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HCMWorks Insights

How to Manage Your Contingent Labor Risk

Posted by Julia Fournier on 9 Oct 2015

The use of independent contractors, SOW workers, freelancers, consultants, and other types of non-permanent workers is on the rise in the U.S. It’s clear that using contingent labor is advantageous. Business owners understand that these types of workers are typically highly skilled and experienced and offer a higher degree of workforce flexibility while lowering the fixed costs that come with hiring permanent employees. Yet, this increased dependence on contingent labor isn’t all positive—it also comes with specific risks that business owners must manage.

Types of Risks

Among the most common and significant risks that come with using a contingent workforce are regulatory in nature. When your contingent workers aren’t properly managed due to HR inefficiencies and a lack of knowledge, companies end up taking on a higher level of compliance-related risk. In particular, the issue of employee misclassification can have momentous negative effects. Your organization could face an audit or lawsuit that leads to millions of dollars in fines, penalties, and settlements, along with the possibility of jail time under the Fair Labor Standards Act.

However, there are other risks to consider as well. The risk of a contingent worker being hurt on the job if he is not properly trained to do the work could hurt your company’s image and bottom line. Security standards also tend to be less stringent for contingent workers, as many companies skip the background checks for temporary workers. Furthermore, without a non-disclosure contract in place, a contingent worker could also spill your trade secrets, proprietary information, or confidential intelligence to your competitors. The lack of control over the workers and the lack of visibility into their performance could also lead to sub-par work and lowered productivity. Hiring international independent contractors also puts you at an increased risk related to tax laws and immigration laws. These are only some of the many risks you face while hiring contingent workers.

It’s clear that taking on contingent labor is advantageous, but as you can see, there are many risks that come with this business decision. It’s important to be aware of them and put processes in place to ensure the risks are reduced. The better managed the risks, the higher the value of contingent labor.

Turn to a Managed Services Provider

Any company, big or small, that uses contingent labor should turn to a managed services provider (MSP) in order to reduce its risks. Such a business decision will allow you to gain valuable expertise and best practices, access to state-of-the-art contingent workforce management technology, and a scalable and customizable MSP solution that will allow you to identify and manage risks. Your MSP can provide guidance, advice, and recommendations that meet your exact needs. Its experts will review, analyze, reengineer or completely redesign your current processes to not only increase efficiencies and visibility but also manage your risks—which can help you save tons of money from lost productivity, regulatory non-compliance, contract errors, payroll mistakes, and other liabilities. An MSP can provide you with the strategic program oversight that you require to effectively manage your contingent workers.

When you partner with an MSP, you are investing in a performance-based solution that simplifies your entire spectrum of processes and systems used to hire, onboard, manage, and pay your contingent labor. It doesn’t get any easier—or any safer—than using a managed services provider. With the best people, best-in-class technology, and the best practices in the industry, you’ll be able to effectively manage your myriad contingent labor risks. It’s time to take a proactive approach to protecting your company and getting the most value out of your contingent workforce.

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Tags: Contingent Workforce Management

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