Companies are relying more heavily on contingent labor to control rising labor costs, bridge talent gaps in outlying areas or high skill positions, and respond to fast-moving market conditions with greater agility.
Growing contingent workforce in Asia = Increase in RISK.
As companies increase their dependence on the contingent workforce, organizational limitations come into view; internal processes, systems and the existing knowledge base are typically not adequate to manage the inherent risks of a contingent labor force.
What are the typical risks in utilizing a contingent workforce?
Regulatory and compliance risk
The use of Contingent Workforce Solutions exposes companies to serious legal and regulatory risks. Employment law is country specific and is constantly changing.
Employment law risk occurs with worker misclassification. Misclassification, either through negligence or deliberate means, can lead to legal action, audits, penalties, and additional required employer administered benefits such as pension contribution and workers compensation coverage.
The specifics of worker classification varies country by country yet generally centers around the following criteria:
- Control over how the work is done: If the company has the right to tell the worker how to do the job, the classification is likely an employee.
- Control over money: If the company supplies the tools and equipment to perform the job; if the company reimburses expenses; if compensation is on an hourly rate, then the classification is likely an employee.
- Contractual agreement: Even if the contract states the worker is a contractor, control over the work and money may prove the worker is an employee. Generally, employees only work for one company, cannot hire helpers, and do the same job as others who work for the company.
Compliance with governmental taxes, such as payroll taxes and other statutory requirements requires continual monitoring of changing regulations. It is important to know that many countries have two sets of regulations depending on whether the contractor is a local citizen or foreign national.
Knowledge access and security risk
A large percentage of the contingent workforce is utilized for Information Technology projects. One of the main assets of any company is its Intellectual Property (IP). Knowledge and IP management are critical considerations.
Knowledge considerations. Contingent workers may be less willing to share their knowledge in order to maintain their contract status. On the other hand, regular employees may be less willing to share knowledge as they might view the contingent worker as possibly getting better work or working conditions.
Intellectual Property considerations. What level of access do workers have and is it appropriate? What systems (e.g. computer networks) should contingent workers have access to? Does the company monitor Internet traffic? How well does the company protect its IP? Does the company have adequate back up and version control of its IP?
Weighing the pros and cons
The cost savings and increased on-demand skillset availability associated with Contingent Workforce Solutions are very attractive benefits. The increased risks are easily mitigated with careful planning and a commitment to the process of compliance.
Outsourcing the employment and payroll processes has the benefit of freeing personnel of the onerous task of compliance while transferring the associated risk to the service provider.