Change can be a scary thing. In our modern world we have the ability to effect and control things that would have seemed like science fiction not that long ago, but two things we have yet to figure out how to control are time and change. They happen whether we want them to or not. Whether it be the seasons, our age, technology, or tradition. Look out the closest window from where you’re reading this; it’s happening right now. Most of us fail to notice daily change and even less find the time to think about the big picture. Tasked daily with the duty to fulfill the needs and requirements of our jobs and busy lives outside of work it’s easy to forget to stop and think about change in the context of the big picture. There’s mortgages, kids, education, retirement, and (hopefully) a little vacation and social activity to worry about as well. However, it’s long term and big picture thinking that keeps us motivated, helps us shape and sharpen the daily decisions of our lives, and give us the ability to remain focused even through short term pain or discomfort (See: that fitness plan). Change, both large and small is a healthy and natural part of our human existence. So, as we’ve continually heard that a business is only as good as the people it employs, and corporations are in fact people under the law, then perhaps it’s time to start applying the rules that work for people, to enterprise.

In an interesting piece on Strategic Sourcing, that is, a specific plan of action regarding the procurement and hiring of top talent, Argentus Talent Acquisition poses the question: Who is better to Effect the Toughest Changes in Strategic Sourcing? Your Permanent Team or Third Party Contractors? (Go here for the full article) They deduce that the contractor/consultation model allows for greater opportunity for change within your organization by allowing for a fresh perspective and minimizing the personal and political hurdles that can stop an organization from moving away from the status quo.

If we apply this same line of thinking to the larger context of Contingent Workforce Management, it may be time to ask: When is the last time your enterprise truly thought about the long term goals regarding your Contingent Workers? And are small steps being taken daily to effectively embrace that strategy? As we’ve already discussed, change is happening, the only variable is how we respond to it.

 

Ardent partners are set to release new research later this month that indicates that Contingent Labour is set to rise 30% over the next three years, a figure that they state “Accurately represents the growing reliance on the non-traditional workforce.” If you follow Contingent Labour, deal with mitigating risk on independent contractor compliance, or Talent Management and Procurement, you know the stats already.  It’s very easy to get lost in them. While effective, they can also over complicate the matter at hand. Enterprise at its core needs to innovate, it needs to be adaptable, and it needs skills present to make those first two things achievable. If the big picture is growth and competitiveness in the marketplace, then it’s a major priority to always make sure the base needs of innovation, adaptability, and skills are constantly being met.  Even if the path to get there requires some short term pain or discomfort.  (See: that fitness plan again) More and more, it is Contingent Labour that is being utilized to meet these needs—and while cost savings is usually the most immediate and alluring statistic in moving an Enterprise into this type of model, it can’t be the only thing. Sure, in the short term, it’s easy to be won over by the idea of utilizing IC’s (independent Contractors) to have flexibility in staffing, or save money on taxes and entitlement & benefit programs, but cost savings needs to be looked upon as daily actions of a larger goal, not the entire plan. Or, as we’ve looked at it previously, the small change that sets up the big change.

Long term change, requires long term strategy. If Contingent Labour, is at the core of your business than it’s time to start putting the plans in place to manage it. Whether it be through an Administration or Payrolling Service for your Contingent Workforce, Managed Services, or through Consulting. Not thinking long term about the inevitable change, management, and caliber of your Contingent Workforce may get you through today, but perhaps it’s time to turn that age old interview question on your own Contingent Workforce Management plan. Where do you see it in 5 years? How about 10?

Restaurants have always been a deliciously perfect mix of temptation and entrapment. Take a bunch of hungry people,  stack them by the dozens in a room surrounded by drool educing aromas, and then drop an entire menu full of options and choices in front of them. More often than not the hungry masses will leave satisfied, but they’ll probably have to put on their glasses to believe at how much the meal actually cost. The lesson: Hunger trumps budget, almost exclusively.

The same could be said for the proverbial buffet of Contingent Labour flooding the market. With businesses staffing their ranks from this talent pool at record highs, it’s truly a feast fit for a king for companies looking to tackle their project based labour needs. According to a recent report published by IQ Navigator-who provides technology that manages staffing vendors and temporary workers-even with the rapid growth in the use of Contingent Labour in 2013, costs stayed relatively flat. As with any great meal out however, cotemp-labor-bill-ratesmes the bill.

Contingent Labour hit record highs in 2013 with a total of 17 million workers in the market. Which works out to be almost an 8% jump from the previous year with no signs of slowing down. That number is expected to grow to 23 million by 2017 (MBO Partners). With analysts predicting what Gary Pollard (VP of Information Products at IQ Navigator) calls “upward pressure” in 2014, companies that got into the market to save on labour costs could be looking at a giant bill, not a giant profit. The reasons for this steady rise in the cost of using temporary workers will be associated with “A continued increase in demand, coupled with an expected tightening supply of workers-thanks in part to a declining workforce participation rate, and an increase in college enrollment for people over 25 years old.” Pollard also goes on to say that the aging Baby Boomer population will also contribute. 

Considering staffing agency markups are generally 20-25%, the math does look daunting. A worker in IT currently making 30 dollars an hour (a position poised for a steep raise, but more on that later) may go to 45-50 dollars an hour. That’s an increased profit to the staffing agency of 5 dollars per hour. Over the course of the year that translates to approximately 19,200$ extra paid to the staffing agency-and that’s just for one employee. In Restaurant terms, that’s one heck of a corking fee. 

Employers are still looking to cut labour costs wherever they can, but the need for labour isn’t going to dry up. Projects will still need to be completed and expert skills will be in demand. So, if you can’t save on the labour, perhaps you can save on the mark-up. By tweaking their current model, employers could find themselves embracing direct source hiring, coupled with IC (Independent Contractor) Compliance and Payroll providers that can offer drastically smaller mark-ups and allow the company to still attract and afford top talent. This would be especially attractive to companies that already have established relationships with Contingent Workers at their locations.

 Nobody likes to be told to think long-term and look at the big picture (especially when they find themselves starving and staring at a bevy of choices and opportunity) but making the right choice in regards to how enterprises source their contingent workforce and who (through Admin and Payrolling or MSP) offers the best opportunity to cut costs, and stay compliant and competitive may allow them to have their cake, and pay the bill too.

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.”  obama_sotu_dann.photoblog600

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, 6a00d8345675df69e20167686b88a0970b-400wiIndependent 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!

Falling on a banana skin

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 Solution:

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.

 

 

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Organizations cannot afford to approach their contingent workforce management in an ad-hoc, as-needed manner. They must begin to manage their entire workforce, including the contract and temporary segment, efficiently. A third party can assist organizations to create an effective contingent labour management program that gives visibility into the costs, mitigates risk, and provides a record of the worker’s employment with the organization.

Aberdeen research surveyed companies and divided these organizations into best-in-class, industry average, and laggard categories. The best-in-class category consisted of organizations that were in the top 20% performers. They had 87% compliance to federal/state/regulatory labour and tax policies concerning contingent workers, 4.4 contingent worker quality ranking score, and 21% contingent worker spend savings.[1] These organizations have implemented many best practices that organizations should imitate when using a third party or managing contingent labour internally.

There are various third parties that organizations can use that provide different aspects of a successful contingent labour management program.

  • Independent Contractor Engagement Specialists (ICES) work with organizations to manage independent contractors — including high-rate, project-based SOW (Statement of Work) consultants — by acting as an Agent or Employer of Record (EOR) for IRS purposes. ICES will assess the eligibility of a potential contractor for 1099 status. If they are found ineligible, ICES will hire the worker as their own W-2 employee, allowing him/her to work for the client on subcontract. For those that are eligible, ICES will act as the “Agent of Record,” simplifying the process for their clients.[2]
  • Vendor Management Systems, or VMS, are technology solutions that provide visibility into how many contractors a company is using, for how long, and for what. These technology solutions provide visibility into the cost of the overall contingent labour program. The basic systems handle everything from requisition to off-boarding, including hiring approvals and processing time sheets and invoices.[3]
  • An MSP (Managed Service Provider) is an out­sourced service provider who is responsible for procuring and managing contingent workforce needs according to client requirements. MSPs may or may not offer a Vendor Management System (VMS) of their own but they normally combine a VMS technology offering into the programs they run for clients.[4]

All of these third parties can be used in combination or separately. Aberdeen research has found that although all types of third parties are used by best in class organizations, a VMS was the most commonly employed third party by best in class enterprises.[5] Top performing companies were 33% more likely to employ an MSP program than other companies.[6] Best in class organizations were 60% more likely to employ ICEs than other companies, and ICEs have historically shown to increase contract worker compliance by nearly 80%.[7]

For more information about how your organization can benefit from a third party, and to find out more about VMS, MSP, or ICES, Click here or contact:

Christina Fabugais
Marketing Manager
Contingent Workforce Solutions Inc.
Direct Phone:  416-642-9077
Toll Free:  1-866-837-8630 x9077
Email:  christina.fabugais@cwsolutions.ca

[1] Dwyer, Christopher J. Contingent Labour Management: Strategies for managing the complexities of the Contingent Labour Umbrella. Aberdeen Group. June 2010

[2] The ROI in Enterprise Contract Talent Management. The Human Capital Institute. Sept 2009

[3] Muson, Howard. Treating Contingent Workers as a Strategic Resource. The Conference Board: Trusted Insights for Business Worldwide. Sept 2010

[4] The ROI in Enterprise Contract Talent Management. The Human Capital Institute. Sept 2009

[5] Dwyer, Christopher J. Contingent Labour Management: Strategies for managing the complexities of the Contingent Labour Umbrella. Aberdeen Group. June 2010

[6] Dwyer, Christopher J. Contingent Labour Management: Strategies for managing the complexities of the Contingent Labour Umbrella. Aberdeen Group. June 2010

[7] Dwyer, Christopher J. Contingent Labour Management: Strategies for managing the complexities of the Contingent Labour Umbrella. Aberdeen Group. June 2010

There has been plenty of evidence to indicate that the workforce in Canada and America is shifting to a larger portion of contract and temporary workers. However, the contract workforce is actually growing globally, and many foreign workforces are now made up of a significantly higher portion of contract workers.

The Telegraph recently reported that the number of contract workers in South Korea has almost doubled since 2002, and now currently accounts for about a third of the entire workforce. This trend is evident all across Asian markets, from Shanghai and Singapore.

Similarly, the Australian Taxation Office, 4.1 million workers are considered contract workers. The number of contract workers has dropped in some industries in the UK; however it has risen in others. The uncertain economy has prevented organizations in some industries in the UK from hiring contract workers. However, having a portion of the overall workforce as contingent has allowed organizations in the UK to remain agile and adjust their workforce according to the economy and industry demands.

This information proves that organizations are increasingly seeing the benefits of employing contract and temporary workers. The benefits are not only apparent in Canada and the US, but also in other foreign economies.

As the contract workforce grows, organizations will face increasing managerial demands from their contract workforce. There are many complex laws around employing contract and temporary workers, and organizations need to ensure that they compliant with these laws. One way in which employers can ensure this is to implement an MSP program.

For more information about how your organization can benefit from an MSP program, click here, or contact:

Christina Fabugais
Marketing Manager
Contingent Workforce Solutions Inc.
Direct Phone:  416-642-9077
Toll Free:  1-866-837-8630 x9077
Email:  christina.fabugais@cwsolutions.ca

US News reported that since the end of the recession, 54% of new jobs in the USA have been temp work. This statistic comes from the Bureau of Labor Statistics, which also indicated that roughly one in every 50 Americans held a temporary or contingent position as of the end of October.

While you may think that these trends are reflective of the uncertain economy, and that employers are hiring temporary labour because they are unsure that they will have the resources to hire full time staff, you may not be seeing the whole picture. The uncertainty in the economy is certainly driving employers to hire temporary or contract workers; however many employers are beginning to see that their contingent workforce allows them to be agile in the marketplace. They can hire highly skilled workers for specific projects, and when the project is over, they are not forced to find other tasks and roles for these individuals. US News reported that a survey issued by the consulting firm McKinsey 58% of employers said that they plan to hire more “part-time, contract, and temporary workers” over the next five years.

Labour market experts are also saying that a fundamental shift is taking place in the workforce, as temporary and contract workers can now be found across all industries and job functions. Before, temporary and contract labour was primarily limited to manufacturing, construction, clerical and other relatively low paid job functions. However, now contract workers can be found in Information Technology, Engineering, Accounting, Health Care and many other industries.

People are turning to contract work for various reasons. Some people have been laid off, and find that temporary and contract work is the best way to gain income while searching for full time work, and many are finding that contract work often leads to full time positions at those companies. Many find that they prefer the freedom and flexibility of contract work. They are able to choose when and how much they work, and they are able to be their own boss. Still others have found that they would like to work after retirement; however they want to be able to choose their own projects and how much they work. Contract work provides the perfect balance for those looking to work after retirement.

Employers that traditionally had 100% full time core workforce are now looking to migrate to an 80% full time, 20% contingent core workforce. The 20% are usually perpetual contractors, with no expectation to move these people back to full time. This gives employers the flexibility to adjust to changing business demands. However, employers need to be wary of the legal and tax risks that come with employing contract workers, especially on a long-term basis. The laws around contingent workers are complex, and many organizations do not have the necessary resources or competencies to manage these workers in house. For that reason, many employers are also using an MSP provider in order to mitigate risk and save money.

For more information about how your organization can employ contract workers and benefit from an MSP, click here or contact:

Christina Fabugais
Marketing Manager
Contingent Workforce Solutions Inc.
Direct Phone:  416-642-9077
Toll Free:  1-866-837-8630 x9077
Email:  christina.fabugais@cwsolutions.ca

Companies need to make strategic decisions to outsource functions of their business that are not part of their core competencies. One such function is Contingent Workforce management; managing this function is a extremely complex, and organizations rarely have the capabilities to do it effectively. Deciding whether to outsource or internally manage contingent labour is highly dependent on the specific organization’s capabilities; however, outsourcing is often a better option.

When should you manage internally? If your organization has a strong talent acquisition function, cooperation between HR and procurement, cooperation between HR and other lines of business, and strong organizational leadership, then managing contingent labour internally is something your organization should consider.

To manage its contingent labour in an efficient and cost effective way, it is important that your organization possess all of these attributes, and not merely a few. Contingent labour often accounts for organizations largest single line item cost, and internally managed contingent labour programs are also often run in an ad-hoc, inefficient manner, and so organizations need to carefully examine their capabilities before deciding to manage internally.

If your organization does not possess the necessary attributes, an externally managed Contingent Labour Program, or MSP, is the best option. An MSP provider has the skills and knowledge to ensure compliance with the tax and employment law, which mitigates your risk.

To find out more about how your organization can benefit from an MSP program, click here or contact:

Christina Fabugais
Marketing Manager
Contingent Workforce Solutions Inc.
Direct Phone:  416-642-9077
Toll Free:  1-866-837-8630 x9077
Email:  christina.fabugais@cwsolutions.ca

Staffing Industry Review recently published an article entitled “Don’t Fight Your MSP” that outlined the benefits that one supplier saw by embracing an MSP. The staffing firm profiled in the article was able to grow from a local company into a national company.

Many small to mid-size staffing agencies start to feel comfortable once they have created a lasting relationship with a local division of a fortune 500 company. However, many Fortune 500 companies, and other mid-size companies, are now implementing larger, organization-wide MSP programs that consolidate the hiring process.

This is a scary proposition for a small to midsize staffing firm. With an MSP, staffing agencies lose their sales relationships with managers, they need to deal with MSP fees, audits, and controls around margins. Many of these firms choose to fight the MSP by continuing to deal with organizations through back channels. While this may work in the short-term, it could be suicide in the long term.

With a properly managed program, the customer will know which suppliers are using the program to drive business and which are dodging the program by providing ad-hoc resumes hoping that one will stand out. Suppliers that use the later method risk being dropped altogether, while those that use the former actually stand to increase their business.

An MSP can appear to be a barrier to staffing firms, but if they embrace the program, they stand to gain business opportunities on a national and even international level.

For more information about how you can create an effective partnership with an MSP provider, click here.

SimplicityVMS, the only Canadian-based Vendor Management Software available on the market, was recently featured in Staffing Industry Analysts’ VMS and MSP 2011 Competitive Landscape report. Staffing Industry Analysts surveyed 42 of the world’s largest VMS/MSP companies for its annual report. For five years, the VMS and MSP Competitive Landscape report has provided the most detailed and comprehensive insight into the experience, positioning, and capabilities of VMS and MSP suppliers.

Interestingly, the report revealed that corporations are continuing to become more sophisticated at managing temporary labour. The report shows that companies have already, and are continuing to employ technology for their contingent labour management needs. The complexity of the techniques applied by services providers has evolved to such a point that companies are now expanding their programs globally and including non-traditional labour categories such as Statement of Work (SOW) project services or high end consulting engagements through their vendor management systems (VMS).

SimplicityVMS is unique because it is the most configurable, and it has the fastest implementation time of any VMS on the market. This system can easily be customized to suit customer needs, and because implementation time is greatly reduced, clients save money. SimplicityVMS is also white-labelled, allowing clients to implement their own brand and create a common user-interface. SimplicityVMS is a low cost solution that provides Small to Medium size businesses with the necessary tools to manage their contract labour.

Spend under management is the contingent labour spend that is being managed by a technology or alternative service. Spend under management grew from $66 billion in 2009 to $83.7 billion in 2010, which was a 26.8% increase. This reflects the strong growth that providers have experienced. Staffing Industry Analysts’ research shows that companies of all sizes, in just about every industry, are using MSP and VMS providers to manage their contingent workforce programs, and the penetration of MSP and VMS spend in the staffing market continues to increase. The report covers spend across the globe including the U.S., Germany, the Netherlands and France, some of the largest staffing markets in the world as well as developing markets such as Brazil, India or China.

Staffing Industry Analysts’ VMS and MSP 2011 Competitive Landscape report reveals that organizations are recognizing that they need to employ VMS and MSP programs in order to manage their contingent workforce and remain competitive. SimplicityVMS can give organizations the management tools they require to gain an advantage.

To find out more about how SimplicityVMS can help you, contact:

Jeff Nugent
Direct Phone:  416-642-9126
Email:  jeff.nugent@cwsolutions.ca
Linkedin: http://ca.linkedin.com/in/jeffnugent

Contingent Workforce Solutions also provides MSP services. Click here for more information about how your business can benefit from CWS’ MSP programs.