Optimising Workforce Composition and Flexibility

Labour Market Context

Strategic Mix of Permanent and Contingent Workers

The current environment provides an opportunity to reassess your workforce composition strategy intentionally rather than by default or historical precedent. Too many organisations maintain a particular permanent-to-contingent ratio simply because "that's how we've always done it" without strategic consideration of what actually makes sense.

When to Expand Permanent Employment

Consider strategically expanding permanent employees in specific areas where it creates competitive advantage and operational effectiveness.

Core strategic capabilities where you can now attract higher caliber talent than you could previously deserve permanent investment. These are the capabilities that differentiate you from competitors, drive customer value, and represent your sustainable competitive advantage. With a deeper talent pool available, you can now fill these roles with exceptional people who will be around long enough to develop deep expertise and make sustained contributions.

Roles requiring deep organisational knowledge and long-term commitment are almost always better filled with permanent employees who will be around long enough to develop that knowledge. Institutional knowledge – understanding how things really work, who to talk to, what's been tried before – can't be easily captured in documentation. It develops over years and provides enormous value. Contingent workers, by definition, won't be around long enough to develop this depth.

Positions where you previously relied on premium contractors due to talent scarcity can now potentially be converted to permanent roles at lower overall cost. If you've been paying premium contractor rates for capabilities that have become less scarce, conversion to permanent employees can reduce costs while providing better continuity and commitment.

Areas where you're building critical competitive capabilities need the stability and commitment that permanent employment provides. If you're investing in developing new capabilities, technologies, or approaches that will drive future competitive advantage, you need people who will be around to fully develop and operationalise those capabilities rather than leaving just as they become productive.

When to Maintain or Expand Contingent Workforce

At the same time, maintaining or even expanding your contingent workforce makes strategic sense in other areas.

Project-based work with defined timelines doesn't necessarily warrant permanent headcount. If you have work that needs to be done but will be complete within months rather than ongoing, contingent workers provide the capacity without long-term commitment. This is particularly relevant for system implementations, process redesigns, special projects, and other time-bounded initiatives.

Specialised expertise needed periodically rather than continuously is often more efficiently accessed through contractors or consultants. If you need deep expertise in a particular area for certain situations but not daily, maintaining permanent headcount is inefficient. Examples include specialised legal expertise, technical troubleshooting for uncommon systems, or industry-specific knowledge for occasional client needs.

Areas of uncertain future demand where flexibility is valuable should probably remain contingent. If your business forecasts show significant uncertainty – potential expansion or contraction depending on market conditions – contingent workers provide the ability to scale without the commitment and cost of permanent reductions if demand doesn't materialise. For more on managing uncertainty, see Transforming Your Talent Forecasting Models.

Testing new roles or capabilities before committing to permanent headcount reduces risk. If you're exploring a new business area, capability, or organisational structure, starting with contingent workers lets you validate the need and refine the role before making permanent commitments. Once proven, you can convert to permanent or recruit specifically for the refined role.

Surge capacity during peak periods can be managed with temporary workers rather than carrying permanent overhead year-round. Many businesses have predictable peak periods – retail holiday seasons, tax preparation firms during filing season, universities during enrollment periods. Contingent workers provide the capacity when needed without carrying costs during slower periods.

Leveraging Underemployed Talent

With underemployment rising sharply, there's an opportunity to leverage workers seeking additional hours in creative ways that benefit both parties.

Offer part-time arrangements to workers seeking additional hours, creating win-win situations. Many workers currently employed part-time want more hours but haven't found full-time opportunities. They bring experience and capability but with scheduling flexibility. This can be particularly valuable for coverage during peak periods, specialised expertise needed less than full-time, or building bench strength.

Job-sharing arrangements for roles that could suit multiple part-timers provide flexibility while accessing quality talent. Two experienced workers splitting one full-time role can sometimes provide better coverage and continuity than one person. This works particularly well for roles with defined deliverables rather than continuous presence requirements, positions that benefit from diverse perspectives, and workers with complementary strengths.

Flexible scheduling appeals to workers with other commitments who might not be able to work traditional full-time schedules. Parents with school-age children, workers caring for elderly relatives, students completing education, or people with side businesses may all have valuable experience and capability but need scheduling flexibility. By accommodating their needs, you access talent that competitors requiring traditional schedules cannot.

Building a pool of on-call or as-needed workers for variable demand gives you surge capacity without fixed costs. Workers who are available for shifts or projects as needed provide flexibility for unpredictable demand fluctuations, coverage for absences or leaves, and testing of potential permanent hires before commitment.

The Goal: Strategic Flexibility

The goal is strategic flexibility – the ability to scale up or down as business needs change, access specialised skills when needed without carrying them permanently, and maintain core capabilities with committed permanent employees.

This isn't about minimising permanent headcount for cost reasons alone. Permanent employees provide commitment, develop deep organisational knowledge, build strong working relationships, invest in their development knowing they'll benefit long-term, and provide stability that contingent workers cannot.

However, pure permanent workforces lack flexibility to adjust to changing conditions, can't efficiently handle variable or periodic needs, may develop insular thinking without external perspectives, and create fixed cost structures that are difficult to adjust when business conditions change.

The optimal mix depends on your specific business model, competitive strategy, workforce capabilities, financial constraints, and labour market conditions. The key is making these decisions intentionally based on strategic considerations rather than by default.

Addressing the Demographic Challenge

Australia faces significant demographic shifts that will impact workforce planning over coming decades. The employment-to-population ratio is expected to decrease by 1.16 percentage points between 2023 and 2060 as the population ages. However, this long-term challenge also creates immediate opportunities if you approach it strategically.

Activating Older Workers

Employment rates for workers aged 55-59 have increased by 18.1 percentage points over recent decades, and for those aged 60-64 by 26.9 percentage points. This demonstrates that older workers want to remain engaged in meaningful work. Yet many still exit the labour market before retirement age, and there remains a 10.7 percentage point gender gap in employment for those aged 55-64, suggesting significant untapped potential.

Developing specific attraction and retention strategies for workers over 50 can access this valuable talent pool. These workers often bring deep experience accumulated over decades, strong work ethic developed in different labour market conditions, maturity and judgment that younger workers are still developing, established professional networks, and perspective from having seen multiple business cycles.

Yet many organisations inadvertently screen out older workers through age discrimination (often unconscious), job descriptions emphasizing "cultural fit" that subtly favor younger workers, selection criteria overemphasizing recent technology skills, compensation structures that penalise experience, or work arrangements that don't accommodate older workers' preferences.

Creating flexible work arrangements that appeal to older workers can help people extend their careers on terms that work for them. Phased retirement options allowing gradual reduction in hours or responsibilities rather than abrupt full retirement help people transition psychologically and financially. Reduced hours or compressed work weeks may appeal to workers who want to remain engaged but at lower intensity. Flexible scheduling accommodates health appointments, family responsibilities, or simply preferences that develop as people age. Project-based or seasonal work allows workers to contribute meaningfully while maintaining periods of non-work time.

Implementing knowledge transfer programs captures expertise before retirements that might otherwise be lost permanently. Structured mentoring pairs experienced workers with less experienced colleagues systematically. Documentation projects capture critical knowledge before it walks out the door. Reverse mentoring allows older workers to share expertise while learning from younger colleagues. Transitional roles where retiring workers gradually hand off responsibilities ensure continuity.

Addressing age discrimination through inclusive hiring practices and manager training removes barriers that keep qualified older workers from getting opportunities. Training hiring managers on age bias helps them recognise and correct unconscious discrimination. Structured interviews focusing on capabilities rather than culture fit or energy level reduce age discrimination. Skills-based assessments evaluated blindly without age information ensure fair evaluation. Mixed-age interview panels provide diverse perspectives.

For more on skills-based approaches that reduce bias, see Embracing Skills-Based Workforce Planning.

Offering benefits and workplace arrangements suited to older workers' needs shows you understand and value this demographic. Health insurance that covers age-related conditions without prohibitive premiums matters more to older workers. Retirement planning support helps workers prepare financially. Wellness programs addressing age-specific health considerations show you care. Phased retirement programs formalise what might otherwise be ad-hoc arrangements.

Programs like Career Transition Assistance, which supports workers 45 and over in changing careers or finding new opportunities, demonstrate practical approaches to keeping older workers engaged and productive.

Proactive Succession Planning

With an aging workforce, proactive succession planning becomes critical rather than optional. Too many organisations wait until someone announces retirement to begin thinking about succession, creating crises that could have been avoided with planning.

Identify critical knowledge held by workers nearing retirement before it walks out the door. What does this person know that nobody else knows? What relationships have they built that would be difficult to replicate? What judgment and experience guides decisions in ways that aren't documented? This identification should happen years before retirement, not weeks.

Create structured mentoring and knowledge transfer programs that move expertise from experienced workers to those who will carry it forward. This goes beyond informal relationships to systematic programs with clear objectives, structured activities, and accountability for results. The retiring worker's final performance objectives should include successful knowledge transfer, not just completing current work.

Document processes and expertise systematically rather than keeping it in people's heads. Critical processes should be documented while the expert is still available to explain nuances and answer questions. War stories and lessons learned from past challenges provide valuable context. Decision frameworks and criteria help successors make similar decisions without the experience.

Develop succession candidates well in advance of anticipated departures, not after someone announces retirement. Identify potential successors years in advance and provide developmental experiences, exposure to senior leaders, increasing responsibility, and coaching to prepare them. Having ready-now successors for critical roles provides options when the unexpected happens.

Consider extended transition periods where retiring workers gradually hand over responsibilities, ensuring continuity and effective knowledge transfer. Rather than working full-time until a retirement date then stopping abruptly, workers transition over 6-12 months, reducing hours gradually while the successor assumes increasing responsibility. The retiring worker remains available to answer questions and provide guidance during the critical early period.

Addressing the Gender Gap

Women exit the labour market almost one year earlier than men on average in Australia. This represents both a challenge and an opportunity. The 10.7 percentage point gap in employment for those aged 55-64 suggests significant untapped talent.

Understanding why women exit earlier and addressing controllable factors can help extend careers. Research suggests caregiving responsibilities for aging parents or grandchildren, health considerations that may affect women differently, accumulated career frustrations or discrimination, and financial calculations affected by lifetime earnings gaps all contribute to earlier exit.

Creating flexibility that enables women to balance work with caregiving responsibilities makes continued employment feasible. Flexible hours that accommodate caregiving schedules, remote work options reducing commuting burden, part-time options allowing continued engagement at reduced intensity, and leave policies for family caregiving all help women remain employed longer.

Addressing pay equity ensures that continued work is financially attractive. Women who have experienced pay inequity throughout their careers may conclude that continued work isn't financially worth it. Addressing pay gaps earlier in careers improves retention at all ages, but it's never too late to address inequities that might drive early exit.

Supporting career progression at later career stages, not just for younger workers, keeps women engaged and motivated. Many development and advancement opportunities unconsciously target younger workers. Ensuring older women have access to meaningful advancement, skill development, leadership opportunities, and recognition shows you value their contributions.

For strategies on maintaining engagement across all demographics, see Maintaining Engagement and Retention.

Geographic Workforce Strategy

Significant regional variations in labour market conditions create opportunities for strategic workforce distribution that many organisations haven't fully explored.

Understanding Regional Dynamics

Victoria, with 4.7% unemployment, and NSW, with significant job losses of 22,100 in the first nine months of 2025, currently have deeper talent pools than other states. These regions may offer opportunities to access quality talent at more competitive terms than would have been possible a year ago.

Meanwhile, Western Australia added just 400 jobs this year, and different regions show distinct patterns. These variations create strategic opportunities for organizations willing to think creatively about workforce location.

Remote work policies enable tapping into these talent pools without requiring relocation, which expands your options considerably. A highly qualified candidate in Victoria or NSW who might not consider relocating to your headquarters city becomes accessible if the role can be performed remotely. This dramatically expands your talent pool, particularly for roles where physical presence isn't essential.

Cost-of-living differences across regions create opportunities for geographic arbitrage in compensation. The same salary goes much further in regional Queensland than in Sydney. A role that requires a $120,000 salary in Sydney to provide acceptable living standards might only require $90,000 in a regional area, yet the candidate's quality of life could be higher. This isn't about exploiting workers – it's about recognizing that purchasing power varies geographically.

Regional hubs may provide access to talent without the premium costs and intense competition of major metros. Cities like Wollongong, Geelong, Hobart, or Canberra offer educated workforces, lower costs than Sydney or Melbourne, growing remote work populations who've relocated from major cities, and potentially greater loyalty since there are fewer local employer alternatives.

Strategic Questions for Geographic Workforce Planning

Where do critical skills exist at different price points?

Technology talent exists in Sydney, Melbourne, and increasingly in regional centers where remote tech workers have relocated. If you need technology skills, do they need to be in expensive major metros or can you access them elsewhere? Healthcare expertise may be concentrated in cities with major hospitals and medical schools, but telehealth and administrative roles can be distributed. Creative talent clusters in certain areas but increasingly works remotely. Analyzing where your needed skills exist, and where they cost less, informs location strategy.

Can remote work enable access to talent in regional areas or softer markets?

The shift to remote work during COVID proved many roles can be performed effectively without physical presence. Which of your roles truly require office presence versus which can be performed remotely? Customer service, technical support, software development, content creation, data analysis, and many professional services roles can be performed from anywhere with good internet connectivity. This allows accessing talent in areas you wouldn't traditionally recruit from.

Should you establish satellite offices or remote work hubs in specific regions?

Some organisations are establishing small satellite offices or remote work hubs in regional areas, providing dedicated space for remote workers while building community and local brand presence. This can be particularly effective in areas with concentrated talent, lower costs than headquarters location, quality of life attractive to workers, and reasonable commute access for local workers who prefer occasional office presence.

How do regional variations affect your compensation strategies?

This is perhaps the most complex question with no universal answer. Should you pay based on role value to the organisation regardless of location? This is simplest administratively and may feel fairest to employees, but you forgo cost arbitrage opportunities. Pay based on local market rates for the role in each location? This captures cost arbitrage but creates internal equity challenges when someone in a regional area earns significantly less than a colleague in Sydney doing the same work. Use a hybrid approach with national salary bands but regional adjustments within bands? This balances competing considerations but adds complexity.

Whatever approach you choose, be transparent about the logic and apply it consistently. Hidden or inconsistent location-based pay practices breed resentment and damage trust.

What are the implications for company culture and collaboration with geographically distributed teams?

Geographic distribution creates real challenges for culture and collaboration that shouldn't be dismissed. Casual interactions that build relationships and spark ideas don't happen as naturally. Onboarding and integration of new employees is more difficult remotely. Company culture can fragment into regional subcultures without intention. Time zone differences can complicate collaboration for organisations spanning multiple zones.

Organisations successfully managing distributed workforces invest intentionally in bringing people together periodically for culture-building and relationship development, using technology effectively for connection and collaboration, developing leaders capable of managing distributed teams, and creating rituals and practices that build shared culture across distance.

Implementation Considerations

Technology Infrastructure

Geographic distribution requires reliable technology infrastructure. Video conferencing that actually works without frustration, collaboration platforms for asynchronous work, secure access to systems and data from distributed locations, and communication tools that keep distributed teams connected all become critical dependencies rather than nice-to-haves.

Legal and Regulatory Compliance

Employing people in different states or regions creates legal and regulatory complexity. Workers' compensation requirements vary by state. Payroll tax obligations differ across jurisdictions. Industrial relations and employment laws have regional variations. Organisations need expertise to navigate this complexity or will face compliance risks and potential penalties.

Equitable Treatment

Perhaps the most important consideration is ensuring equitable treatment of workers regardless of location. Remote workers shouldn't be forgotten for development opportunities, advancement, or high-visibility assignments. Regional office workers need equal access to senior leadership, company information and resources, and career progression as headquarters employees. Creating and maintaining equity requires intentional policies and practices, monitoring of outcomes, and accountability for leaders.

Practical Implementation Roadmap

Immediate Actions (Next 30 Days)

Audit Current Workforce Composition

Document your current permanent vs. contingent mix by function and role type, not just organisation-wide. Understand the reasons behind current composition – are they strategic or historical? Identify roles that might be better suited to different employment types. Calculate fully-loaded costs of permanent vs. contingent workers in different role categories. Interview hiring managers about their preferences and constraints regarding employment types.

Analyze Demographic Profile

Break down your workforce by age cohorts to understand your exposure to retirement. Identify critical roles held by workers approaching retirement age. Assess knowledge transfer risks – what critical knowledge might walk out the door? Review your attraction and retention approaches for older workers. Examine gender patterns in older worker employment and exit.

Map Geographic Distribution

Document where your employees currently work – headquarters, remote, distributed locations. Identify roles that could potentially be performed from different locations. Research cost-of-living differences across potential workforce locations. Analyze your compensation approach for geographic variations. Review your technology infrastructure capability to support distributed work.

Short-Term Actions (Next 90 Days)

Develop Workforce Composition Strategy

Define strategic criteria for when to use permanent vs. contingent workers rather than making ad-hoc decisions. Create guidelines for hiring managers on employment type decisions. Identify current contingent roles that should potentially convert to permanent. Identify current permanent roles that might be better suited to contingent arrangements. Develop business case for optimal workforce composition including cost and operational implications.

Launch Older Worker Initiative

Create targeted attraction strategies for workers over 50. Develop flexible work arrangements particularly attractive to older workers. Implement or enhance knowledge transfer and mentoring programs. Train hiring managers on age bias and inclusive practices. Review benefits and policies through an older worker lens. Establish metrics to monitor progress on older worker employment.

Pilot Geographic Distribution

Select 2-3 roles or small teams to pilot new geographic distribution approaches. Establish clear success criteria for the pilots. Provide resources and support needed for success. Monitor results carefully with structured evaluation. Capture lessons learned to inform broader rollout. Address technology, policy, and practice issues that emerge.

Implement Phased Retirement Program

For organisations with significant retirement exposure, develop formal phased retirement options. Define parameters – eligible employees, duration, hours reduction, compensation approach. Create knowledge transfer requirements tied to phased retirement participation. Communicate program to eligible employees and their managers. Track participation and outcomes.

Medium-Term Actions (Next 6-12 Months)

Optimise Workforce Composition

Execute on the workforce composition strategy developed earlier. Convert appropriate contingent roles to permanent and vice versa. Adjust hiring practices and manager training to reflect new approach. Monitor results against expected benefits. Build capability in managers to effectively lead mixed permanent/contingent teams. Create metrics dashboard tracking composition and effectiveness.

Scale Older Worker Programs

Based on early results, expand older worker attraction and retention programs. Integrate age-inclusive practices into standard recruiting and development processes. Celebrate successes and role models to change organisational mindset. Address remaining barriers identified through experience. Measure impact on retention, knowledge transfer, and workforce capability.

Expand Geographic Distribution

Based on pilot results, expand geographic distribution strategically. Establish satellite offices or remote work hubs if justified. Implement technology, policies, and practices needed at scale. Develop leaders' capability to manage distributed teams effectively. Create culture-building practices for distributed workforce. Monitor effectiveness and course-correct as needed.

Build Succession Planning Discipline

Implement systematic succession planning process for critical roles. Identify and develop succession candidates years in advance. Create knowledge transfer mechanisms tied to retirement planning. Establish accountability for succession planning, not just hoping it happens. Monitor succession readiness across the organisation.

Measuring Success: Key Metrics

Workforce Composition Metrics

• Permanent vs. contingent ratio by function and role type
• Cost differential between employment types for similar roles
• Conversion rates from contingent to permanent when strategic
• Manager satisfaction with workforce flexibility
• Business impact of composition changes (productivity, quality, cost)

Demographic Metrics

• Employment rate by age cohort compared to market
• Retention rates for workers 50+ vs. overall workforce
• Gender gap in older worker employment
• Average retirement age and trends
• Knowledge transfer completion for retiring workers
• Succession planning readiness for critical roles

Geographic Distribution Metrics

• Workforce distribution across locations
• Cost differentials by location for similar roles
• Time-to-fill and candidate quality by location
• Employee satisfaction by location
• Turnover rates by location
• Technology infrastructure reliability and user satisfaction

Flexibility Metrics

• Time to scale workforce up or down when business needs change
• Percentage of roles with documented employment type rationale
• Manager capability to lead flexible/distributed teams
• Utilisation of flexible work arrangements (part-time, remote, etc.)

Conclusion: Building Workforce Agility

Optimising workforce composition and flexibility creates the foundation for responding effectively to whatever labour market conditions emerge. By strategically balancing permanent and contingent workers, tapping into demographic opportunities like older workers and the underemployed, and leveraging geographic distribution, you build a workforce that can flex and adapt rather than remaining rigid and constrained.

However, workforce composition and structure alone don't ensure success. Even the most strategically composed workforce will struggle if engagement and retention aren't carefully managed, particularly during market transitions when employees may feel uncertain or stuck.

Our next article, Maintaining Engagement and Retention, explores how to keep your workforce motivated, committed, and productive regardless of external labour market conditions – and why the common assumption that retention automatically improves in a soft market is dangerously wrong.

The organisations that thrive will be those that couple strategic workforce composition with exceptional employee experience and engagement.