fact sheet
Mitigating compliance risks in the contingent workforce
How to manage and minimize regulatory, security, and policy risks
Companies worldwide increasingly depend on contingent talent to complement their permanent workforce. Today nearly 50% of the average workforce consists of these non-employees.
This external talent creates tremendous value, but it also creates risks. These include security and safety risks when outside workers have access to company facilities or networks, personal or corporate data, and physical or intellectual property. They include risks when companies fail to comply with legal and regulatory requirements. Risks can also accrue when hiring managers or contingent workforce program owners fail to comply with company policies and procedures.
Growing risk of worker misclassification
Of particular concern to contingent workforce program owners is the risk of misclassifying external workers, which includes agency provided temporary workers, freelancers, independent contractors, interns, and consultants. It also includes the employees of outsourced service providers who deliver both strategic and non-strategic services.
Each external worker must be classified correctly according to applicable labor laws and tax regulations. Misclassification can result in fines, litigation, and both financial and reputational damage.
Role of contingent workforce management
Because risk management is so complex, it typically involves many different functions within an organization. These may include a dedicated risk management team and likely involves elements of Finance, Procurement, Legal, and Human Resources.
It is not the contingent workforce management team’s job to determine how much risk the company is willing to take. Instead, it is their job to:
Ensure the program complies
with all laws, regulations, and policies concerning the contingent workforce
Maintain a record
or compliance in case of audit, inspection, or review
Three steps toward risk mitigation
Visibility
The next step is to determine the visibility required to ensure these controls are followed. You need to know who all your non-employee workers are, where they are, what they are doing, and what access they have to company facilities, networks, data, and physical and intellectual property. You need to know how to contact each of them in case of an emergency. And you need to know whether they are compliant with all required health, safety, security, and other policies your company has put in place.
This can be challenging when your contingent workforce is managed manually or by a combination of disparate systems, including human capital management (HCM), procure-to pay (P2P), and other human resource or procurement solutions. It is much easier if all external workers are managed in a vendor management system (VMS), a technology solution designed specifically for non-employee workforce management.
Compliance
The third step is to monitor all processes to ensure that all facets of your contingent workforce program are compliant with applicable laws, regulations, and policies consistent with your established risk management governance. This is easiest and most efficient if your program uses the process automation a VMS provides.
Program rules can be built into your VMS workflows to ensure that all required processes are followed and properly documented. Standardized onboarding and offboarding of all external workers, including consultants and statement of work (SOW)-based service contractors can ensure that workers are properly vetted and their access to company resources is properly controlled and documented.
Using VMS technology to manage the entire contingent worker or project lifecycle lets you maintain a single source of truth for contingent workforce data. This data can be used to create necessary compliance reports and to respond to audits when required.
Governance
The first step in managing and mitigating risk is to establish the necessary policies, assign responsibility, and establish the controls that will be followed to minimize risk within the contingent workforce.
The right tools make compliance easier
Mitigating compliance risks does not just happen. Your organization must review the compliance environment continually and update your governance and compliance procedures accordingly.
This will be easier if you have the right contingent workforce automation tools in place.
The fact is that the laws might be slightly different in different countries, but the basic principles underpinning the laws are the same, and misclassification of independent contractors is a classic example.