Today on “5 Questions with…” we are featuring Jay Lash, VP of Market Strategies with MBO Partners. (To learn more about his work and past experience, read his bio on the MBO site here.)
Jay penned the current feature article in the Sourcing Interests Group (SIG) newsletter, titled “The Way Work Gets Done in the Emerging “Project Economy.” The article gives a good overview of how and why this “new normal” of a flexible workforce has come to be, and help explain why an IC Compliance Program is important. We read the article, and asked Jay the following questions.
1. You mention that Independent Contractors(ICs) are the fastest-growing worker segment in the US today. What are the key factors influencing the growth of ICs?
It really is a different answer for each generation in the workforce. Having three or even four generations sharing the workforce is a challenge in itself (maybe a post for another time), but today it seems all can agree on one factor that drove them to independence: self-sufficiency, or as some would call it, survival. For all workforce classes, the fact that full-time jobs are scarce has driven many to be independent after layoffs or when companies (or industries) fail.
However, different generations approach independence in different ways. Older workers see this as way to continue being valuable and contributing as they retire. Many cannot afford to retire but are ready for a transition career. They have strong institutional knowledge and many potential clients to develop, so they strike out on their own and live the dream of being their own boss.
In the meantime, the X-Y generations are more used to temporary work and have grown-up looking for entrepreneurial opportunities. They understand that work is not entitlement — it is earned through building their own brand and selling it to the marketplace. Career independence is often a more natural fit for individuals brought up with this mind-set.
Being self-employed has always been a popular objective, it is just so much more achievable today with social networking, virtual offices and digital media… as well as the general acceptance that workers do not need to be employees.
2. Many would argue that the string of lawsuits related to ICs would have hindered companies from engaging with them. Why do you think this isn’t the case?
I agree that companies are hesitant to engage ICs. The lawsuits can create a daunting prospect for companies that have not paid close attention to how they engage their ICs. But to your point, many companies need to engage these consultants because it makes such good business sense. Every company needs to enlist the outside expertise of consultants to provide non-biased judgment and advice on marketing, strategic planning, HR, financial management, and a variety of high-level subjects. Non-core functions can be easily packaged into projects and given to subject matter experts. This is becoming more and more attractive to companies. As time goes on and an increasing number of talented resources choose this form of work arrangement, companies will choose this option more. However they will also establish new methods for doing so without the risks that may be inhibiting them today.
3. You introduce us to the concept of 3rd party specialists helping with the Independent Contractor engagement process. Can you go into a bit more detail about how 3rd party firms such as yours help corporations engage ICs?
There are two essential components of IC engagement: compliance and management. Compliance requires that independent resources are qualified to be classified as an independent contractor and their status would stand up to an IRS audit or a claim for employment rights. This involves a legal assessment of the worker and the assignment, collection of proper documentation, and regular review of this classification determination. Management generally means the ongoing operations of the engagement. This involves selecting the right engagement model (W-2 or 1099), tax and expense management, payment, invoicing/collections, reporting, and more.
MBO Enterprise Solutions goes so far as to provide three engagement models. Two are somewhat “traditional”: a subcontractor or “corp-to–corp” arrangement for qualified businesses, and a payrolling program for those who are fundamentally hourly temp workers sourced by the client (no agency recruiting involved). The third, though, is unique. We call it our “MBO Exec” service and through it we set contractors up as individual practice areas under the MBO umbrella.
What is unique about a third-party service such as this is that it simultaneously drives value for both the client and the IC. Clients get a consistent engagement vehicle for all their contractors, consolidated invoicing, risk mitigation, and better IC spend visibility. At the same time, the ICs themselves with a variety of tools and services through which they can more easily build thriving independent practices. This solution keeps both sides of the fence happy. Consequently, some companies have gone so far as to outsource the management of all ICs by aggregating them under a single IC engagement provider.
4. How do you see specialist IC engagement firms fitting into the current ecosystem of workers, suppliers, VMSs and MSPs?
In the last several years we have seen a major increase in MSPs looking to expand the scope of their service into the project, SOW, and consultant spend. The major consulting firms usually resist this since they are managing large engagements and offer similar services for their spend. On the other hand, small consulting companies of one to three people really have no place to reside and usually lack governance and compliance. The benefits derived from VMS and MSP solutions easily transfer to the IC or consultant categories, so it is a natural evolution to include this category. In some cases each of these solutions can stand on its own (certainly an Independent Contractor Engagement Specialist (ICES) can), but in companies that favor centralized and standardized procurement of talent, the merged solution of all three is a proven winner.
5. What’s next? Should we expect the workforce to go through another drastic change in the near future? How is the IC space likely to evolve in the next 5-10 years?
The rate of change today is so dramatic, trying to look that far ahead is really out of range for my predictions. But I will say this: independent work arrangements and workers’ desire to be independent are more than reactions to the economy. They’re part of a trend. The large corporate management structure has seen its high point and progressive organizations need to embrace the independent, not fear them.