Take control of your contingent labor by following a few steps.
By Eric S. Williams
Global companies are relying more heavily on contingent labor to control rising labor costs, bridge skills gaps in key geographic areas and high-value disciplines, and respond to fast-moving market conditions with greater agility reports the new study from KellyOCG, Contingent Labor: What C-Level Executives Should Know. According to the 2012 Aberdeen Group survey, the average company’s workforce is 26 percent contingent. Experts even speculate that for some global companies, the contingent workforce may represent a higher percent of the total workforce than traditional employees.
Yet as companies expand their dependence on outsourcing and third-party labor, organizational limitations come into plain view: internal processes and systems are typically not adequate to manage the inherent risks of a contingent labor force, not to mention extract maximum value from this critical resource.
There are several common and consequential problems:
Regulatory and compliance risk. Use of contingent labor exposes companies to serious legal and regulatory risks. Multinational organizations have a difficult time tracking third-party labor through a single ‘choke-point,’ and unwittingly take on high levels of compliance-related risk. A company that misclassifies workers may be subject to audits and penalties, which vary country by country. There appears to be growing interest in the United States—based on a proposed bill amending the Fair Labor Standards as well as newly published rules on worker classification—to further regulate this area.
Access and security. Many companies impose less stringent security standards on contingent labor than on employed labor without considering the consequences. A 2011 survey by HireRight found only 48 percent of companies that use contingent labor conduct background checks on those workers. It also revealed that only twenty-two percent conducted drug testing, and seven percent maintained ongoing drug testing.
Visibility and analytics. Many companies cannot assess the amount of third-party labor supporting their company, where those individuals are located (geographically and by job category), and what company information they can access.
Technology. Without an integrated solution to manage vendors, onboard workers, and track spending, organizations are ill-equipped to make the strategic decisions necessary to deploy contingent labor efficiently and safely.
The commitment among global organizations to solve the problem is growing. Forty-one percent of companies surveyed by Aberdeen Group about workforce issues believe they face increasing risk related to managing contingent labor. And 56 percent reported their top 2012 priority was to improve visibility into all facets of contingent workforce management.
Tackling Areas of Concern
Conducting background checks is a routine occurrence when onboarding employees, but still infrequently imposed on the contingent workforce. Consider a HireRight survey of 1,800 human resources, security, and compliance professionals that found 69 percent of companies discovered resume fabrications among job applicants. The U.S. Chamber of Commerce reports U.S. businesses lose $50 billion each year due to employee theft and fraud.
The lack of scrutiny applied to contingent labor is particularly troubling, says Rob Pickell, former senior vice president of customer solutions for HireRight. “Because all mid-tier and large companies do screen [employees], you actually have this adverse selection process where there are issues [in the contingent labor pool] relative to their fit within many organizations. They’re going to gravitate to temporary jobs,” says Pickell.
Companies should consider:
Who has physical access to your company sites?
• What level of access do workers have and is it appropriate?
• How long should they have access and how do you
• How are access badges controlled? Extinguished
What systems (e.g. computer networks) should these third-party resources have access to?
• How does the company determine who is active?
• How well does the company protect ‘intangible assets’,
such as intellectual property?
• What other assets were issued to third-party resources?
• How was the provisioning process initiated?
• Are those assets being properly tracked? Have they been returned
if the resource is no longer actively supporting your company?
To drive compliance and visibility, companies must first map all entry points of third-party labor. Inventory the entire range of outsourced labor and services, including: temporary staffing, consultants and independent contractors; SOW-based projects; IT service providers; maintenance services; on-site service providers; and outsourced services, delivered on-site.
Next, assess and define the appropriate level of access (e.g. physical access and access to systems) for each category of worker. Remember, while access protocols will vary among different types of worker categories, your organizational processes and procedures for vetting and onboarding new workers should still be consistent across all categories.
Once you’ve defined your access and clearance categories or ‘tiers,’ align these with your supplier base. By doing so, your company can proactively drive third-party resources to the appropriate access level profile associated with the employer of each resource.
Supplier contracts and onboarding requirements should remain consistent within each supplier agreement. Ensure that your company has a consistent and timely audit schedule of its supply-base to ensure the following are in place:
• Clearly defined and consistent screening standards for all contracts with
third-party labor vendors (e.g. criminal background checks, drug testing, employment and education verification).
• Regular vendor audits on samples of workers to ensure your vendors are
consistently screening workers per agreement.
• Indemnification clauses in all staffing, project, and service agreements.
Onboarding contingent workers remains a difficult issue; most companies do not clearly assign which department ‘owns’ the process, and protocols are typically decentralized and non-standard.
Companies should consider:
• How are on boarding compliance requirements managed and
enforced for third-party labor? Are those processes consistent across the organization?
• How do you ensure service providers have adhered to their
contractual obligations regarding background checks and certifications?
• Do you have multiple non-standard onboarding processes?
Do your business managers often scramble to ensure third-party resources are fully onboarded and integrated?
• How widespread is ‘maverick’ buying (i.e. purchasing contingent labor
from vendors that are not qualified, poorly vetted)?
Aberdeen Group reports that best-in-class contingent worker management is not so different from those established by human capital management experts. In both cases, effective talent management includes onboarding (e.g. establishing building access, assigning resources) to improve time to productivity, and off-boarding (e.g. taking inventory of physical property) to protect physical and intangible assets. Reports Aberdeen Group, “ best-in-class organizations are 40 percent more likely than all others to have these capabilities as part of their contingent labor management programs.”
Multinational companies that rely on contingent labor should establish consistent onboarding procedures supported by processes and technology. Begin by benchmarking all current onboarding processes; document the process used for each category of third-party labor. This audit will help you identify gaps and inconsistencies, and the likely cause of each. Is the gap related to technology? Lax processes? Lack of ownership? A combination of many factors?
It’s important to consider how each problem is related to others. For example, a particular location may require a standard set of documents completed and ‘signed off’ for each worker; because there is no single point of entry for contingent labor, dozens of managers are responsible for sign off and compliance is low since no one is auditing compliance. The solution to this ‘gap’ will likely involve a combination of new processes, technology, and greater accountability.
A strong onboarding process will funnel all new contingent workers through a single initiation point, and enforce a standardized set of processes and procedures for all contingent workers, regardless of category of work, pay scale, or geography.
To ensure new processes and procedures are sustainable, map out stakeholders in the onboarding process—including your internal risk mitigation and compliance office—and ask them to participate in the early stages of benchmarking and review.
This team will help to drive and support changes to onboarding policies and procedures, and help to solidify early and ongoing adoption within your enterprise.
Even companies with good intentions are stymied because they lack an integrated technology solution that can align finance, procurement, HR, legal, and regulatory. And without an integrated solution, visibility is typically poor and can have large consequences for risk control and compliance.
Companies should consider:
• What systems are in-place to track selection, onboarding,
• Are processes automated such that non-compliance is i
• What visibility and reporting are you able to provide to ensure security
and compliance/risk management?
Most larger organizations with third-party services and outsourced workforces will ultimately weigh the benefits of technology partners, in particular vendor management systems (VMS). A 2012 survey by Aberdeen Group found VMS solutions are in use 58 percent more often within best-in-class organizations than in all others.
A VMS offers significant efficiencies and risk controls during onboarding and beyond. VMS tools allow users to incorporate a centralized and automated onboarding protocol including user and category specific onboarding checklists. They also have the ability to incorporate elaborate headcount approvals to ensure the appropriate controllers are reviewing and approving headcount and access as needed.
The VMS tool can also integrate with a company’s back-end security system to initiate the badging process; provide visibility/acceptance to security personnel that all onboarding criteria has been met; and enforce access criteria for contingent workers based on their role and location.
A VMS tool is also a critical tool for real-time reporting of security and compliance issues. Using it, management can keep a consistent view of high-risk compliance areas, such as contract compliance, onboarding policies, third-party certifications, safety training, induction compliance, NDAs, security clearance, drug tests, and related background checks.
What’s more, technology solutions give executives better insights into how third-party labor is being used currently and how to extract maximum value going forward. For example, which suppliers are companies using category by category across the enterprise? Which sourcing or supplier strategies are missing?
Ultimately you will need to assign an outsourced compliance support team to ensure that clear processes and protocols, as well as technology to reinforce those elements, are in effect. Define and enforce how compliance will be measured over time (i.e. who ensures audits are conducted and findings acted upon?). Some companies hire a dedicated ‘contingent workforce manager’ to monitor the use of contingent labor and ensure compliance.
Finally, identify automation opportunities. Ensure technology offers, from a visibility standpoint, a fully ‘auditable’ approval process. Visibility should include on-demand access to the full range of required documentation for each category of resource (e.g. drug tests, background checks and signed NDAs) and the ability to visually verify reports were reviewed and signed.
Achieving a Holistic View of Talent
To manage a complex global workforce, more and more companies are applying supply chain management principles to talent management. Why?
If a company waits for labor demand to peak before restocking their labor pool, it misses out on critical opportunities. Yet, workforce planning can only be as accurate as the business plan it’s based on. And these days, most organization’s workforce planning efforts are limited to budgeting and headcount planning.
Organizations must look across the entire workforce—considering fulltime employees and third-party labor—and align with business goals beyond the short- term, tactical needs. This holistic view of talent requires the right team, technology, data, and processes. Organizations willing to invest in this new outlook gain critical agility across global markets.
Eric S. Williams is senior director of global services procurement at KellyOCG. To access the full report, visit www.kellocg.com.