In the first post in this series, I cited a Workforce Management article that highlights the recent trend toward contingent hiring as a replacement for -- rather than a supplement to -- bringing on regular W-2 full-time employees. It's worth stepping back for a minute before getting into some of the added risks that the movement to 1099 contingent workers can bring by looking at some of the trends driving this movement in the first place. Consider, for example, how both manufacturing and non-manufacturing companies are becoming increasingly dependent on outside services providers. Regardless of industry, there is an upward trend in relying on external vendors and business partners for everything from IT support management and functional outsourcing to blue-collar contingent labor.
These trends include, according to our Spend Matters Compass Research (done in conjunction with HCM Works) on the subject, the fact that "manufacturers are looking to become more nimble, and are therefore considering new outsourcing options (from their shop-floor IT infrastructure to manufacturing/contract manufacturing partnerships)," as is the case with the BMW example mentioned in the first installment of this post. Moreover, "Services providers are changing their business models to adapt to a new services paradigm (e.g., firms like Accenture are increasingly hiring contingent workers or doing work offshore versus staffing consulting projects with their own in-country resources) with less quality control than before."
Despite the speed with which business is moving companies in this direction, we're often focused less on the potential business risks (including Federal employment rules and regulations) than we should be, especially in an activist Federal environment where Democrats, who still control both the Executive branch and the upper and lower halls of Congress, have traditionally put the interests of labor and workers ahead of business. Consider, for example, how in evaluating potential managed services providers (MSPs) to assist us in the management of contingent labor, that adherence to Federal regulations is not high on the priority list (one of the reasons for this is that it is often a nebulous area of ownership that companies should take in house entirely, but often end up doing in tandem with an MSP, counsel and others whether this is the right answer -- or quite often not, as the case so often is).
In fact, our research suggests that when selecting an MSP, companies often consider a range of other procurement and contracting factors first including: "supply risk, financial viability, SLA metrics/specifications, liquidated damages, insurance coverage, customer data protection processes, technology firewalls, record retention/data destruction processes, intellectual property, etc." And from an HR standpoint, we're also focused in a number of directions, but typically relegate adherence to Federal statutes further down the selection and management criteria list than it should be. We observe that primary HR evaluation criteria often include "diversity program administration, drug policy, EEOC policy, recruiting practices, background check approaches, testing processes, etc." and secondary factors often focus on "category/industry specific requirements, geographic considerations, rules/regulation, company policy, technology/VMS solutions (and/or partnerships) and more deeply defined SLA and KPI requirements metrics."
What rising risks do companies face by not prioritizing a closer look at the classification of contingent and non-contingent workers? Stay tuned for the last installment in this series.