Why companies need a purposeful strategy for ‘accidental’ workforces

Since the pandemic, TMT organizations have relied heavily on contingent workers who can present risks and costs. Here’s a new path forward.

In brief

• Many TMT companies turned to non-employees after shedding staff and struggling to fill key roles, raising potential regulatory concerns and strategic shortfalls.
• To avoid penalties, protect IP and lower costs, companies should strive for cross-functional collaboration on a long-term labor blueprint.

Contingent workers are critical to many companies’ ability to function, but at what cost and risk? The continually shapeshifting pandemic has forced many technology, media and telecommunication (TMT) companies to take a hard look at everything related to the nature of work — how they do it and where, and what they are paid. Many are also asking who should do it, finding that their contingent workforces are more substantial than ever, a result of many years of layoffs and hiring freezes.

Without previously defining a purposeful strategy for this non-employee group, companies have struggled to find permanent employees or the budget for longer-term roles. As a result, the make-up of their workforce can appear more accidental than purposeful. It’s not unusual for contingent workers to be 40% to 50% of a TMT organization’s overall headcount. These positions range from administrative roles to some of the most important, left unfilled by permanent workers during the war for top talent.

As businesses scrambled to meet the needs of the moment, many are finding that the costs and risks are mounting. While contingent labor may be easier to hire, they are subject to regulatory complexity, and the level of risk varies by country. In addition to cost concerns, companies are also realizing that they are typically not securing the talent they need, while they are opening the door to theft of their intellectual property (IP) — two pain points that the TMT sector feels more deeply than most other industries.

Below are some tips on how to become more purposeful about your non-employee population — and increase the likelihood that you can source the right skills for the right job, at the right place and price.

1. Understand the regulatory implications

Every country has different rules on contingent workers; in the US, the IRS says that you cannot treat a non-employee like an employee without giving them employee benefits. As the penalties can be steep, it’s imperative to provide guidance to hiring managers so that they are making the right decisions on the types of labor to employ. Many companies use a decision tree or an automated intake tool to answer questions such as:

• Will you be managing and directing this person?

In recent years, many companies have appeared in the news for having run afoul of the employee/employer relationship status. The IRS says that if the company directs where and how work is done, this control indicates a possible employment relationship. If the non-employees are being directed by management at their own company, and are providing outcome-based work, the co-employment risk is lessened. People whose hours or days of work are dictated by a company, and whose services are integrated into business operations or significantly affect business success, are likely to be considered employees.

• Do you need to provide resources for them to do the job?

Contingent workers who perform most of their work using company-provided equipment, tools and materials are more at risk of running afoul of co-employment rules. It is also clear that as contingent workforces have grown, the costs have risen significantly. If you are purposeful about whether to provide resources (such as laptops, email addresses and software licenses) to your contingent workers, you can also cut costs significantly. Lastly, by requesting workers to undergo company-provided training, it could suggest an employment relationship if the company is directing the methods by which work is accomplished.

• How long will they be a non-employee?

A continuous relationship between a company and a worker indicates a possible employment relationship. Further, if they are working only for your organization, and not other companies at the same time, it could be a factor indicating an employment relationship.

Of course, these are just a few of the factors that are relevant in the US. As companies engage contingent workers elsewhere, local country laws should be integrated into the intake approach.

2. Build on your strategy with company-specific factors

With a foundational awareness of the regulations in play, you can build a plan suited for your organization. Ask questions such as:

• What do you want non-employees to do?

Do they focus on the core business functions or the “cool stuff” that differentiates the company? The responsibilities of the latter are often targeted to employees, while other tactical roles can be filled by contingent workers. 

• What types of work do you want to avoid as a company?

Oftentimes, companies decide that they don’t want to be in the business of various administrative functions and will outsource them, including payroll or benefits administration, call centers and facilities management.

• What access do non-employees need to fulfill their roles?

Providing access to IP that they could easily take with them subjects your company to additional risks. If contingent workers don’t need to use certain systems, buildings, floors, or labs, you’ll want to limit their physical and systems access accordingly.

As companies go through this exercise, they must properly categorize the types of non-employees, including projects, managed services, staff augmentation, facilities, temp-to-hire, or others. Businesses can then be purposeful about the non-employee’s length of tenure, whether they get laptops or access to buildings, the contract language and more.

3. Involve all business functions in a purposeful strategy

Don’t let procurement or the hiring managers go at it alone when bringing in non-employees: a broad group of stakeholders have their own needs around contingent workforce engagement, and forming a strategy aligned to the needs of the business requires input from all of them. HR plays a role in managing the talent and figuring out the roles that people play; IT and physical security teams must think through software needs, access privileges and more. Tax and finance, as well as legal and internal audit, focus on compliance and other risk concerns. These functions should all align on opportunities, owners of steps in the process, and root causes of problems that must be addressed.

Getting these cross-functional teams to align toward a common purpose is not always easy, as functions are often siloed. A leading practice is to select certain professionals as champions, especially those who may have worked on such initiatives elsewhere. Engage each stakeholder to share why they should care about this alignment and what they get out of it. This collaboration helps to get broader executive leadership on board, particularly C-suite leaders such as the CFO, CHRO or the chief legal officer. The tone from the top is imperative in setting the urgency.