enters, and every regulatory update in a jurisdiction it already operates in, adds a new layer of complexity that the program has to accommodate , typically by adding a new process, a new provider, or a new compliance tool rather than integrating the requirement into existing infrastructure.
Technology has been procured in response to problems rather than by design.
Most enterprise programs didn't start with a coherent technology architecture. They started with a VMS, which was the right tool for staff augmentation. When the IC population grew, an AOR provider was added. When global hiring expanded, an EOR was brought in. When SOW spend became unmanageable, a project tracking module was added. Each procurement decision was reactive , a response to a specific operational pain at a specific moment in time. The result is a technology stack of components that were built by different vendors, operate on different data models, and were never designed to share information with each other.
Hiring managers have more autonomy than the program can effectively govern.
The contingent workforce program exists to create structure around how external talent is sourced and engaged. But hiring managers experience it as a process they have to navigate, not a service they're being provided. When the official channel is too slow, too complex, or too inflexible for a particular need, the path of least resistance is to go around it. A direct engagement with a known freelancer. A niche agency brought in outside the preferred supplier list. A SOW written broadly enough to cover what is functionally a staff augmentation arrangement. Each of these creates spend and workforce activity that the program can't see, measure, or manage.
"Those companies and those contingent workforce program managers are essentially getting their total available talent pool restricted in an artificial way. And that's what makes it so hard for them."
Ernesto Lamaina
GM, Lifted
The hiring manager who routes around the program isn't trying to create a governance problem. They're trying to get a project staffed. But the cumulative effect of those individual decisions is a program that manages a progressively smaller share of the actual external workforce.
The market itself is structurally fragmented.
This is the factor that Lamaina identifies as structural rather than correctable. The contingent workforce market exists to connect people to work and companies to people. That market is inherently distributed , talent in every geography, across every skill category, at every experience level, engaging with enterprises through dozens of different contract models. No single provider was built to cover all of it. The specialisation that made individual providers excellent at specific parts of the market , a staffing agency strong in a particular geography, a marketplace optimised for a specific skill category, an AOR provider focused on independent contractor compliance , is also the reason the market fragmented in the first place.
The causes aren't going away. What changes is how well a program is designed to contain the fragmentation rather than absorb it.
The accumulation problem
Enterprise contingent programs tend to accumulate rather than evolve. A staffing agency that was added to the panel for a specific region five years ago is still there. A compliance tool that was procured to address a specific IC risk in one market now sits alongside three other tools that were added for similar reasons.
Each addition was justified. Together, they create a program that has many components but limited coherence , data that doesn't aggregate, processes that overlap without connecting, and a total cost of ownership that nobody can calculate cleanly because the pieces don't roll up.
Here's how fragmentation typically accumulates across program components:
Program Component | When It Was Added | Gap It Was Meant to Close | Current Reality |
VMS | Early program phase | Tracking staff aug requisitions and spend | Doesn't capture IC or EOR spend |
MSP | Mid-program | Managing supplier relationships at scale | Covers traditional staffing, not IC or direct sourcing |
Separate AOR provider | As IC population grew | Compliant IC engagement | Not integrated with VMS data |
EOR provider | As global hiring expanded | Compliant employment in markets without legal entities | Separate platform, separate reporting |
Freelance marketplace | Response to hiring manager pressure | Access to niche digital skills | Largely invisible to the program |
SOW tracking tool | When SOW spend became visible | Managing project-based contracts | Doesn't prevent staff aug being hidden within SOW |
The total picture is a program that has addressed each problem individually but hasn't integrated the solutions. The result is a program manager who knows the gaps exist but has limited means to close them without significant disruption.
Why visibility fails before anything else does
Most of the downstream problems in a fragmented program , compliance exposure, maverick spend, slow fill times , trace back to a single root cause: incomplete visibility.
You can't manage a contingent workforce you can't fully see. When a portion of the IC population is outside the VMS, you have partial data. When EOR workers sit in a separate system, your headcount reports are incomplete. When freelancers engaged through a marketplace aren't tracked anywhere, the total workforce number is a guess.
Lamaina describes how this plays out in the IC space specifically:
“In many large enterprises, there are extensive pools of pre-identified talent, but they’re often engaged in fragmented ways. One hiring manager might use an SOW in one country, another a different contract type elsewhere. This lack of consistency makes visibility incredibly difficult. And many existing systems aren’t designed to provide clarity across these areas, despite the fact that they’re some of the fastest-growing parts of the business.”
Ernesto Lamaina
GM, Lifted
The IC and AOR space is where this problem is most acute, because it's the area that grew fastest while receiving the least infrastructure investment. Staff augmentation has had VMS support for decades. The IC population largely hasn't.
What fragmentation costs across the program
The cost of a fragmented strategy isn't one number. It distributes across every dimension that program performance gets measured on.
Here's where fragmentation shows up, and what it costs:
Cost visibility: Spend that isn't captured in the VMS doesn't appear in total cost calculations. Programs consistently undercount their actual external workforce spend.
Compliance exposure: Workers engaged outside the managed compliance process carry unknown risk. This is largely invisible until an audit surfaces it.
Speed: Multiple approval chains, disconnected systems, and manual handoffs between tools add days or weeks to sourcing and onboarding cycles.
Program adoption: Hiring managers find workarounds when the official process is too slow or too complex. Every workaround is more spend outside the program.
Supplier leverage: A fragmented supplier panel gives procurement less leverage in negotiations. Spend is too distributed to justify volume-based rate agreements.
Talent quality: When the program can't access the full market, or takes too long to move, the best available talent accepts other offers.
None of these is catastrophic in isolation. Together, they describe a program that is spending more, moving slower, and carrying more risk than it needs to.
Why the fix isn't always what it looks like
The natural response to a fragmented program is to consider a consolidation project. New VMS selection. MSP re-evaluation. Supplier rationalisation. In some cases that's the right move.
In most cases, it isn't , at least not immediately. Large-scale program restructuring takes 12 to 18 months to complete, creates significant disruption in the interim, and requires stakeholder alignment that is hard to achieve when multiple business units have built workflows around the existing tools.
Lamaina shares a different approach:
“At Lifted, our philosophy is simple: meet large enterprises where they are. Whether you engage us as just another supplier or take a broader approach, we make it easy to get started. Because everything we do is powered by technology, we’re faster, deliver a better user experience, and operate more efficiently. The focus is simple, remove friction and start delivering value from day one.”
Ernesto Lamaina
GM, Lifted
The additive approach starts with the specific gap that's causing the most pain , usually the IC population without proper classification, or a geography where fill times are consistently long , and closes that gap without disrupting the rest of the program.
Success in one area builds the internal case for expansion. It also builds the muscle for how to evaluate and integrate solutions without creating more fragmentation in the process.
The right questions to close the gap
Reducing fragmentation in a contingent workforce strategy requires being specific about where the program is actually falling short. These questions help locate the real gaps:
What proportion of total external workforce spend is currently captured within the VMS or ERP?
How many workers in the IC population have had a formal classification run in the past 12 months?
How many different suppliers, platforms, and systems are currently used to manage the full external workforce?
What is the current average time-to-fill for contingent roles, and does that vary significantly by worker type or geography?
How many contingent workers are currently engaged outside the managed program?
Can the program produce a single, accurate headcount report covering all worker types?
Wherever the honest answer to these questions is "I don't know" or "not as well as it should," there's a specific gap that can be addressed. Not all at once. But systematically, with solutions that fit into the existing program structure rather than requiring it to be rebuilt.
“If a company already has staff augmentation and EOR in place but needs support with independent contractors or AOR, that’s exactly where we fit. They can engage us for that specific need, and we’ll deliver exceptional results. We’re not here to replace everything they’ve built, but to strengthen what’s already working.”
The fragmented strategy doesn't need a single large fix. It needs a series of targeted ones, each improving visibility and performance in a specific area, each building toward a program that actually covers the full scope of how the workforce operates.
Frequently Asked Questions
What causes contingent workforce strategy fragmentation?
Programs grow incrementally. Each new worker type, geography, or compliance requirement gets addressed with a new tool or supplier. Over time, these additions don't integrate, creating a program with multiple disconnected components.
How does fragmentation create compliance risk?
Workers engaged outside the managed program's compliance process aren't classified properly. Misclassification risk accumulates in the unmanaged population, often invisibly, until an audit surfaces it.
Why do hiring managers go outside the managed program?
Because the official path is slower or more complex than the alternatives they can find independently. Reducing fragmentation means making the compliant path faster than the workaround.
Can fragmentation be reduced without replacing the VMS?
Yes. Most fragmentation can be addressed by adding suppliers with broader capability into the existing program structure. A VMS replacement is disruptive and rarely necessary as a first step.
How should a program manager prioritise which fragmentation gap to fix first?
Start with the gap that carries the highest compliance risk or the most operational cost , usually the unmanaged IC population or a geography with consistently slow fill times. Address one gap completely before expanding.
Author
Lee Willoughby
Senior Creative Director, Lifted
Lee Willoughby is the Senior Creative Director at Lifted, an Upwork company helping enterprises source, engage, and manage contingent talent across every contract type. With a background as a co-founder and workforce technology entrepreneur, Lee focuses on the future of contingent workforce management, helping organizations navigate the complexities of global talent, compliance, and workforce transformation.
The blog is intended for general informational purposes only, and is not intended to be and should not be viewed as legal or tax advice. Readers should contact their attorney or tax professional to obtain advice with respect to any particular legal or tax matter. Information discussed in this blog can change frequently, and Lifted cannot guarantee that all information on the site is current at all times.
