As organizations evolve their talent strategies in response to market drivers and needs, businesses are increasingly augmenting staff with contingent labor. Now more than ever, business leaders see the benefits of engaging contingent workers as the gig economy reshapes the talent landscape.
The initial appeal of hiring contingent workers focused mainly on cost reduction. It was simply cheaper to utilize contingent labor than to hire a full-time worker. Back then, contingent workforce programs were more in the domain of procurement.
Over time, companies began to emphasize the quality of their contingent labor—and of their contingent labor program—and its overall impact on the entire organization. This shift to a focus on quality can be attributed to the increased role HR plays in contingent workforce management as a complement to the role of procurement.
Despite their differences in focus, one thing both procurement and HR leaders can agree on is the need to minimize program risk to the fullest possible extent.
What Are the Risks of Using Contingent Labor?
As the use of contingent labor increases, it’s critical for program managers to ensure that they actively mitigate risk to the best of their ability.
The first step is to identify areas impacted by regulations governing your contingent workforce, including
- Compliance processes
- Compliance workflow management
- Technology as source of record
- Compliance audits
- Independent contractor management
- Clear documentation of employee classifications.
By embracing the following 6 tips, program managers can achieve compliance, mitigate risk, and maximize the benefits of contingent labor.
1. Track and Manage Compliance Processes
Having a standardized process for onboarding and off-boarding processes helps an organization track and manage compliance measures throughout a worker’s engagement.
First, define global compliance, or compliance that is required for every worker at your organization. These requirements may include background checks, drug screenings, orientation packets, for example.
Once you establish global compliance objectives, tackle more specific procedures, such as requirements specific to a position or location. For example, while an RN needs a nursing license, administrative workers do not. And workers at a given location may need additional security clearance or training, or they may have to abide by local regulations governing business practices.
For maximum compliance, your global and specific compliance procedures should be automated both to ensure that requirements are met consistently and to track and document compliance status for your entire contingent workforce.
2. Enforce Compliance Completion to Meet Business Rules
Once compliance has been defined for all positions and locations, it’s time to establish a schedule for compliance items.
Organizations may allow some items to be completed before the candidate’s start date while others may be required at candidate submittal. For example, some organizations require license and certifications to be completed before the candidate can be brought on board, while others require it to be submitted with the candidate.
Here again, automation makes a world of difference. With the right technology, HR or procurement teams can halt the workflow until compliance is completed. They can also track expiring licenses and similar items to ensure compliance is maintained throughout each contingent worker’s contract.
Business rules and risk mitigation vary by industry. The light industrial, for example, have stringent safety protocols, and use automated compliance systems to report, monitor, and follow up on safety violations.
In this example, this process further reduces risk by enabling managers and HR teams to set thresholds and rules for off-boarding workers who exceed predetermined limits for safety violations within a certain time period.
3. Maintain a Single Source of Record for Contingent Workforce Data
Using technology to manage the entire contingent lifecycle can significantly reduce risk. Consolidating data repositories into one system keeps information secure, current, and streamlined.
A single source of record also offers other benefits:
- Vendor-neutral sourcing – A central source enables automatic distribution of requisitions to your vendors based on your business rules.
- Reduced bias in hiring managers – Removing vendor names on candidate submittals helps eliminate bias in the selection process, increasing overall candidate quality.
- Increased compliance tracking – Engagement alerts and email notifications help maintain compliance with vendor payment requirements, candidate certifications and other items with expiration dates, onboarding/off-boarding processes, and tenure limits.
- Accurate billing – Centralized timekeeping ensures billing is timely and efficient and in accordance with service-level agreements (SLAs).
A centralized system also provides an accessible reference for any questions that arise from your vendors, contractors, and gives HR and procurement teams everything they need during an audit.
4. Conduct Quarterly Audits of Your Program
Whether completed internally or through a Managed Service Provider, it’s important to audit vendors quarterly to confirm they’re following policies set forth under your contingent workforce program.
A best practice for conducting compliance audits is to randomly select 10% of each vendor’s engagements from the previous quarter, and then thoroughly examine their compliance items to verify that all activities were completed based on your organization’s standards.
This analysis will help gauge the quality of your vendors and identify those who may be putting your program at risk.
5. Control Independent Contractor Submission and Management
While some organizations choose to engage contingent labor only through staffing suppliers as a W2 employee, others also bring on independent contractors to meet project or other needs. Engaging independent contractors carries additional, specific risks to account for in your contingent program.
To mitigate these risks, your program should
- Define and enforce parameters around what type of contract labor you allow in your program.
- Clearly identify and track independent contractors and W2s to ensure the program consistently follows appropriate processes for each
- Consider using a Managed Service Provider (MSP) to vet independent contractors to review paperwork and documentation.
- Ensure contracts clarify that your organization will not accept expense reports from independent contractors, as this can be misconstrued as you providing the tools and equipment needed for the service—an indicator or an employee rather than independent contractor.
Another best practice is to manage independent contractors through the services procurement module of a vendor management system (VMS). The VMS enables the organization to collect the W-9, Form 1099-MISC, contract and SOW, and other documentation. And it enables you to pay independent contractors on a deliverable basis, upon invoice.
With automated management of documentation and billing, a VMS is an excellent tool for managing both risk and spend associated with independent contractors.
6. Define and Document Employee Classification and Benefits Eligibility
According to Staffing Industry Analysts, it is critically important to ensure that you have a clear definition of who—that is, which types of employees—receives benefits within your organization.
Any organization that engages contingent employees should consult with legal experts to review contingent contracts and consider including a clause that speaks specifically to benefits and employee classification.
The clause should clearly state that benefits will not be paid to anyone determined by the company to be non-employee labor. And more specifically, the clause should state that benefits are assigned based on the company’s classification of the work, not the designation or classification assigned by the worker him or herself or by staffing company.
Mitigating Risk Matters
As HR and procurement professionals already know, mitigating risk is well worth the effort. By following these steps, your teams can develop, enhance, and automate processes and protocols that will protect the organization from legal consequences, enable you to respond to an audit, and guard against inconsistencies that can result in over-spending across your contingent workforce program.