The Risks of Engaging Contingent Workers

We discussed earlier in the year, at the inaugural Emerging Workforce Summit, that the rise of organisations using contingent workers presents a set of potential challenges and risks if their engagement and management are not handled properly.

A number of industry speakers covered this very hot topic, including the most recent former Fair Work Ombudsman, Natalie James. You can review the discussions about risk from the EWS, right here.

Today, we touch on this subject again, as the risks of engaging contingent workers is a constant source of concern, inquiry and conversation for us with our clients, industry peers and professional networks.

Why?

Because any organisational leadership team that isn’t hiding under a rock understands not only the accelerating trend of using contingent workers, but also appreciates the strategic value these workers offer organisations of any size, complexity or industry. The reasons for this are many: rising labour costs, the need for agility amidst changing market conditions, and increasing demand from workers to undertake contract work, to name a few.

The problem is, faced with potential risks and the ‘unknown’, concerns arise within HR, Procurement, C-suite and hiring manager circles. It stands to reason.

As such, I’ve provided a list of the potential risks facing organisations who have contingent labour in their workforce. And I’ve shared our expertise on the approach to mitigating these risks. Ultimately, introducing contingent workers into your business isn’t a high-risk move; it’s forward-thinking and a strategic advantage if handled with precision and compliance.

Here are some of the risks of engaging contingent workers, you need to be aware of:

  • A failure by large organisations to address changes in compliance laws. These are the organisations that practice ‘how we’ve always done it compliance’ in respect of managing contingent workers, and usually end up in hot water
  • Employee misclassification: in a ‘blended’ workforce – one containing both permanent and contract workers – this is a real risk if the worker has been in the organisation for some time; if it’s difficult to delineate this worker’s activity from that of employees; or if the worker is so integrated that they could be deemed an ‘employee’. There are significant penalties associated with worker misclassification – sanctions and fines from the government that can be crippling for an organisation
  • Sham contracting: akin to misclassification of a worker, this is the scenario where an employer is embroiled in an endemic misclassification scenario, where their contingent workers are discovered to actually be employees
  • A misunderstanding of the law, if a worker’s classification is uncertain or incorrect
  • Poor communications with contractors at the onboarding stage, where there are no clear boundaries around their role, capacity, and how they are to work with FTEs and the broader business. Critically, if the contingent worker isn’t engaged as part of the workforce population in a systematic process, but rather they’re introduced by random hiring managers, the business faces multiple risks (listed here)
  • Loss of IP, trade secrets, organisational knowledge, and spilt company information. With a poor management system in place, you’re risking more than statutory non-compliance – the very foundation of your business could be at risk

How can you minimise exposure to these risks? Here’s a start…

  • Establish a process for managing compliance: a standard process for engagement, (from sourcing to off-boarding) will enable you to better track compliance measures throughout the contingent worker’s tenure. For the ultimate in compliance management, all business-wide, role-specific, and location-specific measures will be automated so that your compliance standards are at the utmost, across your entire contingent workforce. And this is where technology plays a role…
  • Deploy vendor-neutral technology (like Beeline or Fieldglass – CXC’s partners in compliance management). A central hosting environment for the contingent workforce lifecycle will not only help to reduce risk, but it will also prove to be an incredible cost and time-saving measure, and provider of valuable contingent workforce data
  • Ensure contractors are required to sign NDA agreements; ensure your Legal team are across the entire contractual arrangement
  • Keep abreast of updates on workplace laws, and check with the Fair Work Ombudsman website for changes and compliance stipulations
  • Make sure you set defined parameters for contingent workers, so their roles don’t become ‘grey areas’, nor fluid so as to allow scope creep
  • Engage a partner (like CXC) to manage your contingent worker population. CXC is the biggest sole provider of contingent workforce management services in Australasia and mitigates all risks to client organisations

 

On the 15th of August 2019, CXC together with Deloitte will be hosting a breakfast briefing in Melbourne, discussing this very topic. Our expert panel will feature:

If you would like to attend this event, please click here to register. Seats tend to fill up fast, so register today.

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