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Emerging trends in global contingent worker sourcing and how to ensure compliant workforce classifications

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Companies globally have substantially accelerated the use of contingent contract workers as part of their business expansion plans or as an alternative or supplement to their full-time internal workforces. Many economists are referring to this trend as the “Fourth Industrial Revolution” — with some projecting that 30% to 50% of the average corporate workforce will be classified as “contingent or flexible” (independent contractor, corp. to corp, freelancer, temporary or robotics) by 2025.

With the engagement of these contractors, companies often classify them as independent or corp.-to-corp contractors, at the preference of the contractor or for perceived internal cost savings for the company. Governments globally have realized that many of their working citizens are now providing services for multi-national companies outside of their borders. Governments, while excited that their citizens are working and participating in international opportunities, are growing increasingly concerned how these contractors are being paid and whether taxes are accounted for.

Additionally, the contractor’s classification and structure are being examined for compliance with laws and policies. Companies naturally don’t want to put themselves and their contractors at risk, but without a compliance firewall, detailed knowledge of local employment, tax and banking legislation, many of these engagements are potentially at risk. As this utilization expands, governments and companies need to ensure that these workers are properly classified.

The risk of worker misclassification can have serious tax and business operations consequences on the company and contractor. This can lead to business interruptions and risk the right to conduct business in a country or economic treaty zone. CXC — the leading global contractor management company for the past 28 years providing compliant solutions to corporations, contingent workforce providers and recruitment firms — has automated and digitized our proprietary contractor vetting and validation process in the 60-plus countries where we operate.

CXCComply ONLINE COMPLIANCE PLATFORM

CXC has updated and digitally automated its online platform, WWW.CXCComply.COM, the first truly global contractor classification platform to assist corporations to minimize engagement risk. WWW.CXCComply.COM provides interactive contractor vetting and validation classification for independent or corp.-to-corp. contractors, assesses a contractor right to work in country and compliance checks with required insurances and background screenings all in one platform.

WHY IS COMPLIANCE IMPORTANT IN TODAY’S GLOBAL CONTRACTOR ENGAGEMENT?

Governments globally are instituting new laws to ensure any worker who is engaged as an independent or corp.-to-corp. is compliantly classified and reporting income properly.

Below are a some of the recently enacted laws and government actions to prevent contractor misclassification.

AUSTRALIA — The Fair Work Ombudsman Act, 2019 “crackdown” levies penalties for “sham” contracting. Mitigating factors, control, super-Annuation, time reporting, tax and risk.

BRAZIL — Independent Contractors “Pessoa Juridica” (PJ’s) should be used on a project basis only. Contractor must register for tax and no exclusivity in work or agreements

CANADA — Independent contractors assessment on control, economic reality, entrepreneur assessment required and held for documentation. Self-Employment set up of Sole Proprietorship, Partnership or Corporation with proper government forms and insurance.

CHINA — China’s Labor Contract Law, employment relationship exists regardless of the party’s agreement if the individual is subject to any of the company’s internal rules and regulations.

FRANCE — Independent Contractors must registered on the Commercial and Companies Registry or the Commercial Agents Register.

GERMANY — In differentiating between independent contractors and employees, the government and courts look at the parties’ agreement and level of control, and if the contractor can freely determine how, when and where to perform its services.

INDIA — Independent contractor agreements must undergo a formal stamping process in order to be admissible as evidence in court in India.

JAPAN — Contractor relationships may not be exclusive or subject to any restrictive covenants. Contractors should not be subject to a company’s internal rules or regulations.

KOREA — The Supreme Court of Korea has a list of 10 factors that are relevant to whether a contractor is improperly classified.

NETHERLANDS — To be treated as an independent contractor for tax purposes, any individual contractor needs first to obtain an exemption from the Netherlands tax authorities.

UNITED KINGDOM — IR35 targets contractual workers who operate through an intermediary, usually a limited company, to offer and provide services to an end business.

UNITED STATES — 1099 independent contractors must be validated as well as the company’s operations to determine the level of control the contractor has over the project. Contractors right to accept other work and if any full-time company employees are doing similar roles.

MODERN WORKFORCE RISK HEAT MAP

The heat map illustrates generally where businesses are facing risk in relation to the modern workforce and where misclassification claims are an issue.

(Click image to enlarge)

HOW ARE COMPANIES ENGAGING WORKERS GLOBALLY TODAY?

Companies continue to move toward utilizing a blended contingent workforce. Talent acquisition platforms, and public/private and open talent pools are emerging and becoming the most prevalent channels used to source talent. Contingent-contract talent view this shift as positive because they feel it will allow them a higher compensation level as they promote their services on the platforms and avail themselves with the multiple types of talent pools. Companies also are slowly transitioning from or unbundling the traditional MSP model and its vendors are recruiting candidates for open position requisitions.

Companies today realize that they can identify their own contingent talent and develop pools of workers, which can be classified as independent contractors or employed. Companies can contract with public cloud companies to source available workers, or they can create internal talent pools that are populated by invited and known contractors.

(Click image to enlarge)

HOW DOES CXC ASSIST?

CXC has amassed substantial in-depth knowledge over our 28-plus years globally and from the hundreds of thousands of contractors we have properly classified and managed. CXC’s core value to our clients, partners and contractors is ensuring compliance in every major and emerging countries throughout the world with our tenured experienced team and true global footprint. As more companies are self-managing their programs or using a hybrid approach, they want that compliance guardian to help navigate their global journey. And that's where CXC sees itself — we are that compliance guardian, helping companies ensure that wherever they are engaging contractor and, in every solution, compliance is thorough, accurate and validated.

CXC is also assisting companies to manage their talent private and public pools. CXC is not a recruiter, however we do provide support by making sure that contractors in the talent pools have been vetted and screened so that when a hiring manager wants to engage a worker in the pool, that worker is in compliance, has been validated and is ready start with minimal time lag and faster onboarding. WWW.CXCComply.com allows workers to be fully vetted and validated, speeding up the time-to-fill process and increases access to talent.

CXC & CXCComply.com A GLOBAL TRUSTED PARTNER FOR 28 YEARS

www.CXCComply.com digitized online platform ensures your independent and corp.-to-corp. contractors globally are compliantly classified at the time of vetting and throughout the term of the project. CXCComply is a salesforce.com-based service delivery platform that performs contractor vetting and validation, ensuring compliance in minutes and reporting with a comprehensive audit file for each contractor. CXCComply classified over 2,500 contractors in 2019. Recent enhancements to CXCComply also provide for global background investigations and comprehensive right-to-work documentation.

Talent acquisition is shifting beyond a predominant focus on recruiting full-time hires to accessing people with the right capabilities in new ways. Looking to internal mobility, the alternative workforce, and new technologies to facilitate access to talent is essential.

John F. Smith is CXC's Managing Director of the Americas. He will be joined in a webinar about emerging trends in global sourcing of contingent workforce talent with Spend Matters' Research Director of Services and Labor Procurement, Andrew Karpie, and Connor Heaney, CXC's Managing Director of EMEA. Listen in on March 24 at 5 p.m. BST, 12 noon Eastern, 9 a.m. Pacific. Webinar registration is now open. 

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