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Are you using the best contingent workforce payrolling model to manage your direct sourced contractors?

Aug 19, 2019

Every organization is responsible for managing the payroll of its employees and contract workers: tracking and reporting each employee’s wages, bonuses, and all deductions, as well as active support for the workers during the length of their assignment. And depending on the jurisdiction of where the company operates, there can be upwards of 20 different employment records to manage and comply with government regulations.

No matter the size of an organization, contract workforce payroll administration is a complex and time-consuming process involving many departments. Companies may choose to run their contingent worker contracting and payroll functions internally, with responsibility spread out over a variety of departments, from HR, to procurement and accounting/AP, but that isn’t always the most efficient way to go. Staying on top of the frequent changes to legislation can be problematic, and any oversights can result in non-compliance, which could lead to serious fines and reputational damage.

As organizations grow, and become more focused on compliance and spend management for their contingent workforce, they 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 suppliers.

Differences in payrolling models based on contingent workforce management

Direct/No Payroller
This model involves the client company directly handling all aspects of the contractor engagement, onboarding and payment duties. Responsibilities are often spread across a variety of functional areas, ranging from human resources to procurement, contracting and accounting, and coordination responsibilities often are placed on the individual hiring manager that is sponsoring the engagement of a particular contingent worker. 

The company is responsible for managing all aspects of the payroll process, including the administration of tax and benefits forms, payroll deductions and submission to government agencies. This approach is often used by companies that prefer to manage the payroll process internally due to perceived cost savings over hiring an outsourced provider, or there is no structure in place to help manage contingent workforce costs, and address compliance or risk management issues specific to these types of workers.

There is a higher level of risk with this model since employee/contractor regulations and categorizations may change frequently. It can be difficult for busy HR personnel to stay up-to-date with current laws, particularly for companies 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
This model is often not an ‘official’ company mandate – instead it usually involves individual hiring managers referring the favoured 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.

Hiring managers typically select companies they have a good existing working relationship with, resulting in simplified onboarding that speeds up the contingent worker hiring process. The trusted vendor has also likely been onboarded through the company’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 is difficult for the company to track and manage its corporate spending of directly-sourced contingent labour. Likewise, the use of multiple staffing vendors results in legal and compliance inconsistency between contingent labour engagements, as well as service levels and individual worker management.  

The company typically does not 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
This model involves a single outsourced service provider responsible for managing a company’s entire payroll record keeping process across all jurisdictions where that company employs personnel. It represents the company’s decision to treat contingent labour 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, and securing the lowest possible price for the service.

 It also lowers a company’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 improper worker classification. This model can be especially advantageous for employers who may operate in multiple domestic or international jurisdictions.

Whichever model you choose to go with, it is crucial that you know the benefits and risks associated with each. 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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Managed Services Programs: Is an MSP right for me? Contingent workforce insights

The world of work continues to evolve – quicker than it ever has before – and competitive organizations are increasingly investing in the power of a contingent workforce to become more agile in these disruptive times. As employers everywhere are using more forms of contingent workers, it’s likely that your organization is also getting on board with the same transformation.

According to McKinsey, up to 30 per cent of an organization's workforce in the U.S. is made up of contingent workers, with employers having unprecedented access to a talent pool of 42 million of them. And while the rise of a flexible talent provides many benefits, it also leaves employers grappling with the hurdles of managing the many complexities that come with these types of workers. For answers, organizations committed to a more strategic approach to contingent talent management are turning to a Managed Services Program or Managed Services Provider (MSP) as an effective resource.

If you’re considering investing in a Managed Services Program or are interested in learning how an MSP can help optimize contingent workers to drive real business value across your organization, the following insights will help you make an informed decision.

What's an MSP?
Today, Managed Services is one of the fastest growing outsourced talent acquisition solutions, with Everest Research Group reporting that the global MSP market surged 10.1 per cent between 2015-2016, with experts predicting the solution to outpace global economic growth.

Why do organizations partner with an MSP? 
As tech and globalization continues to drive business strategies, it’s critical for employers to become more agile, and a contingent workforce is the widely-adopted answer to bridging skills gaps and driving both growth and innovation. At its most basic delivery level, an MSP will help an organization easily streamline and manage its entire contingent workforce program by improving efficiency, controlling costs and mitigating unforgiving fines, penalties and reputational damages associated with compliance risks. 

While early MSP models maintained a focus on process improvements and cost savings, more mature MSPs, however, are now seeking ways to increase access and delivery of high caliber talent while reducing time to hire. To do so through the use of technology stacks,  MSPs are leveraging direct sourcing solutions for greater access to talent pools and niche skills, sourcing alternative acquisition resources like Artificial Intelligence (AI) and other initiatives that increase savings while ensuring quality talent engagement and retention.  

Different types of MSP models
Typically, MSP programs fall into one of these models:

Vendor neutral: All MSP vendors have equal opportunity to fill a position within a specific time.
Master vendor: A Preferred or Master Vendor is given preference to fill a position first but must release the role to other vendors if they fail to find talent within a specific time.
Hybrid: This type of model will include elements of the first two programs. 

MSP drivers, MSP focus and benefits
For most organizations partnering with a Managed Services Provider, there are seven key drivers that are aligned with specific operational challenges. These drivers include:

1. Operational challenge: Minimizing risk of non-compliance
MSP focus: On/Offboarding with contingent workforce audits and rate compliance visibility.
Benefit: Improved compliance, including rate compliance and worker on/offboarding compliance; better worker classification audits to minimize co-employment risks.

2. Operational challenge: Controlling rogue costs related to spend
MSP focus: Cost control.
Benefit: Greater visibility into costs using vendor performance metrics to ensure effective negotiations and development of sourcing strategies.

3. Operational challenge: Drive for improved performance and cost efficiencies
MSP focus: Closer supplier management with access to benchmark rates.
Benefit: Increased contingent workforce quality and performance with reduced time-to-hire. This is a result of supplier base optimization and requisition optimization through hiring manager feedback on services and formal Service Level Agreements (SLAs).

4. Operational challenge: Sourcing hard to find talent
MSP focus: Developing new sourcing models.
Benefit: Support in implementing technology in conjunction with delivering process change.

5. Operational challenge: Speed of change and large ramp up of worker volumes
MSP focus: Agility to support peaks and troughs of contingent worker needs.
Benefit: Outsourcing the MSP program can be a more effective way to manage business cycles.

6. Operational challenge: An increase in complex operations
MSP focus: Souring optimization to support diverse needs.
Benefit: Scaling your contingent workforce program to new markets where internal knowledge may be limited.

7. Operational challenge: Managing VMS technology and integrations
MSP focus: Service and technology support.
Benefit: Significant operational changes can require a new solution as it remodels its blended workforce. An MSP will support these tech changes across the entire contingent workforce delivery.

Beyond these key drivers, competitive organizations are also turning to an MSP in order to build on their employer brand and leverage the use of predictive analytics to ensure a better contingent workforce program with access to niche skills.

Is an MSP right for me?
An MSP will require organizations to have a minimum amount of contingent worker spend in order for the program to be successful and self-sufficient. When deciding whether or not an MSP is the right solution for your organization’s needs, there are first some basic and more complex factors to consider. First, it’s critical to understand how much contingent workers are currently costing your organization. It’s a unique number to individual employers, yet can be difficult to account for, as nearly 60 per cent of contingent worker costs is unaccounted for in the average organization.  You’ll also want to know how current buying is being done for the various elements of your contingent workforce and what controls are in place to manage the current program.

Additional questions on your checklist should include:
• Has my contingent workforce program outgrown my current management strategy and are my needs become more complex?
• Am I securing contingent workers in the time frame I need to?
• Do I have clear visibility into contingent worker spend?
• Have recent policy changes made me concerned about compliance?
• Am I engaging more contingent workers now than I have in the past, and do I plan on securing more in the future.

The role of a trusted MSP partner
A trusted partner should be committed to advising on the best solutions available to meet an organization’s business goals and to delivering innovative services that transform how they acquire and manage talent. This is done by listening to an organization’s specific needs and tailoring a solution that delivers both short and long-term value across an entire contingent workforce program. 

Your MSP partner will also help manage and mitigate risks associated with operating a 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:

Talent Acquisition

What is contractor classification? Understanding contingent workforce strategy.

When onboarding an independent contractor, organizations must classify aspects of the contingent worker relationship to ensure the correct legal and contract management structure is in place. 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: 
• 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, 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 for 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 fit 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:   

Talent Acquisition

Guide to designing a high impact talent acquisition strategy

For over two decades, the ‘war for talent’ has been making headlines—ever since McKinsey’s Steve Hankin coined the term in 1997 and the company wrote the book by the same name. Yet, more than 20 years later, the fight for skilled contingent workers wages as competitive as ever. 

Because it’s getting harder to win. 

With current low employment rates, supply is down and demand is up, driving both enterprise-level organizations and small businesses to compete for workers qualified to fill skill gaps created by emerging technologies, shifts in employment attitudes, lower project costs and educational gaps. And hiring strategies that worked years ago aren’t as effective in today’s gig economy.

Deloitte reports organizations that can effectively recruit and retain talent see 18 per cent higher revenues and 13 per cent higher profitibility over those that aren't as adept. And when contingent workers are expected to make up 43 per cent -- or almost half-- of the U.S. workforce by 2020, it’s more important now than ever to have an effective strategy to engage these types of niche workers. A successful recruitment program recognizes that hiring is more than just filling positions.   Here’s how to design an effective high-impact talent acquisition strategy that finds the right fit for your contingent worker needs.

1. Job descriptions: Write job descriptions that attract the right candidates
Crafting compelling job descriptions is an organization's first step in marketing their company and position to a future hire. And with job boards like Indeed listing over 20 million jobs, yours needs to stand out to have a competitive advantage. Go beyond core qualifications: A great job description will list the must haves and nice to have skills, desired industry experience and level of education, but remember that candidates need compelling reasons to leave their current workplace or choose your job over another opportunity. Aside from what you’re looking for, what can your organization offer? Describe benefits and perks that come with the position, like skills that will be learned on the job, new technologies that will be used, growth opportunities, location and flexible work or remote work options. 

Use traditional titles: Non-traditional job titles like "ninja," "rock star," and "bad ass" can not only confuse an ATS and significantly lessen your talent pool, they're also potentially discriminatory. Studies show that when listed in job descriptions, these words are major deterrents for women job seekers.

Keep it concise: Indeed reports that job descriptions that are kept between 700 and 2,000 characters receive 30% more applications.

2. Sourcing: Use a combination of technologies, alternative sourcing tools and traditional methods
Technology has disrupted the way organizations acquire and manage talent, and it’s important for an organization’s recruitment program to keep up with Artificial Intelligence, predictive data analytics and other technology tools. Deloitte reports that successful hiring teams are 6x more likely to engage in a data-driven decision making process over lower performing teams.

A strong recruitment program will leverage non-traditional talent sources to find both active and passive job seekers. Social media platforms like LinkedIn and Twitter are common sites where recruiters and hiring managers search for talent, but Facebook groups like BUNZ Employment or forums like Reddit or StackOverFlow are also untapped talent pools. The same report by Deloitte finds 60 per cent+ of successful hiring teams actively search non-traditional sources compared with 10% of lower performing organizations.

Management should be dedicated to upskilling and knowledge transfer opportunities and ensure teams are properly trained on the recruiting technologies being used. Organizations with high performing  hiring teams are 4x more likely to develop their people compared to lower performing organizations.

It’s also about the candidate experience, and successful acquisition teams will need to create a personalized journey to engage top talent. And it’s critical for organizations to measure their candidate’s satisfaction rates, with survey tools like Inavero or other tools that manage the NPS score at each stage of the recruitment process to continuously improve candidate experience at each touch point. Deloitte reports that 3 out of 4 successful acquisition teams focus on improving the candidate experience compared to only 17 per cent of lower performing organizations.

3. Qualifying: Be transparent 
It’s important to understand gatekeepers and how to get around them. Full disclosure points: Identify and proactively address negative factors at the beginning stage of qualifying. This step is critical to building personal credibility and avoiding late stage deal breakers. Things like:

• If your organizations has a furlough (force time off with no pay)
• If there is any black out on vacation time over the holidays due to a roll out
• If excessive overtime is required
• If the location is hard to get to
• Is there a use of older technologies?

4. Screening: Conduct a thorough interview process
The effects of a bad hire will cost an organization 30% of that worker’s first year salary. However, the negative impacts of a bad hire can be avoided with a thorough vetting process.

Important considerations when screening include:
• What kind of interview are you conducting?
• How many people does the candidate need to meet and what is your time to hire?
• How many interviews can you schedule in a single day?

The answers to these questions will help hiring teams avoid time delays in getting out offers to a candidate and mitigate the risk of losing that resource to a timelier offer. 

Are you doing any type of internal testing with your hiring managers or recruiters, and if so, does it happen before or after the interview? Conducting internal research with your organization’s top performers will provide you with a benchmark for interview skills and behaviours of a successful hiring team. 

 5. Closing: Understand the motivation factors before trying to close the deal
It’s not all about money! Understand what other factors motivate that candidate. Are they interested in career growth, flexible hours, technologies being used, project length, location, remote work options or the company culture? Knowing what non- monetary factors motivate your candidate will best position your organization for negotiations and counter offers. If money is their motivating factor, you may want to reconsider if the candidate truly is the best fit – do their values and goals really align with your organization’s? Will they fit in with the corporate culture? If a candidate is only interested in financial compensation, your organization runs the risk of that resource leaving at any time for a better rate or salary somewhere else.

6. Onboarding: Deliver a superior candidate experience 
Many organizations confuse orientation with onboarding— and focusing too much on new hire paperwork and processes will significantly impact employee retention or contingent redeployment. As candidates who experience poor onboarding are 8x more likely to be disengaged after three months, these resources are significantly less likely to extend their contract or entertain additional offers with an organization they had a negative experience with. Organizations with structured or formalized onboarding programs can see a 60 per cent year over year improvement in revenue and a 63 per cent increase in overall customer satisfaction.

How can you provide a superior onboarding experience? Ensure your department is organized and prepared for the worker’s first day with things like IT and office resources. Give a tour of the office and introduce the new hire to each member on the team and management. You’ll also want to give a background on the company, its business strategy and set day-to-day job expectations. Identifying and understanding gaps in your current recruitment program is critical to designing a talent acquisition strategy that will effectively source, screen, onboard and redeploy contingent workers.

Are you considering updating your current talent acquisition strategy? Learn how adding a direct sourcing component will help you connect to qualified candidates faster with our Free Guide: What is Direct Sourcing? 

Download now

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