Jeff Nugent, Managing Director of Contingent Workforce Solutions (CWS), answers: What is Direct Sourcing? How does Direct Sourcing benefit organizations?
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After a rather flat bill rate for Contingent Workers in 2013, analysts are predicting a sharp rise in the latter half of 2014. According to Robert Half Technology and The Creative Group, here are the positions that will see the sharpest rise in salary in 2014
1. Mobile applications developer: Experienced mobile applications developers can expect to see the largest increase, 7.8 percent, in starting compensation of any tech position listed in this year’s Salary Guide, with salaries ranging from $100,000 to $144,000.
2. Business intelligence analyst: Skilled business intelligence analysts can anticipate a 7.4 percent boost in starting compensation in 2014, with salaries ranging from $101,250 to $142,250.
3. Information systems security manager: Information systems security managers who can assess and re-mediate vulnerabilities, threats and intrusions are in demand, and are projected to see a 6.8 percent bump in base compensation this year, with average starting salaries between $115,250 and $160,000.
4. User experience designer: User experience designers can expect to see average starting salaries between $78,000 and $120,000, up 7.5 percent from 2013.
5. Mobile designer: Skilled mobile designers can anticipate average starting salaries to increase 6.3 percent in 2014, to the range of $66,000 to $103,000.
6. User experience specialist: User experience specialists can expect to receive base compensation in the range of $79,000 to $118,000, a gain of 5.9 percent over last year.
*Source-SIA (Staffing Industry Analysts)
Are you a Vente Soya Latte? How about just a little sugar? Or perhaps you’re a pumpkin flavored specialty coffee type of person? That notion in and of itself when ordering a coffee isn’t ground-breaking (or even news for that matter), but unless you’re lucky enough to be on the receiving end of a goodwill parade chances are you are the only one that really knows how to order your caffeinated beverage of choice. You probably don’t even think about it. BUT, if next time you walked into your favorite establishment they took down the menu, hid the flavor syrups, blanketed the baked goods trays, and just put a small number of choices in front of you chances are this may raise some concerns. So, the question then is this. When ordering contract talent why would you limit yourself by putting the essential lifeline of an organization, i.e. the attracting and hiring of top talent, in the hands of external firms who you may have never met you and possibly never even set foot inside the doors of your organization?
It’s probably not something you’ve ever even stopped to think about, but in a way this question is quite perplexing. We all inherently know the needs of projects in the workplace. You may not have “recruiting” expertise yourself, but chances are you do understand the requirements of the problem at hand. You know the skills and background of those that are needed on the team and above all, you know the attitude and personality of team members you want to work with. Now, this is not to say that external staffing agencies don’t offer services that can be effective but its perplexing and very limiting to only use staffing firms as your sole option to find resources without checking to see if you or your company can find talent through its own network of referrals, quick posts to a career sites on the internet or social media networks like LinkedIn. Arguments for using external firms to attract and recruit top talent often include time savings, lack of a recruitment expertise at your location, or the even the old adage that “we have always done it this way”. Each of these reasons may prove to be legitimate, but with the contingent workforce continuing to grow as a percentage of the workforce and the large mark ups baked into the rates paid to staffing agencies showing signs of going up, it’s important to understand the alternatives and the respective cost of each resourcing alternative to your organization.
As the need for contract workers rises, the sole reliance on a staffing agency and the lack of control of the process could lead to issues (See the following).
Facing obstacles to hiring top talent and the need to reduce labor costs, many companies are adapting to a Direct Sourcing model (hiring contract workers through their own efforts without the assistance of a staffing firm). In the past this may have seemed counter-intuitive, but with access to sizable pools of contract talent being provided through referrals, by the internet and social networking sites such as LinkedIn it is now extremely easy to connect with and hire contract resources directly. To complement the direct sourcing model there is a rise in low mark-up contractor compliance and payroll providers that help reduce the administrative effort in processing contracts, timesheets and invoices while also helping to navigate through the complexity of HR and Tax laws issues that may exist. With examples of direct sourcing being cited to have increased quality of hire, reduced hiring times (averaging less than 5 days), and saved millions of dollars annually in reduced bill rates, companies may find that taking more control over their hiring options is an effective way to access the right people, at the right time, at the right price. If nothing else, taking control of the process is certainly something to ponder next time you’re handed that decaf tea by mistake.
Last Tuesday, President Obama delivered his administrations’ most recent message to the people of the United States– and for those who’ve grown accustomed to these things, it was the usual banter and pageantry of goals and aspirations to improve the nation. However, among the policy discussions and rounds of applause was one nugget in particular that is relevant to those of us who follow such things. The impending rise of the minimum wage (at least for federal contracts) and its impact to the issues surrounding worker classification(s) and employee/employer relations. President Obama didn’t directly address the situation, but in an online piece for Forbes, columnist Robert Wood, put the issue on the table. “Did President Obama just make independent contractor v employee issues even bigger? Arguably, yes.”
Wood does play down the notion that every employer in the country is suddenly looking for loopholes or to reduce labor costs in the face of new legislation such as the minimum wage debate or healthcare, but he cautions both employers and employees to take a hard look at their relationship with one another.
In 2010, Department of Labor Secretary Seth Harris quoted a study that suggested up to 30% of employers misclassify workers, whether by simple oversight, or willful negligence, and the Government Accountability office is also quoted in Harris’ address as stating the IRS is losing billions of dollars in revenue. Harris goes on to suggest that this type of negligence and oversight is hazardous to the economy, and causes the long term effects of a loss in tax revenue, and public funded programs such as Social Security. Even as recently as two weeks ago, online publication Benefitspro suggested that 2014 would be the year lawmakers and regulators firmly crackdown on misclassification. However, what may be the most glaring statements from both the DOL study, Seth Harris, Benefitspro, and Mr. Wood, is that there will be no compromise in terms of how misclassification is treated by organizations like the IRS or the CRA. In other words, it doesn’t matter how it happened. All that matters is that it happened at all.
So, left with this potential crackdown the natural follow up is what’s next? Since every study and report indicates that contingent workforces are not going anywhere anytime soon, and in fact, will only continue to grow, Independent Contractors, Employees, and Employers need to have crucial conversations regarding the nature of their relationship. Contracts alone won’t cut it anymore. For employers looking to navigate the complex worker compliance labyrinth, there are plenty or resources at their disposal, but what is proving to be true as more and more non-compliance issues are raised on both sides is the need for specialists in this field. With the intricacies of legalese and the monotony of ever changing legislation, oversights can become easier and more common–but beyond all that it really goes back to a simple concept of clear communication and discussion of needs. What does the employer specifically require? What does the potential employee/contractor require? How will this relationship be supervised? Where can we educate ourselves to make sure our relationship will be compliant with the law? In most cases, the proper classification can be quickly deciphered with just a few simple conversations, and for employers looking to navigate the complex worker compliance labyrinth, there are plenty or resources at their disposal.
While the reasons and needs of a contingent workforce may differ by the industry, there’s seemingly one thing that everyone with stake in the state of the workforce can all agree on. The no-nonsense and zero tolerance approach of both lawmakers and regulators looms large on all parties involved in 2014, and taking the proper precautions is paramount in the face of liability enforcement policies, changing legislation, and the increased ability of government agencies to share information.
*Contingent Share of Workforce courtesy of the SIA
Short answer: Buyer Beware!
Many Employers are under the assumption that they can easily outsource IC misclassification or other employment and tax law liabilities by payrolling their independent contractors through a staffing firm or managed service provider (MSP). Although “bundling” IC misclassification, and employment and tax law compliance in with your existing contingent workforce staffing and/or MSP providers may seem like a smart idea, the reality is that in many cases, employers are paying millions of dollars to these providers in fees and receiving very little protection if any at all.
The problem with taking this “bundling” approach is that most of these providers lack the focus and knowledge to implement a fully compliant IC verification process. Many providers over-trust the power of their contracts. Although a contract is an important part of defining the relationship the rules governing the classification and the tests applied by auditors look at the true working relationship vs. what is written on a contract. Therefore putting faith in the phrase “we have a contract” vs. having your provider perform proper worker education and deep due diligence and offer full visibility into the classification of the workers is a very risky proposition.
Focused compliance experts perform all of the detailed verification and worker education required to properly vet the situation and obtain the necessary detail to defend a tax authority or legal claim. In the absence of proper due diligence and verification in advance of an engagement it is often entirely up to the worker to determine the “nature” of the working relationship. When looking at the details of the majority of reclassification cases lack of proper due diligence and worker education upfront have resulted in workers whistle blowing on their employers or inadvertently triggering an audit after filing for government based benefits such as unemployment insurance or in the case of an injury, workers compensation insurance.
Moreover, precedents have been set where the IRS, and other state and federal agencies, have deemed transparent all of the layers between the provider of services [contractor] and the receiver of services [employing firm] for the purpose of assessing the relationship. So, in practical terms it doesn’t matter how many layers are between firms and the IC/1099s – the IRS will treat the relationship between the “worker” and “firm” as direct. The result is any misclassification assessments, penalties and fines are the liability of the firm as much as they are the liability of the staffing firm.
New legislation tabled in Congress last year called the “Payroll Fraud Prevention Act” is looking to require Employers to perform mandatory worker classification and inform the workers of the classification prior to the engagement to ensure that the workers that have been classified as Independent Contractor/1099 are actually independent and understand the pros and cons of their classification.
In building a business case to make this a priority within an organization it is also important to note that since worker misclassification can be deemed payroll fraud these liabilities “pierce the corporate veil” – meaning that corporate officers and directors are personally responsible for source deductions and reclassified wages.
The first step Contingent Workforce Solutions recommends is to perform a Risk Assessment that will give you a diagnosis of the firms’ contract workforce Risk.
The first phase of the Risk Assessment is to take an inventory of your non-employee headcount. This activity should help in identifying who within the organization is working as an Independent Contractor, a temp employee or an employee of another consulting organization. In many cases contract workers are spread throughout organizations with very little visibility – having been brought in by various departments in any number of ways. Once the identification of all of your contract workers occurs an estimate of the potential liability that could accompany an audit can be calculated.
The second phase of a Risk Assessment is a detailed assessment of each individual worker to determine their worker classification and or their eligibility to work legally. With this information you can identify who should be treated as a W2 and who should be IC/1099. More importantly during this assessment you can identify potential worker misclassification risks where workers who you believe are independent contractors / 1099’s are not thinking or acting like independent contractors.
Join Jeff Nugent, Founder and Managing Director of Contingent Workforce Solutions, as he presents a free webinar on the topic of Contingent Workforce 2.0: The Rise of Gen Y. The webinar will take place on January 30th, 2014 at 11:00 AM-12:00 PM EST and is part of HR.com’s Contract Workforce and Talent Exchange Virtual Conference.
Date: January 30, 2014
Time: 11:00 AM – 12:00 PM EST
Contract and temporary workers are the fastest growing segment of the workforce. Although economic uncertainty has played a part in the growth of this segment, the trend towards the next generation of worker’s demanding a more flexible lifestyle driven employment relationship has accelerated this fundamental shift in the workforce toward contract and temporary work.
By 2025 Gen Y’s also known as Millenials (20-34) will make up 75% of the workforce, leapfrogging the smaller Gen X (35-49). This dominance of the workforce will be similar to the Baby Boom generation; however, that is where the similarities end. Gen Y is perhaps the most unique generation to hit the workforce requiring organizations to change the way they manage this group of talent.
Although traditional opinions have often viewed contract and temporary work as an unstable and last-resort type of work, today’s next generation of workers are increasingly more interested in flexible work arrangements. As a very self-assured and adaptable generation more and more Gen Y’s are turning to self-employment and consulting assignments vs. traditional full time employment. The freedom to work on their own terms, and the ability to gain a variety of experiences while having the opportunity to earn more and pay less tax has become very attractive to this generation that cherishes their fast-paced, technology driven lifestyle.
Join Jeff Nugent, Managing Director of Contingent Workforce Solutions (CWS), as he highlights the fundamental demographic shifts that are transforming the workforce and how the changes in today’s workforce is fuelling the next generation of contingent workers. During his session Jeff will also provide practical advice to employers on how the next generation of talent will be managed, including how to attract and engage Gen Yers in an efficient and compliant manner.
Who Should Participate
- HR Managers/Directors
- Talent Acquisition & Procurement professionals
- Talent Acquisition & Talent Management strategists
What You Will Learn
- The impact of Generation Y on the growth of the contingent workforce
- Detailed examples of how Gen Y embraces freelance and project based assignments
- How employers can attract and retain the next generation of Talent.
- How to engage with contingent workers to drive cost savings and ensure compliance