How to mitigate co-employment risk when engaging contingent workers

Many companies ask “Can I contract out co-employment risk?

This question frequently arises as companies start to establish their contingent workforce programs. Unfortunately, completely avoiding co-employment risk is almost unachievable. However, there are strategies to reduce and minimise this risk to your business.

What is co-employment risk?

The risk of co-employment naturally exists in any working arrangement involving a non-employee worker who performs tasks for a manager or organisation.

Establishing and implementing best practices for managing contingent workers in-house can be difficult. The regulatory environment is constantly changing and evolving, the makeup of our workforce is rapidly transforming, and we are confronted with an increasingly volatile economic climate.

Enlisting a proficient and seasoned provider of workforce solutions can enhance co-employment risk management. Additionally, an external partner can grant organisations access to exceptionally skilled, top-tier talent.

Common risks associated with co-employment

Frequently, organisations reach a critical point where they require timely access to the appropriate talent at a reasonable cost, by accessing the expanding contingent worker segment.

Yet, the absence of established procedures for engaging contingent workers can inundate HR and Procurement teams. In an effort to address this challenge, teams often resort to outright prohibiting the use of independent contractors. However, such a blanket ban on subcontractor-like arrangements frequently results in the loss of highly valuable talent.

Paradoxically, numerous instances of co-employment emerge when independent contracts are prohibited. Misclassified workers may receive compensation through various loopholes within an organisation. For instance, they might:

Submit an invoice for payment.
Generate a Statement of Work (SOW).
Detail the time and materials required within the SOW.

Additional co-employment risks include misclassification of independent contractors, exemption status, and compliance with various regulations.

Manage co-employment risk by choosing the right provider

The initial stride toward risk mitigation involves selecting a forward-thinking Managed Service Programme (MSP) provider. Collaborators like Hays' Enterprise Solutions act as a bridge between an organisation and its non-employee workforce. Seasoned MSP partners assist by:

Offering extensive industry expertise and best practices.
Curtailing unauthorized expenditure.
Ensuring compliance.
Facilitating access to top-tier talent, irrespective of worker classification, precisely when and where needed.

Certain MSP providers extend their oversight to include workers obtained from online staffing solutions, marketplaces, and direct sourcing channels.

Invest in Contractor Management Office services

A Contractor Management Office (CMO) service stands as a vital pillar within a contingent workforce program, typically woven into an MSP contract. This supplementary assistance encompasses the capacity to categorise and enlist non-agency acquired workers, alongside providing payroll support.

In second and third-generation programs, the CMO may expand to encompass vendor qualification and sub-vendor engagement services as well.

Avoid co-employment risk by categorising employees

To mitigate risk in a contingent management program, it's essential to establish a distinct boundary between your full-time employees and the non-employee workers engaged in organisational projects.

Collaborating with a contingent workforce management provider can effectively reduce risk. They'll guarantee that:

Policies are established, monitored, and enforced.
All non-employee workers are engaged in compliance, whether as qualified independent contractors or as payroll workers through a supplier.
All suppliers and companies can maintain focus on their daily operations.

Let's be clear: entrusting a supplier to provide payroll services doesn't eliminate the risks associated with worker classification or co-employment. Risks persist if the supplier makes any errors. That's why it's crucial to have a competent and seasoned partner.

Eliminate co-employment risk

A proficient partner will aid in minimising co-employment risk, fostering an efficient and supportive environment where you evaluate supplier partners for their compliance and ability to deliver top talent.

Contact the Enterprise Solutions team at Hays today for further information. You might also find our guidance on offboarding contractors of interest.