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Understanding Contractor Tenure

May 03, 2021

Alex MacKenzie
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Alex MacKenzie
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Contractor tenure refers to the length of time that a contingent worker can be on an assignment for a single organization. However, in an attempt to lower the risk of co-employment, it's common for organizations to implement a policy that limits the length of time that a contractor can work on any one assignment. Once the tenure limit has been reached, the contractor can no longer work on the assignment- regardless of the project length.

Contingent workers bring many benefits to an organization's workforce; however, they also open employers up to a range of financial, legal, tax and branding risks. These Contingent Workforce risks will arise when an organization is flagged for non-compliance and is assessed based on its failure to comply with employment standards.

Without proper classification in place, one of the major risks employers face is co employment, and not even major corporations can escape the penalties if found in non-compliance.

What is co employment?

Co-employment risk is the term used to refer to situations where two or more organizations exert some level of control over a worker, and are therefore considered to have employer obligations toward the worker. Co-employment risk can often exist when organizations use staff that are provided by third parties.

The history of contractor tenure

One of the most well-known examples of contingent worker risk took place in 2000, when Microsoft agreed to pay $97 million to settle an eight-year-old class action lawsuit filed by thousands of temporary workers who accused the tech giant of improperly denying them benefits afforded its full-time employees.

After this landmark case, which came to be known as the  Permatemps case, many organizations adopted term limits for contingent workers in an attempt to protect themselves from co-employment risk.  The term limits enforced after the Microsoft ruling set precedence for today’s contractor tenure policies, yet there's still a lot of uncertainty around the topic.

What is contractor tenure?

Understanding contingent workforce language is essential to operating a successful and compliant program. Contractor tenure refers to the length of time that a contingent worker can be on an assignment at a single organization.

What is a tenure limit?

A tenure limit is a policy that an organization has that creates a maximum amount of time that a contractor can be on assignment at that organization. 

How do tenure limits and workforce strategy work together?

In addition to helping manage contingent worker risk, organizations use tenure policies to help shape hiring manager behavior. Specifically, the belief is that tenure limits will encourage hiring managers to hire full-time employees or temp-to-perm rather than contingent workers when a longer-term need arises. In doing so, the organization retains more of its intellectual property with full-time employees than it does with contingent workers.

How effective are tenure limits?

In isolation, a contingent worker tenure limit can serve to provide a potential cap to an organization’s co-employment liability, rather than to remove risk completely. For instance, when an organization has a zero-exception policy to tenure limits, it can lose valuable resources who are needed on projects when they reach their limit prior to the project's completion.

As a direct result of a strict tenure limits, hiring managers have found ways to avoid these limits by moving resources from a visible headcount into either a Statement of Work or an alternate engagement means, where the worker can potentially be hidden from the organization.

How can organizations use tenure limits to protect themselves?

Tenure limits do have their place in contingent workforce risk management; however, they have to be considered in a broader context. Solid risk mitigation for contingent workers begins with proper classification.

Contractor classification is a process that exists during the onboarding of a contractor, and it's the most critical step to get right when mitigating risk.
Strong risk mitigation continues with effective operational practices. As such, it’s important for organizations to audit these processes annually and make enhancements regularly. Proper classification and a well-defined process are critical to organizations using tenure policies.

A standardized onboarding process for contingent workers will help manage the risks that come with contractor tenure policies and the overall process in general; it will also help organizations achieve many cost-saving benefits.

Contingent Workforce risk is an important but tricky issue in contingent workforce programs. And while it's true that the  contingent workers come with many benefits, effectively managing contingent program risk requires a collaborative approach between client stakeholders, ranging from procurement, legal, HR and business managers.

To learn more about how competitive organizations are managing contingent worker risk, download our free white paper: A Checklist on CW risk factors:

DOWNLOAD CHECKLIST

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