How To Pull Off an Intimate Customer Conference: Services Procurement with Consol/Volt (Part 1)

A few weeks ago, I attended a Consol/Volt customer event in NYC with my colleague William Busch. It really was a gem of a conference. You should know that HR and services procurement issues aren't at the top of the list of things that get me excited, and the staffing category can come across as a little too HR-heavy for comfort. Yet the event proved me wrong, bringing the intersections of contingent workforce management, services buying, and related HR issues alive. Even for someone who lives and breathes procurement technology and services, the conference was absolutely packed with new learnings.

Those of our readers who manage global SOW and contingent labor management spend know the complexity of the topic. Contingent workforce management and services procurement more generally are exceedingly rapidly evolving spaces where legislative and regulatory efforts in the US, EU (with unique legal twists at each member country level) and elsewhere are keeping everyone on their toes. The potential for financial losses in the form of penalties, reassessed benefits (including retroactive equity incentives) and other bottom line depleting measures is staggering. You really need to stay on top of what is going on in this space. For a second opinion, look at this earlier post from Bill Busch.

The Consol/Volt conference did a fantastic job of covering trends in this category in the US and EU with a particular highlight on the UK -- all the while remaining objective and not selling any of their own tools and services. At the end I found myself wanting to know more about how they can help me navigate the minefield of rules, regulations and other obstacles (more about that in a follow-up article once I have seen their solution suite). An intimate group of around 50 people at the conference gave plenty of opportunity to get to know the presenters and other participants. Here are some highlights from the speakers:

Barry Asin -- President, Staffing Industry Analysts (SIA)
Barry shared that 19 out of the top 25 staffing firms are members of SIA. Among the large global corporations that are members of SIA's Contingent Workforce Strategies Council, the members collectively manage nearly $100B of global contingent work spend. There is about $376B in annual temp work through agency spend globally. There is also another annual $1,400B in non-agency contingent labor spend on a global basis. The members represent around 20% of the applicable workforce in a space that sees around 10% growth annually, depending on segment.

SIA members have seen a growing slice of the workforce being allocated to them, which indicates both industry consolidation and corporate supplier count reductions in this otherwise highly fragmented category. Another continuing trend SIA sees goes toward further drawing down baseline level employee count -- the skeleton crew model, if you will -- is actively managing business demand fluctuations via staffing partners. IT, Engineering, and Healthcare are three rapidly growing areas. Curiously, there is a silver lining in this regard in that the conversion rate from external temp resource to internal fulltime employee is quite high. Between 20% and 30% of external placement become internal employees over time. Think of it as an employee "leasing" model toward staffing with a balloon payment to own.

John McKimmy, VP Compliance, InfoTree Service Inc.
John shared his insights on the US worker misclassification issue. From our perspective, the regulatory results of an unholy alliance between the IRS and Big Labor, which has created a legal and regulatory framework where employers have to be exceedingly circumspect in how they contract for non-permanent ("1099-class") employees in order to avoid future surprises when IRS (or other agency) audits find that a temp was misclassified and is de facto a permanent employee, and because of this, various tax payments (e.g. FICA) are now owed by the company instead if the employee. To make matters worse, benefits such as 401K plans and matching contributions could also be owed. The coup de grace is that penalties will be assessed per instance: so multiply your temp count (let's say 500) with $5K per employee and now you owe the government $2.5MM in penalties alone. Head spinning yet?

There are various ways the IRS will assess if Rosie the Riveter temp is just an employee by another name -- the main principle being around control. Control of work hours, location, content, direction, etc. Bill's Friday piece (previously linked) covered this already. It suffices to say that if you've hired an outside contractor who works fulltime, onsite, uses your equipment, is trained by you, and is under your supervision -- expect to be dinged during the next audit. One of the countermeasures is to create an arms-length relationship via a clearly defined SOW type of contract where the worker performs to spec per SOW. This is not an area to take lightly. We advise you to solicit professional advice and set up your procedures accordingly. At the same time, because of these legal changes, we expect to see a significant shift from traditional temp to SOW contract work in 2012 and 2013.

Stay tuned as we conclude our coverage of the Consol/Volt event in a follow-up post.

- Thomas Kase

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