In many large organizations, the contingent workforce is not currently managed by HR. Procurement is most often responsible, and sometimes IT, finance, and other departments. It wasn’t always this way. Historically, HR was responsible for managing the temporary workers who would fill in for vacations, intermittent sick days, or disability-related leaves of absences. Over the last 20 years or so, though, three factors changed the nature of the relationship between HR and the contingent workforce.
- The fear of co-employment. Starting in the 1990s, a number of organizations suffered a series of well-publicized class action lawsuits by its contingent workers related to the issues of co-employment and the misclassification of employees as independent contractors. “Co-employment,” simply defined, means a relationship between two or more employers in which each has actual or potential legal rights and duties with respect to the same employee or group of employees.1 These cases brought co-employment to the attention of the general public and, because most of the risk-bearing aspects of the working relationship were employment-related, HR departments were advised to cease engaging with the contingent workforce on any HR-related issues. To ward off potential co-employment claims from temporary assignment workers, many temporary staffing agencies offered to place their own representatives on the client’s premises to act as the on-site official supervisor of the temporary assignment workers. These on-site staffing offices and other Managed Service Provider (MSP) or master vendor relationship programs took over the HR responsibilities for the temporary assignment workers.
- Temporary help services seen as a supplier issue. At about the same time HR was removing itself from any appearance of acting in the role of the employer with its contingent workforce, the procurement department was undergoing its own professional transformation from a transaction-based, purchase order-focused organization into a strategy-based, sourcing-focused function. With the newest tools from the Supplier Quality Management (SQM) movement to analyze their accounts payable systems, procurement departments focused on spending for temporary help spend, as it was often the single largest spend category in many organizations. While HR was focusing on being a “strategic business partner,” procurement was focusing on “spend under management.” Managing the large contingent workforce spend helped it to meet its own strategic goals.
- Introduction of Vendor Management Systems (VMSs). Vendor Management Systems manage suppliers and focus on markup management, visibility into spend, and cost reduction through consolidated billing. They cater to procurement, IT, and finance functions as their primary customers, not HR. Therefore, VMSs were designed primarily as spend management systems and not talent management systems. Lost in the focus on spend and suppliers, though, was the opportunity to better understand the role of contingent workers and their contribution to the business achieving its strategic objectives.
HR should focus on SOW-based project work teams and independent workers
Companies define and categorize the components of their contingent workforce differently. At Deloitte, we see three main components of the contingent workforce: (1) temporary assignment workers, (2) project work teams covered by Statements of Work (SOWs), and (3) independent workers (including independent contractors, “freelancers,” independent professional consultants, and small-business providers, etc.). Currently, the management of SOW or project-based services typically remains under the control of business executives and functional process owners, while the management of independent workers remains under the control of hiring managers, who may not have headcount but have discretionary funds to hire independent contractors. These two categories of contingent workers often contain the most highly skilled talent working on the organization’s most mission-critical and strategic projects — this is where HR should focus.
HR’s role with SOW-based work and independent workers
The fear of co-employment and the lack of tracking of talent management data on contingent workers have been two impediments to the concept of total workforce management becoming a reality. The fear of co-employment, though, is now being mitigated by differences in the new SOW and independent work itself. The shorter-term nature of the critical projects using SOW and independent workers, and the deliverable-driven nature of SOW-based and independently contracted work tends to remove the necessity of immediate supervision and dictating the “how” of work getting done that is at the heart of co-employment risks.
Well-designed SOW-based work and a more structured approach to the crafting of deliverable-based independent contractor assignments can mitigate both the co-employment and misclassification of independent contractor risks of the past. HR is suited for the task because of its experience designing complex work assignments and creating performance expectations that align with the organization’s strategic goals.
Co-employment will remain an issue, though, if an organization sees contingent workers merely as a less expensive form of labor achieved by avoiding payroll taxes, benefits, and employer-of-record obligations. We believe, though, that contingent workers need to be seen in the larger context of the evolving nature of work, which is driving the use of more contingent and impermanent work arrangements in the future.