A s your company's use of contingent workers (CW) increases, so do the risks associated with that use. Avoiding potential pitfalls that will put your program in peril is a concern for contingent workforce buyers and suppliers.
Everybody wants to know where they stand in terms of perceived risks. They ask “What does it mean? and “What do we do to mitigate it?”
Well, the fact is when you have any sort of contingent worker at your place of employment, you are co-employing them. It’s a matter of understanding that you are at risk and what steps you’re going to take to mitigate that risk.
In other words, risk is inherent in a CW program. Using contingent workers means you are willing to accept the risks. The only question is: How much risk are you comfortable with?
It’s up to each program to figure out what their risk level is. Some people are very risk-averse. For example, if you ski, you know that most people are not going to go ski down the Black Diamond, where other people are experienced enough to navigate a complex and potentially dangerous route with relative ease. Just as some contingent programs are going to take more chances, and others will be more concerned with trying to mitigate risks.
No matter what type of contingent workforce program you manage, you need to understand the risks involved and how to best handle them.
Contingent Workforce Programs: What Are The Risk Factors?
After years of working with clients in different verticals, these are the three main risk buckets that I see.
1. Misclassification — In a proper independent contractor (IC) relationship there is no co-employment, ICs are a risk factor because many are classified incorrectly as an IC. Companies have two choices in how to properly vet ICs, run self-audits or utilize a third party IC management/payrolling company to manage this task. If you intend to self-audit you will need to have developed a vetting criteria that allows you to run ICs through your program. If this is not in your wheelhouse, a third party compliance vendor is the way to go. Another thing to keep in mind is that regulations apply differently if you have a global contingent workforce. Perhaps another reason to look to a global compliance vendor.
2. Co-employment — Staffing Industry Analysts’ (SIA) definition is: “the relationship among two or more organizations that exert some level of control over the same worker or group of workers. Co-employers often share some degree of liability and responsibility for shared employees.” Co-employment cases have been around for decades now, the question is how to mitigate the risk that is inherent in the use of contingent workers. Keep in mind, global ramifications are unique here as well, take Brazil as an example. Recent legislation moved the max 3-month assignment length for contingent workers to 6 months with an allowable 3 month extension.
3. Intellectual Property (IP) and assets — Any worker that has access to your buildings, your systems/applications, your databases and documents is a potential risk. Make sure your program integrates to on and off board all workers in a timely manner. It is of critical importance to protect both physical and intellectual property.
Is Your Company In Danger? Four Red Flags
Most companies need to use contingent workers to reach their goals.
Loss of confidential, proprietary, and trade secret information, fines, penalties, and even lawsuits are all disasters that could hurt your company.
That’s why it can be difficult to create a truly efficient and cost-effective program. One way to get an edge is by knowing the red flags to watch out for. That will help to minimize, monitor and control the probability or impact of event losses to your organization.
Here are four red flags to watch out for if you work with contingent labor:
1. Red Flag #1: You’ve got former employees coming back as contractors or especially as ICs
2. Red Flag #2: Your employees and contractors are doing the same work
3. Red Flag #3: Your contractors are doing work that is integral to your business
4. Red Flag #4: You have workers who retain badge and network access after their assignment or project end dates have passed
Companies worry about minutia in their attempts to mitigate risks. Unfortunately, not every action has a commensurate reaction. You want to spend your time on high leverage activities that will benefit your CW program. Here are the most important things you can do to protect your company and get the maximum benefit from your CW program.
6 Ways to Mitigate Contingent Workforce Program Risk
If you want to benefit from using contingent workers and protect your organization, here are six mitigation actions to implement.
1. Properly distinguish the relationship with contingent workers by asking them to read and sign onboarding documentation that clearly defines their work and role. Make sure they sign an NDA.
2. Ensure contracts specifically call out the employer (the supplier in this case) and that the contracts clearly state that the supplier is responsible for taxes, hour/wage compliance, insurance, and regulatory compliance.
3. Make sure your benefits program clearly defines an eligible employee for all benefits (medical, stock, 401k, etc.).
4. As the client, don’t discipline or terminate CWs, make sure all of this is handled by the supplier as their employer.
5. Negotiate only the bill rate, never the pay rate or any benefits (this does not mean you can’t track that, just don’t negotiate on these items).
6. Make sure you have an automated on/offboarding process and that you are auditing suppliers for complying with your background check policies.
I hope these suggestions will help your company manage and minimize risk, so you can get the most out of your contingent workforce program.