Luke Morrison
Vice President

Luke Morrison built Procom's operation in Kitchener and Waterloo and over the past two decades, has grown it into the leading supplier of contingent workforce services in the region. 

Mr. Morrison also holds responsibility for numerous high-level North American client relationships in the organization. 

An advocate for technology startups and an active supporter in the Information Technology sector for over 15 years, Mr. Morrison is a member of several local organizations, including Communitech, CTT and the PMI, offering insights to entrepreneurs on how to start, manage and grow their IT businesses.

A resident of Waterloo, Mr. Morrison holds an Honours Bachelor Administration from Wilfrid Laurier University, belongs to the Association of Professional Canadian Consultants (APCC) and is a tactical sales member of the Canadian chapter of National Association of Computer Consulting Business (NACCB).

 

 

Luke Morrison

Vice President
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Contractor payrolling models: Which is the best option to manage your organization’s contingent workforce?

In today’s competitive business climate, organizations need an agile workforce that can execute strategies and achieve corporate goals quickly and efficiently. Yet, employers must also be responsible for managing their workers’ wages, bonuses, and deductions as well as provide support during the length of a worker’s assignment(s).

It’s a complex, time consuming process, and staying on top of the frequent changes to legislation can be problematic. Any oversights will result in non-compliance, which could lead to serious fines and negative employer branding.

To stay compliant and competitive, growing organizations will typically shift from a ‘direct contractor payrolling model’ to a third-party payrolling model, either built around the selection of a dedicated supplier or through informal referrals to a variety of vendors.

But which model is the best option for bringing qualified talent quickly and cost effectively into your contingent workforce? Depending on your organization’s acquisition needs, below is a list of payrolling models to consider:


Direct/No Payroller
Risk level: High
Some organizations choose to run their contingent worker contracting and payroll functions internally, with responsibility spread out over a variety of departments-- from HR, to procurement to accounting/AP, but that isn’t always the most efficient approach.

This model involves the client company directly handling all aspects of their contractor's engagement, onboarding and payment duties, with coordination responsibilities often placed on the individual hiring manager that is engaging the contingent worker.

How does the process work?
The client company is responsible for managing all aspects of the payroll process, including:

• The administration of tax and benefits forms
• Payroll deductions
• Submission to government agencies 

Why would organizations use a Direct/No Payroller model?
The organization may prefer to manage the payroll process internally due to perceived cost savings over hiring an outsourced provider.

There is a higher level of risk with this model since employee/contractor regulations and categorizations may change frequently. There is no structure in place to help manage contingent workforce costs or address compliance or risk management issues specific to these types of workers. It can be difficult for busy HR professionals to stay up-to-date with current laws, particularly for organizations with operations in multiple jurisdictions or those who employ exempt/non-exempt, seasonal, contract or part-time workers. Government non-compliance fines can be significant and unforgiving.


Informal/Semi-structured Payroll Referral Program
Risk Level: Moderate (Costly) 
This model is often not an ‘official’ company mandate – instead, it usually involves individual hiring managers referring the contingent worker to an existing approved staffing vendor. This process unburdens the hiring manager from having to manage the contracting and payroll onboarding tasks internally.

How does the process work?
Hiring managers typically select organizations they have an existing working relationship with, resulting in simplified onboarding that speeds up the hiring process.

Why would an organization use an Informal/Semi-structured Payroll Referral Program?
The trusted vendor has also likely been onboarded through the organization’s procurement process, and already has all necessary legal agreements in place and meets jurisdiction-specific compliance requirements, such as valid business licenses, tax remittance capabilities, pay schedules, employee categories or a particular aspect of payroll calculations (insurance, workers’ compensation, etc.).

Though this model is generally faster and easier for hiring managers, it’s difficult for the organization to track and manage its corporate spending of directly-sourced contingent labor. Likewise, the use of multiple staffing vendors results in legal and compliance inconsistency between contingent labor engagements as well as service levels and individual worker management.  

The organization typically doesn’t use structured pricing models or pay rates. Additionally, using multiple vendors results in difficulty negotiating high-volume flat and/or preferred fees for the hiring process, resulting in the potential for abusive vendor pricing.


Single, Dedicated Payroller
Risk Level: Low  
This model involves a single outsourced service provider responsible for managing an organization’s entire payroll record, keeping process across all jurisdictions where that company employs workers.

How does the process work?
It represents the company’s decision to treat contingent labor hiring and management as a corporate priority, and offers benefits around:

• Streamlining operations
• Enforcement of established spend approval processes
• Consistency in record keeping through a single vendor
• Securing the lowest possible price for the service 

Why would an organization use a Single, Dedicated Payroller? 
This model can be especially advantageous for employers who may operate in multiple domestic or international jurisdictions.

This model lowers an organization’s risk by incorporating a single point of accountability and audit for all of the compliance activities related to contingent worker onboarding and management and decreases the likelihood of overlooked short-term, contract or seasonal workforce records and worker misclassification.


There is no scenario that is completely risk free; whichever model your organization chooses to go with, it’s crucial to know the benefits and risks associated with each. Does your organization have a solid framework for identifying contingent worker risk? Download our free Checklist on CW risk factors:
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Contingent Workforce Management

What is contractor classification?

When onboarding an independent contractor, organizations must classify aspects of the contingent worker relationship to ensure compliance with the correct tax and employment laws. Misclassification of workers happens when tax authorities and/or regulatory bodies deem one or more of an organization’s contract workers as actual employees. 

Managing a blended or contingent workforce is a logistical challenge in the ever-growing gig economy, and contractor classification is one of the biggest risks facing organizations that operate one.  

Between 10–20 per cent of employers misclassify at least one worker, and the Internal Revenue Service (IRS) estimates organizations have misclassified millions of workers in the U.S. alone.  

When onboarding contingent workers, these insights will help categorize and classify your worker relationships, so you can focus on moving your business forward. 


Common types of classification
The issue of worker classification arises from government concern that organizations may be attempting to avoid tax obligations by misclassifying workers – either accidentally or on purpose. While classification is primarily an on-boarding activity, organizations must be vigilant to ensure the status of the relationship does not change over time and invalidate the original classification. To ignore this may result in future reassessments and penalties.


Below are the common types of contractor classification considerations: 
• Legal Status
• Employer payroll
• Overtime status
• Right to work status (I-9)
• Health and safety sensitive


Why does contractor classification matter? 
The first thing to understand about classification is that a worker is not classified by their title or by the wording in their contract (e.g., “Independent Contractor Agreement”). Instead, it’s the context of the worker’s role that determines their classification.

If your organization operates a contingent or blended workforce, correct contractor classification is critical to avoiding tax, government and brand related consequences like wage claims, fines, back payments, class-action lawsuits, benefits owed to re-classified employees and reputational damages.

Classification also provides clarity on employer obligations. Employers have certain obligations to traditional employees that they don’t have to contingent workers, such as pension plan or insurance premium contributions and income tax deductions; whereas contractors take on these responsibilities themselves. Furthermore, contractor classification helps organizations manage the engagement with the worker and provide a unique and tailored onboarding experience. Similar to traditional employees, contingent workers want to feel as though the organization they're working with is excited to have them on board, is prepared for the engagement and has all required internal processes in place.


Who handles contractor classification? 
Some organizations’ internal HR function will handle classification of employees, and many times, contingent workers are slipping through the cracks. As such, competitive organizations are no longer approaching the management of their contingent workforce in an ad-hoc or as needed basis, and many are turning to a third party to assist in creating an effective contingent workforce management program that drives high levels of compliance. 


These third parties include: 
Managed Services Provider (MSP): An MSP will manage all or part of a contingent workforce needs according to client requirements. MSPs may or may not offer a Vendor Management System (VMS) of their own, but they normally combine some type of VMS technology into the program(s). 

Vendor Management System (VMS): A VMS is a technology solution that provides visibility into an organization’s contingent worker program, including every worker, the length of their engagement and project scope. Basic system functions handle everything from requisition to off-boarding, hiring approvals and processing of time sheets and invoices.

Independent Contractor Engagement Specialists (ICES): ICES will act as an Agent or Employer of Record for IRS purposes in the U.S.. 


What is the process for handling exceptions? 
Contractor classification can be something of a balancing act, and to ensure compliance, employers should audit their processes, documentation and internal rules with the latest legislation and classification systems.  

There are also certain scenarios that fall outside the 90 per cent of regular classifications. In such cases, who is accountable for making the final decision? Without a defined escalation process for exceptions, front line management, more often than not, is forced to take on the responsibility of classification as well as their day-today-operations, which can lead to a poor on-boarding experience, delayed on-boarding, last minute rejections, poor documentation or in the worst case scenario, misclassification.


What is the role of a staffing agency?
Staffing firms have a role to play — in meeting clients’ changing skills requirements, advising on the best solutions available to meet their business goals and delivering innovative services that transform how they acquire and manage talent.  

Furthermore, due to the risks involved with the misclassification of workers, service providers like staffing agencies embed classification as an integral component into their contractor on-boarding process, and these classification systems evolve over time to be current with the changing realities of contract and employment law.  With expertise in contract labor, a trusted partner can help organizations avoid the risks of misclassification – while also protecting the interests of the skilled workers represented.


Contractor classification isn't the only risk organizations face when managing a blended or contingent workforce. If you're interested in engaging contingent talent, or want deeper insights into how to manage the risks posed by your current program, download our free whitepaper A Checklist for Contingent Worker Risk:   

Contingent Workforce Management

What is Contractor Tenure?

Leveraging a contingent workforce in today’s business landscape is a risky but rewarding strategy. With the velocity of emerging technologies, skills gaps in the workforce, shifts in employment attitudes and increasing customer expectations, employers need to be able to engage talent quickly and flexibly to remain competitive.

Contingent Workforce Management

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