3 Examples of Contingent Hiring Disasters


With ever-increasing numbers of organizations leveraging all manner of external labor as part of their workforce management strategies, some are learning (the hard way) about the pitfalls that exist for the inexperienced. While contingent workers of all stripes are a boon to companies of all sizes with contingents currently comprising 33% of the overall US workforce (and projected to reach 50% within 4 years) it is important to be aware of the risks. Here are three examples of commonly occurring workforce management actions that lead to disaster, (and advice on how to avoid experiencing them in your operations).

Disaster 1 – Exhibiting Inappropriate Control

If you’re using independent contractors (IC) as a component of your workforce mix, be sure to studiously avoid the provision of direct training! This cannot be overstated; and for the love of Pete, you must not exert control over the work hours of IC resources. Nor should you stipulate where they should work. If they’re able to work on your site (and that’s what you wish) it’s okay if they do. However, once you mandate they be onsite at specific hours, you’re heading for disaster.

Just ask FedEx whose recent independent contractor misclassification case cost them over $400 million. In this case, Fed Ex was classifying drivers as ICs. However, these workers were provided training, counseled on their performance by FedEx, provided FedEx uniforms, and were paid directly by Fed Ex. It was a slam-dunk for the IRS to make the case for IC misclassification.

Even if your resources are not ICs but temporary or contract workers you sourced through a staffing or EOR firm, the training, performance counseling and pay must come from their employer – the staffing firm or EOR provider. Failure to do so leaves your organization vulnerable to fines and penalties.

Disaster 2 – Assuming Non-Employees Aren’t a Liability in Discrimination Suits

Don’t assume that because payrolled or EOR employees are not your staff, your organization off the hook for discrimination suits. Should a contingent worker face discrimination while working within your organization there is no statute of limitations on reporting. Nor is there a limit of liability like there is with an employee.

For example, should one of your full time, female employees encounter discrimination by a male counterpart, there is typically an 18-month reporting requirement and a typical cap of $ 1 million in penalties (although caps levels may vary).  However, it may surprise you to learn that if she is a temporary worker or IC, there is no limit to her reporting period or cap to damages! The aggrieved party could cite discrimination from 3 years ago and receive uncapped damages.

Disaster 3 – Failing to Maintain a Consistent Background Check Policy

A standard consistent policy should be created and applied equally to any worker engaged to complete work on behalf of your organization. This is critical to ensuring your contractors positively represent your organization’s brand and avoid negative publicity. Background checks also ensure other coworkers are safe by reducing the potential for workplace violence through identifying risky candidates before they’re engaged. A solid background check policy also weeds out those with records of criminality, reducing employee theft. As a result of a strong background check policy, the organization will enjoy higher quality workers and the resulting reduction in turn over.

Failure to have such a policy can have disastrous consequences. Consider an organization providing in-home cable TV installation services in the Southwest. They encountered a situation where a contractor, employed by a third-party provider – but representing their brand – murdered a customer in their home. Read the story here. The victim’s family sued the company for the loss of their loved one. Worse than the settlement costs was the irreparable damage the cable TV company suffered to their reputation because of the event.

Avoiding this fate is as simple as establishing a background check policy and auditing regularly to ensure compliance is in place. It is also a best practice to issue requirements for re-testing after a set period of time. Ensure your staffing partners and EOR providers are maintaining adherence to the standards set forth, including worker retesting on a set schedule. It is a good idea to enforce re-testing requirements after any assignment break. Otherwise, enforce re-testing requirements on an annual or biannual basis to ensure something has not changed since the worker was last tested.

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