“Inflation will put more pressure on chief procurement officers to manage their departments strictly within budget,” according to the Ardent Partners Annual Research Report. That said, here are some compliance pitfalls to be aware of when hiring contingent workers.

Worker classification. A common freelance hiring issue originates from a poor chain of custody around worker classification. Without legal worker classification, your organization is in danger of costly litigation. If your worker classification is outsourced to a managed service provider (MSP), they may also have outsourced this important function to a vendor management solution (VMS).

Many businesses have redistributed the responsibility of worker classification to a third party or still have paper processes in place, which is precarious and, dare I say, archaic. The party you employ to carry out worker classification won’t be in the hot seat if an audit occurs, so it’s up to you to ensure your worker classification is compliant with the law.

Selecting poor MSPs/VMSs. Poor vendor choices can happen using an outdated MSP. Many MSPs have not updated their practices to include modern technology and inevitably have inaccurate need analysis and data errors. Using inadequate MSPs and VMSs can leave you non-compliant, and may contribute to a perceived talent shortage because of their limited bandwidth in quickly and compliantly hiring contingent workers.

If your MSPs or VMSs are not adhering to the established set of guidelines laid out in their contracts, your organization is at risk for fraud, corruption and rogue spending. Dependable vendors can also be the link between you and a flowing supply of labor. Capitalizing upon what VMSs and MSPs do well while directly sourcing your own external talent could save you time and money. Tech tools allow you to sidestep low-quality recruiting services, undelivered talent quotas, questionable ethical standards and compliance risks around hiring.

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No agile workforce strategy. Smart enterprises are hiring at speed using External Workforce Management systems to minimize the effects of the talent shortage by adopting strong external hiring processes. A good process streamlines onboarding, tracks progress and compliantly pays freelancers on time.

Procurement teams can benefit from External Workforce Management to reduce risks around signing contracts, non-disclosure agreements, background checks and the long-term storage of and access to onboarding documents. Standardized procurement procedures in one central system allow internal stakeholders to know exactly what to do at each hiring stage because the system is virtually automated.

According to Deloitte, “Only 8% of respondents, for instance, said that they had established processes to manage and develop alternative workforce sources…”

Managing independent contractors compliance -at speed- can be difficult. Nonetheless, there are technological workarounds that procurement professionals can use to speed up the notoriously slow non-employee hiring process while upholding ethics, data privacy, transparency and other legal requirements surrounding employment laws.

Don’t Be Afraid to Tap Into the Gig Economy

It’s critical to hire flexible global talent to stay competitive. While communicating with external talent is more straightforward, engaging contractors for flexible work and maintaining compliance can seem overwhelming without the right innovation.

Using agile talent means you can scale your labor force during seasonal demands, contract talent to fill gaps in your teams, reduce workers during slower periods and have access to a larger talent pool.

According to Statista, “In 2021, there were about 23.9 million independent workers in the United States, an increase from 12.9 million in 2017.” Using quality External Workforce Management  can help you outmaneuver the competition with perks that include tax benefits, increased productivity, higher ROI and lowered overhead costs while providing options for increased diversity and inclusion. Advanced tech exist that works alongside your MSP and VMS, not replacing them, but enhancing the workflows around labor law compliance, worker classification, custom contracting and spend visibility — cutting out rogue, low-quality hiring practices.

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This IC’s experience with a client that demanded he deliver beyond the scope of his contract went viral recently on Twitter. But as an editor at SIA, my thoughts turned to the costs to the client and to the contingent workforce managers who often administer the IC program at enterprise organizations. Situations like the one detailed by Twitter user @BirdRespecter could prove to be major headaches — if not costly — for the enterprise organization.

What happened here was the client ultimately lost the worker — who was a week away from completing a “site installation.” While the client did not in fact have the authority to terminate the contract, subsequent exchanges led to the worker walking away from the relationship.

Beyond the immediate and obvious costs to the client in terms of a project thrown into turmoil, there is the danger of managers like this one pushing engagements into the realm of IC misclassification (exerting control over a worker is a significant factor in such determinations). Then, there’s employer branding.

Control. There are a number of tests that may apply to the relationship between a business and a contingent workforce. The applicable test varies based on government agency, relevant statute and jurisdiction, but a primary factor in nearly every test is the company’s right to control the worker’s conduct, according to Eric H. Rumbaugh, a partner with Michael Best and Friedrich LLP. However, he points out that this particular scenario is unlikely to lead to misclassification concerns. “Requiring a worker to attend a meeting, by itself, would unlikely have any weight in converting a contractor to an employee – independent contractors and employees both have meetings and both have necessary meetings.”

Branding. While the contractor did not name the client nor the agency through which he worked, he easily could have, and other similarly situated independent contractors could turn down future work with the client given the demands made. Having your company blasted on social media can do lasting damage to its reputation and remove it from consideration as an employer of choice for top candidates.

Companies are accustomed to paying attention to social media from a consumer experience aspect, but in terms of the employer brand, it’s still not being addressed well, says Dawn McCartney, SIA’s VP, Contingent Workforce Strategies Council. Employment is becoming far-flung as the pandemic pushed employers to accept remote work. “Where you might have known people working for an employer in your city, now, if you’re considering an employer across the country or globe, you’re going to look to social media to learn about the employee experience.” With the current talent crisis, especially, companies simply can’t afford not to address complaints that emerge.

Educate. While the company involved in the viral Twitter thread presumably avoided the long-term damage it could have suffered, it still was left scrambling to get its installation project completed. And this could have been avoided easily, had the engagement manager been educated on what they could and could not require of the worker. As the IC said in one response to the manager: “You guys really ought to read the contracts you make us sign sometime. Pretty wild stuff in there.”

As the talent crisis deepens, the power lies with the worker. SIA knows from its annual Workforce Solutions Buyer Survey that enterprise organizations plan to expand on their use of independent contractors over the next few years. Further, many are developing their own direct-sourcing programs, which puts more of the responsibility for relationship management on the program. Increased use of ICs means more engagement managers interacting with them, and perhaps setting expectations they’ve no right to set.

When engaging ICs, learn what the do’s and don’ts are and make sure your engagement knows them as well. Then, of course, there’s business 101: Read your hiring contracts.

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While Amazon is hardly in danger of being put out of business, the e-commerce behemoth recently faced 75,000 individual arbitration lawsuits that could result in more than $375 million in filing fees alone. Likewise, a federal judge recently ordered DoorDash to pay $9.5 million in filing fees for 5,000 employment arbitrations. Another federal judge mandated that Postmates pay over $10 million in filing fees for similar cases. All of these exorbitant fees originated from a simple clause that’s present in almost every employment agreement: the dispute resolution clause.

As an HR manager, staffing professional or contingent workforce manager, you may not think it’s necessary to review the fine print of every employment agreement – but, in reality, you may be the last line of defense between a ministerial employee dispute and a time-consuming, costly legal battle. The fact is that your legal team is likely a step removed from being intimately involved in the negotiation and acceptance of employment agreements. So, it’s very important that you understand the nuance and specifics of these agreements, particularly if they are individualized based on the employee.

Dispute Resolution Clauses: What They Are and Why They Exist

First, it’s imperative to understand why dispute resolution clauses exist. While parties rarely enter into agreements with the intent that they fail, provision needs to be made for the worst-case scenario in any agreement. In the employment context, it would be naïve to believe that every employment relationship is going to work out.

As an HR manager, staffing professional or CW program manager, the last thing on your mind when placing a new hire is the potential for a future legal battle. But what happens if there is a dispute between employee and employer? The outcome often depends on the specific language within the employment contract’s “dispute resolution clause” which dictates where and how disputes will be decided.

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Available Forums Choices for Dispute Resolution

Typically, the clause provides for state/federal courts in a particular state or one of the large alternative dispute resolution (ADR) providers like the American Arbitration Association (AAA) or the Judicial Arbitration and Mediation Services (JAMS). There may also be smaller regional ADR players that are named. Unfortunately, there is almost always a common thread across all these agreements: They are almost always boilerplate provisions inserted into agreement after agreement with little justification.

Court vs. Arbitration: Why Forum Choice Is Critical for Resolving Employee Disputes

There are very specific and important reasons why you would choose a particular forum. Before selecting a forum, internal stakeholders should consider the following:

• Are you concerned about class actions? Arbitration clauses can include class action waivers requiring that any lawsuit that is brought be brought solely on an individual basis.
• Do you care about the potential publicity surrounding the litigation? Litigation in court is a matter of public record. Anyone can access the pleadings and general information in the court file.
• Would you prefer to handle litigation remotely? Some courts have become fairly adept at managing litigation on Zoom, while some ADR organizations remain slow to adopt technology.

One of the biggest misconceptions about dispute resolution clauses is that they need to be simple and repeatable. In reality, dispute resolution clauses can be based on whatever particular outcome you are seeking if there is litigation, while keeping in mind that the forum and procedures must be fair and efficient for employees.

Diffuse Dispute Resolution Time Bombs with Careful Planning and Preparation

The focus of any dispute resolution provision should be fundamental fairness and expediency. But they also must be crafted and tailored to the needs of the business. Failing to thoughtfully draft your dispute resolution provision can land you in the same world as Amazon, Doordash and Postmates. As an HR manager, you can evaluate and help draft these employment agreements, in particular the dispute resolution provisions, to ensure that the interests of your employees and your organization are front, center and aligned.

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