October 26, 2012


It’s prudent to use a Third Party to mitigate risk at all costs when engaging contingent staff.

Especially in the last 36 months the employment landscape has shifted significantly to a much more even split between permanent hiring and very high skilled Contingent Procurement & Supply Chain Management (six months to two years typically in length). IT is a good example (which is mature in its use of contingent staff) where it is routine to use hundreds or even thousands of contractors across many different industries.

It is absolutely true that in the IT world, no company would ever consider contracting IT experts directly – it’s just a no starter and way too complicated and risky. Contingent workers are always, without exception, brought in through a third-party staffing provider so that an arm’s length relationship is maintained between the customer and the contractor. Only in this way can the contingent resource NOT be considered an employee of the client.

This basic concept – never hire a contractor DIRECT – however hasn’t yet seemed to have firmly percolated through to in the Strategic Sourcing, Supply Chain Management & Change Management world. It’s crucial the message gets through though LOUD AND CLEAR.

(Previously mentioned in one of our previous blogs, it’s certainly worth highlighting again.) It’s going to take a huge messy and very expensive law suit like the Microsoft case for example before firms finally get it. At Microsoft, in the US, there was a class action brought on by Call Centre contracted workers who sued for options rights that were passed over and not given to them because they were NOT permanent employees but direct hire contingent/contractors.

The Direct Hire workers won hands down which demonstrated that companies who hire contractors directly put themselves in a very vulnerable position. It cost Microsoft tens of millions which was paid out to these workers.

The IT industry learned early and could have taught other sectors as they continue to come online like Engineering, Change Management, Strategic Sourcing/Procurement and Supply Chain. It’s got the potential to be a rat’s nest.  But an easily avoidable mess because there are some good options out there to protect companies from the Microsoft debacle.

Companies MUST put an arm’s length relationship in place with their direct hire professional contractors. A really loose direct work arrangement set up through accounting to pay for a 100K professional directly on a company’s payroll just won’t cut it. And trust us, it happens all the time and all over the place. Companies are very vulnerable.

Here’s a practical example. If your Strategic Sourcing group of 40 paid out a bonus of 13%, your company would be required to also pay out that same bonus to the 7 direct contractors in the same role. The key is that you are absolutely required to treat both direct contractors and employees the same way – they are entitled to the same rights and privileges. And right now the only form of protection is that your contractors don’t know any better.

If your company is contracting your Supply Chain, Logistics and/or Procurement Professionals directly for fixed term work projects or to augment your core teams, then you are putting your company AT RISK!! Why you ask? You can’t contract away employment rights. A worker cannot give away their employment rights, even in a contract so contractors are entitled to ALL THE LEGAL RIGHTS as if they are one of your full time employees, such as bonuses, termination pay, vacations, benefits, profit sharing and more. The fact that they don’t ask doesn’t mean they don’t have the right to come back at a later stage to get them.

Argentus is a specialist in Workforce Management within the contingent space. We understand how to handle the contract management piece and can work with you to manage through your direct hire challenges. Call us at 416-364-9919. We are also able to source and manage our own Contingent staff in Supply Chain Management with your organization.

Over and Out



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