Back to BlogSOW engagement in ANZ — How rising adoption drives demand for workforce audits
Is your organisation truly in control of its SOW engagements? Or are hidden risks silently inflating your workforce costs?
Picture this: A large enterprise expanding across Australia and New Zealand faced what appeared to be a straightforward challenge: scaling project-based work through specialised vendors. What began as a cost-effective approach to delivering outcomes quickly became a complex web of disparate contracts, inconsistent classification of talent, and ballooning costs—all without a clear line of accountability. It wasn’t until a comprehensive workforce audit was conducted that the root issues came to light: scope creep, misclassified contracts, and fragmented oversight across regions.
This scenario is no longer the exception. As more organisations across ANZ turn to Statement of Work (SOW) models to drive flexibility and efficiency, the need for visibility, governance, and compliance has become urgent.
Understanding SOW engagement in the ANZ market
In ANZ, SOW adoption is on the rise as organisations seek more agile, accountable ways to manage external talent. This shift reflects broader changes in how businesses structure work, control costs, and maintain compliance amid growing workforce complexity.
What is a Statement of Work and how does engagement work?
A Statement of Work (SOW) engagement is an outcome-based agreement where a supplier delivers defined services or projects with a set scope, budget, and timeline.
Unlike traditional workforce models that rely on individual contractors under direct supervision, SOW focuses on deliverables—not labour hours. Key differences from traditional workforce models include:
- Outcome-based vs time-based: SOW centres on results, while contractor models often bill by hour or day.
- Supplier-managed vs client-managed: The supplier controls delivery, reducing direct supervision and co-employment risks.
- Defined scope and cost: SOW engagements offer clearer pricing and project boundaries, improving cost control and planning.
Why is SOW engagement gaining popularity in ANZ?
Several factors are fuelling demand:
- Project agility is embraced. Organisations need flexible, on-demand execution without the burden and additional costs required for permanent headcount.
- Specialised expertise becomes more accessible. SOW opens access to niche skills that may be scarce in the permanent or casual labour market.
- Costs are more predictable and easier to manage. Fixed-fee or milestone pricing simplifies budgeting and helps prevent cost overruns.
As SOW becomes more widely adopted, however, the risks of poor implementations also rise—especially in compliance and cost governance.
The hidden risks behind SOW engagements
While SOW models offer structure and predictability, not all engagements are managed as they should be.
A growing number of organisations in ANZ are using SOW as a workaround to scale labour quickly—often through time-and-materials contracts that resemble labour hire in everything but name. This creates blind spots in compliance, exposes the business to financial penalties, and erodes the very value SOW is meant to deliver.
Blurred lines between SOW engagement and labour hire
When SOW engagements are misused to source talent rather than deliver outcomes, the distinction between independent service provider and contingent worker collapses. This exposes businesses to issues like:
- Worker misclassification: This pertains to treating contractors as employees (e.g. managing schedules, supervising work) without the proper employment relationship.
- Co-employment risk: Shared legal responsibility between supplier and client for the worker’s entitlements and protections.
- Regulatory non-compliance: Violations of labour laws, fair work regulations, and tax obligations.
Case example:
In the Pascua v Doessel Group Pty Ltd (2024) case, an Australian company engaged an offshore legal assistant as a contractor, yet expected her to work set hours, follow internal processes, and use company systems. The Fair Work Commission found that the operational reality reflected employment, not contract work—ruling in favour of the worker and exposing the company to legal and financial liability.
In other words, even where formal documentation frames the relationship as deliverable-based, regulators will still assess the substance of the arrangement. If the arrangement mirrors labour hire, the business may face reclassification, penalties, and reputational damage—regardless of the original intent.
Lack of visibility and governance in SOW engagement
SOWs often fall outside traditional HR or procurement oversight, especially when driven by individual departments or project leads.
Without consistent controls, organisations face unmanaged spend, which is SOW costs hidden in project budgets or spread across departments without consolidated reporting.
Contract sprawl is another issue. This is when the organisation ends up with multiple suppliers, inconsistent terms, and minimal audit trails. Meanwhile, compliance gaps also occur due to the lack of a central process for verifying classification, tracking performance, or assessing delivery outcomes.
When left unchecked, even well-intentional SOW usage can drift into risky territory. Finance, HR, and procurement teams are often unaware of how extensively SOW is used across an enterprise. That is, however, until an audit, or worse, an external investigation, brings the issue to light.
Hidden costs and inflated supplier margins
Without proper audit controls, SOW engagement can quietly become cost centres rather than value generators. Unlike permanent headcount or time-tracked contractor models, SOW spend often escapes standard scrutiny—especially when owned by business units instead of procurement or finance.
Common risks include:
- Inflated day rates: Suppliers may embed premium mark-ups under the guise of “outcomes-based pricing, without benchmark comparison.”
- Scope creep: Vague or open-ended SOWs lead to repeated change requests, additional charges, or continuous re-engagements without review.
- Rate escalation: In the absence of auditing, suppliers can increase rates over time without clear justifications or pushback.
What starts as a tightly scoped project can evolve into an ongoing engagement at a significantly higher cost. Often with little documentation or performance validation.
Exposure to non-compliance with ANZ regulations
SOW misuse does more than just create cost risks. It also opens the door to regulatory exposure across ANZ. Key areas of concern include:
- Payroll tax liability: Many SOW arrangements may be deemed labour hire by tax authorities, making the client responsible for unpaid payroll tax if not properly managed.
- Contractor misclassification audits: Government bodies such as the Australian Taxation Office (ATO) and Inland Revenue (in New Zealand) increasingly investigate whether workers are genuinely independent or functionally employees.
- Fair Work breaches: In Australia, misclassified workers may be entitled to back pay, leave, superannuation, and protection under the Fair Work Act. This is especially true even if based offshore, as seen in the Pascua V Doessel Group Pty Ltd (2004) case mentioned above.
Without structured governance and classified audits, organisations risk non-compliance fines, reputational damage, and financial remediation that far exceed any perceived savings from an “agile” SOW model.
Why workforce audits are now essential
As SOW engagement spreads, especially under time-and-materials models masked as outcome-based contracts, organisations must proactively uncover hidden risks and align workforce spend with business objectives.
What is a workforce audit and why it matters now
A workforce audit is a comprehensive review of all external and internal workforce arrangements, including contracts and engagement, to assess compliance, classification, cost-efficiency, and alignment with strategic goals. In a modern, flexible economy, these audits offer crucial visibility into shadow labour forces and prevent compliance fragmentation.
Identifying misclassified workers and cost leakages
Audits reveal personnel who are functionally managed as employees but classified under T&M (time-and-material) SOWs. Organisations can limit cost leakages (such as inflated day rates, informal contract extensions, and uncontrolled change-orders) that too often go unnoticed by identifying these embedded contingent workers.
Auditing for tax and regulatory compliance
Audits play a critical role in:
- Verifying payroll tax liability across ANZ, preventing surprise bills.
- Detecting misclassification risks under ATO and IRD scrutiny.
- Ensuring compliance with Fair Work and employment laws, guarding against back-pay or unfair dismissal claims, as seen in Pascua v Doessel.
Aligning workforce spend with strategic business goals
Beyond risk, audits deliver data-driven insights—for instance, linking supplier performance to business outcomes or benchmarking rates. These insights empower leaders to reclassify roles, renegotiate contracts, and optimise workforce composition in line with long-term strategic priorities.
How CXC’s Workforce DiscoveryPro delivers audit precision
CXC offers a proprietary diagnostic audit tool designed to reveal hidden inefficiencies, uncover risk exposures, and provide actionable insight into your external workforce.
In short, DiscoveryPro empowers organisations to regain control and ensure compliance by delivering a unified data-driven view of your SOW and non-permanent talent engagements—before minor inefficiencies turn into major liabilities.
DiscoveryPro overview: Scope, spend, risk in one view
DiscoveryPro operates as an innovative, multi-layered diagnostic that brings clarity and control to an often-unstructured part of the workforce ecosystem. Key capabilities include:
- Real-time mapping of your non-permanent workforce
- Enables you to identify who you’re engaging, how they’re engaged, and whether those arrangements are appropriate—giving you complete visibility.
- Classification analysis and compliance assessment
- CXC reviews existing contracts and worker classifications to determine whether they meet regulatory standards—exposing compliance gaps and risk factors such as improper SOE usage or contractor misclassification.
- Spend tracking and cost modelling
- DiscoveryPro identifies areas of overspend, inefficient supplier arrangements, and missed opportunities for cost recovery. You’ll receive detailed benchmarks comparing your spend patterns with industry norms, revealing where cost reductions and improved performance are possible
- Gap analysis and transformation planning
- Beyond diagnosis, DiscoveryPro supports future-state planning—helping you define desired outcomes, process improvements, and governance models that will optimise SOW engagement over time.
- Comprehensive audit reporting and risk identification
- Each audit concludes with a detailed report outlining findings, risks, and recommended actions. This includes RFI outcomes, contract review summaries, and a roadmap to improve SOW governance and sourcing practices.
Commercial impact: Reclassification, governance, and ROI
CXC has helped ANZ clients achieve tangible cost savings, governance improvements, and reduced risk through audit-led interventions and strategic oversight.
Success story: National transport client (Sydney, Australia)
CXC partnered with a transport organisation managing multiple urban toll-road programmes. With inconsistent onboarding processes, variable agency mark-ups, and disjointed rate structures, the client faced visibility gaps and unchecked supplier margins. After a comprehensive review and workforce audit conducted by CXC:
- Agency margins were reduced from approximately 24% to under 14%
- Immediate savings of around AUD 180,000 were realised upon implementation
- Standardised onboarding, agreements and rates across suppliers improved classification coherence and cost governance.
Through this engagement, CXC enabled the organisation to detect and reclassify miscategorised workers, standardise supplier terms, and deliver measurable financial performance aligned with strategic workforce objectives.
Building a unified framework for SOW engagement governance
Organisations must move beyond reactive oversight to a proactive, unified governance model. Effective management of SOW engagements is not the sole responsibility of one department—it requires tight coordination between HR, procurement, compliance, and legal.
Cross-functional alignment: Breaking the silo trap
SOW-related risk often emerges from fragmented oversight, where business units act independently of enterprise controls. Organisations can achieve the following by aligning stakeholders under a shared governance framework:
- Reduce miscommunication between departments and suppliers
- Ensure consistent classification and compliance standards across all engagements.
- Improve audit readiness and limit ad hoc, manual corrections.
- Strengthen vendor accountability by linking supplier performance to centralised KPIs
When HR ensures role clarity, procurement enforces contractual rigour, and compliance monitors regulatory exposure—SOW engagements become not just manageable, but strategically valuable.
Embedding technology for long-term visibility
Technology is essential to scale governance without overburdening internal teams. A centralised platform allows organisations to track, analyse, and optimise SOW engagements across the entire lifecycle.
- Real-time dashboards for supplier spend, scope, and headcount tracking
- Classification engines to assess and flag potential worker misclassification
- Automated contract review workflows to ensure consistency across departments
- Integrated audit logs for transparency and accountability
- Reporting modules to benchmark vendor performance and cost effectiveness
With the right digital foundation, governance becomes a continuous, data-driven process—rather than a reactive effort triggered only by audits or external scrutiny.
It’s time to take a proactive approach to workforce risk
With SOW engagement rising across ANZ, so too does the risk of misclassification, cost overruns, and non-compliance. Organisations must move from reactive management to proactive workforce governance—and audits are the key.
Overall, businesses can uncover hidden risks, optimise spend, and align external engagements with compliance frameworks by auditing early and often. It’s more than just about reducing risk—it’s about building a more agile, cost-effective workforce.
CXC’s audit expertise and tools can help your business gain clarity, control, and confidence in our SOW strategy. Contact us today to future-proof your workforce and unlock strategic value through more innovative audit-led governance.
About CXC
At CXC, we want to help you grow your business with flexible, contingent talent. But we also understand that managing a contingent workforce can be complicated, costly and time-consuming. Through our MSP solution, we can help you to fulfil all of your contingent hiring needs, including temp employees, independent contractors and SOW workers. And if your needs change? No problem. Our flexible solution is designed to scale up and down to match our clients’ requirements.
