Are your contractors putting your business at risk?

April 28, 2023

Today, we focus on the operational and strategic business risks created by a contingent workforce and why you should urgently consider finding ways to mitigate those risks.

But first, a little background.

Previously, only a handful of industries commonly included agency workers and contractors as critical workforce elements. Construction, healthcare, offshore, and security services spring to mind. Over time, the use of contingent workforce has grown significantly in almost every sector, as companies seek to scale as flexibly as possible in response to rapid market changes.

In the EU, contingent workers comprise around 43% of the workforce, often to complete projects requiring specific expertise or managing seasonal variations. Run forward to 2022, and a survey from MBO Partners showed that nearly one in three workers at large enterprises are already contingent, and 82% of organizations report that skilled contingent workers make up half or more of their contingent labor force.

Where does the operational risk arise?

Managing a sizeable contingent workforce presents significant operational demands: search, selection, onboarding, offboarding, payroll, and more. The management responsibility for the contingent workers will fall either on Human Resources (HR) or Procurement.

The HR team's processes are generally unsuited for large numbers of contingent staff, even though they may need to be security—and credentials-checked, onboarded, and more. In fact, individual workers hired as part of an agency contract may never appear on the personnel horizon, as the contract is handled as an indirect procurement item. 

Similarly, procurement teams are focused on the contract level, negotiating hourly, daily, or weekly rates with service providers. Procurement systems are not intended to curate individual contractors' qualifications and employment histories, even though they may handle the company's projects personally.

For example, the offshore oil industry relies on specialists, often flown in at short notice, to deal with specific challenges for a brief period. In most cases, the essential issue is finding suitably qualified, trained, skilled individuals, and the cost is almost irrelevant.

In this case, they are managing compliance risk springs to the fore. How does the rig operator know that each individual possesses the correct credentials for the task? Should the company rely on the service provider's record-keeping, or will records be retained on the company's HR system?

Beyond the operational risk that an untrained or unqualified contractor will spill millions of barrels of oil, the company now faces additional systemic risk. 

Entering contingent workers' details into an HR system can all too easily look like the start of employment. The onboarding process – issuing a security pass, IT systems login, etc. – is similar to becoming an employee, complete with insurance, holidays, maternity, and employment rights. Tax and legal authorities often believe contingent workers are employees until proven otherwise – ask Deliveroo, Google, or Uber. 

Employment risk 

Companies with a third or even half of the workforce currently assumed to be contingent could run a considerable employment risk. Managing all staff on the same platform could easily create the impression that everyone is an employee with varying contract conditions. Further, the EU's Platform Workers' Directive may change the presumed employment status of millions of workers when adopted. 

At the systemic level, employment status generates a compliance risk. If contingent workers are to be employees, then the employer, not the agency supplying the staff, is responsible for compliance with industry regulations.

For example, the heavily regulated banking industry relies on vast armies of IT contractors supplied by service providers on multi-year deals. The IT partnerships between banks and providers are often hailed as indistinguishably close, blurring the lines between bank employees and contractors.

You can see where this is going. Where does responsibility lie if the bank suffers a GDPR breach caused by a contractor? Who in the bank authorized the contractor to access personal data, and how is that authority managed? If the lines are blurred between employee and contractor, the compliance risk may rest with the bank.

In a highly regulated world, systemic compliance risk can occur by default. The consequences, such as financial penalties and reputational damage, can be significant. 

Before your organization sleepwalks into risk, consider the benefits of Beeline, a purpose-designed contingent workforce management solution. Beeline delineates employees and contingent workers and helps mitigate operational and compliance risks.

Speak to our experts to learn how we can help you achieve greater compliance and reduce risk exposure.

Or read this e-book to learn how we can give your business the visibility and control you need to manage your non-employee workforce efficiently and effectively.