5 Ways to Mitigate Contingent Workforce Compliance Risk

While the main attraction of employing contingent workers lies in reducing costs and enhancing workforce quality, allowing hidden risks to persist unchecked can entirely undermine these advantages. In fact, as shared recently by SIA in an article on compliance risk, a recent KPMG study reported that 53% of compliance leaders are facing increasing pressure from boards to enhance compliance. In this article, we look at the top contingent workforce compliance risks and the strategies to help you address them.

The contingent workforce is fraught with hidden risks, including unauthorized spending, operational inefficiencies, worker misclassification, and insufficient oversight of staffing agencies. To genuinely benefit your business, it's key to look at the risks associated with managing a contingent workforce and develop strategies to address these risks and boost your organization's profitability.

Here is a list key strategies that will help you mitigate those hidden compliance risks.

A quick recap: What are the hidden risks of a contingent workforce?

The first step to strategizing a successful contingent workforce management program is to identify the areas of risk for your business. Here are the top ways in which organizations lose money due to poor contingent workforce processes:

The misclassification of non-employee workers.
No visibility or control over their contingent workforce program.
No standardization of vendor rates across your company’s hiring managers.
Fragmented staffing agency processes across your business, often a result of using a manual spreadsheet to manage your vendors and contingent workers.
The inability to track staffing agency performance.
Hidden costs and rogue spend that goes undetected and staffing agency processes.

The two primary risks associated with contingent workforce programs are the misclassification of contingent workers and co-employment. Here are further details on these:

Misclassification: Contingent workers that fall under the independent contractor (IC) umbrella must be considered legal ICs in the region your organization operates - if not, they could be considered employees and your organization could be falling foul of misclassification. Most countries and states will have an online test to help your business ensure it is correctly classifying independent contractors in your contingent workforce program.

Co-Employment: Most businesses use staffing agencies to source and engage their contingent workers. In this relationship the contingent worker is employed by the staffing agency and placed within your organization for a specific period of time as a temp. It’s crucial that you have the procedures and protocols in place for this relationship not to be seen as co-employment, which would essentially mean your business is categorized as a joint employer of the contingent worker - meaning the worker could take legal action against both you and the staffing agency and receive compensation.

How to mitigate the risks associated with a contingent workforce

To assist your business in reducing these risks and enhancing your contingent workforce for optimal outcomes, we have identified five key areas of contingent workforce management that your organization should prioritize.

1 - Centralize the management of your contingent workforce: Many organizations (especially those with smaller contingent workforce budgets) are still using manual spreadsheets to manage their contingent workforce. Multiple spreadsheets end up getting saved across your business by different hiring managers, data gets stored on emails instead and your business is left with no visibility and control over its contingent workforce. Instead, it’s absolutely crucial you centralize the management of your contingent workforce in one location.

2 - Automate your processes: When you manage your contingent workforce processes using manual, time-consuming methods you leave room for human error and data miscalculations. You can resolve these issues by automating processes such as sourcing, onboarding, time entry and approval, analyzing vendor performance, and payments for accurate insights into your contingent workforce program.

3 - Consolidate vendors in one location: A contingent workforce program involves a number of staffing agencies, and leaves your company with thousands of data points. To use this data strategically and analyze your staffing vendors, it’s crucial that you consolidate all staffing agency data into one centralized location. This will ensure all hiring managers are following standardized rates/agreements and that your business has complete visibility into all staffing agency spend.

4 - Properly document your contingent workforce data: Incorrectly identifying the relationship between your organization and nontraditional workers can lead to worker misclassification and hefty penalties. That’s why it's important that you properly document all of the information around your contingent workers, ensuring they can’t be classified as full-time employees. Not only does this mitigate the risks associated with misclassification, but proper documentation also improves your visibility into your contingent workforce program.

5 - Use a Vendor Management System (VMS)

A VMS is a software platform that allows your organization to facilitate all of the processes involved in managing your contingent workforce program, including managing your staffing agencies and your non-employee workers.

A vendor management system will centralize, automate and consolidate your entire contingent workforce process into one easy-to-use solution. That means you’ll be able to manage your staffing agency relationships, analyze vendor performance, pay contingent workers and much more all from one seamless platform.

How a VMS helps manage contingent workforce compliance risk

✔️ Mandating business-wide processes: To ensure all hiring managers are complying with local and national regulations, it’s important that your business mandates business-wide processes within your contingent workforce management program. VMS software allows you to standardize processes across your business, such as where your hiring managers source workers and how much they pay staffing vendors.

✔️ Centralize the management of your contingent workforce: A VMS helps your business to move away from time-consuming and error-prone manual spreadsheets. When multiple spreadsheets get saved across your organization, and employees input the wrong information, your business is left with no visibility into how workers were sourced, how much for and under what conditions. This leaves your business vulnerable to compliance risk.

✔️ Properly document contingent workforce data: A vendor management system gives you the platform you need to properly document, classify and define your relationship with nontraditional workers. Proper documentation of contingent workers will ensure your business doesn’t incorrectly identify the relationship between them and your organization.

The result? You'll gain complete visibility and control over your contingent workforce, saving your business money and ensuring that you are able to make better strategic vendor partnerships that improve your workforce quality.

Take the Next Step with Conexis VMS

Conexis is an award-winning VMS tailored specifically for mid-market contingent workforce programs. Leveraging the latest technology, Conexis delivers the expertise, reliability and security of enterprise systems, while offering the flexibility, user friendliness and tailored service you require. Conexis delivers enterprise level software - without the enterprise level complexity and cost.

Learn more about our Company and why organizations Choose Conexis VMS.

Whether you are looking to change your VMS solution, or just getting started, we are here to help. Contact Us for a Free No-Obligation Consultation to discuss your workforce challenges (and get immediate actionable insights). See how easy Conexis is to use by taking a quick 2 minute Self-Guided Tour, or Book a Personal Demo Today!