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Insights about the Extended Workforce

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What is Contractor Tenure?

Nov 08, 2019

Alex MacKenzie
Alex MacKenzie

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.

However, there is no simple equation to managing the risks associated with a contingent workforce -- even for the big guys.

One of the most well-known examples of contingent worker risk erupted 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 exactly is contractor tenure?

Contractor tenure refers to the length of time that a contingent worker has been on an assignment at a single organization.Tenure-Limit-01What is a tenure limit?

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

How do tenure 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 should encourage hiring managers to hire full-time employees (FTEs) rather than contractors 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 contractor tenure limit can serve to provide a potential cap to an organization’s co-employment liability, rather than to remove the risk completely. While a tenure limit may help in this regard, it also introduces other risks to the organization, specifically, when tenure limits and project lengths do not conveniently line up.

Moreover, 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 policy, 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 individual 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 trying to mitigate risk.

Strong risk mitigation continues with implementing solid 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.Tenure-Limit-02A 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.

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


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