Hiring Contingent Staff? Know the Risks of Misclassification

November 4, 2014

As we enter into the final months of 2014, we at Argentus are as focused as ever on the growth of contingent staffing as a solution for companies who want to hire excellent supply chain talent for leave coverages, peak workloads, as a way of getting around internal hiring freezes, and a host of other reasons. It’s a growing aspect of our specialised recruiting niche business, and in business generally, so we’re putting a renewed focus on contingent staffing news and issues in our blog coverage!

One huge issue globally of contingent staffing is employee misclassification. We’ve written before about how companies expose themselves to huge legal risks if they incorrectly classify individuals as contractors when their actual job arrangements (hours, level of autonomy of work, etc.) look more like permanent employment. And even though companies know the facts, sort of get they are taking risks, they still continue to do it. The “ostrich syndrome” is alive and well in corporate Canada.

A great article about the subject caught our attention this week, titled “The Big Payback.” It came out of C1W Solutions, a contingent staffing services provider in the United States. This company is focused on oil & gas, but much of what Mr. Sutton mentions about the risks of misclassifying contractors is highly relevant to the areas we service: supply chain, procurement, strategic sourcing, change management and operations.

The article goes into some detail about how, in the United States, a number of companies have been found to be in violation of the Federal Labor Standards Act and been forced to pay hefty penalties because they incorrectly categorized workers as contingent staff.

Fedex for example, had to fork over $319 million for misclassifying drivers – ouch. And a number of smaller oil & gas companies have been forced to pay hundreds of thousands of dollars for misclassifying individuals as contractors when they’re in fact employees.

Contingent staffing is a truly excellent model for companies when deployed correctly (for example the truly safe route to go is hiring through a third party staffing agency that can handle employee onboarding, payrolling and redeployment service, so that they’re the staffing firm’s responsibility). Let’s face it, it is completely unheard of companies to bring on IT or engineering professionals into their employ directly so why then do they continue to allow departments to hire individuals into their organisations with no care for compliance.

And some of the top talent in several fields (like those we represent – supply chain management)are choosing the contract lifestyle. They have made the switch to contingent staffing as a legitimate alternative to permanent employment, for its tax advantages, lifestyle advantages, and opportunities to work on a variety of projects. But simply labeling employees “contractors” to skirt regulation is an irresponsible and risky strategy for companies, and the consequences are huge, as Mr. Sutton describes.

As contingent staffing emerges as a powerful and more fiscally prudent staffing model for companies’ supply chain operations, the temptation to classify full-time employees as contractors does as well. The article outlines how even companies that have accidentally misclassified workers have exposed themselves to huge fines. So when evaluating contingent staffing as a possible hiring model, companies must be aware of the risks involved in this kind of misclassification. So check out the article! And stay tuned for more posts on the Argentus blog in the coming days about contingent staffing.

Permit us at Argentus to assist your organization with the correct workforce planning for contingent/contract staffing.

Over and Out



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