MITIGATING AND MANAGING RISK - Staffing Industry Analysts · face increasing risk related to managing contingent labour. And 59 per cent reported their top 2011 priority was to ‘create
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MITIGATING AND MANAGING RISK
ERIC S. WILLIAMS
CONTINGENT LABOR: WHAT C-LEVEL EXECUTIVES SHOULD KNOW
p4 Introduction
p6 Areas of Key Concern
Access & Security / 6
On-Boarding / 7
Data Visibility / 7
p8 First Steps to Manage Risk
Access & Security / 8
On-Boarding / 10
VendorManagementSystems:KeyConsiderations&Benefits/12
p14 Conclusion
2
CONTENT
3
GLOBAL COMPANIES ARE INCREASING THEIR RELIANCE ON CONTINGENT LABOUR BUT FAILING TO USE THE SAME STANDARDS OF RISK CONTROL APPLIED TO TRADITIONAL WORKERS.ERIC S. WILLIAMS, SENIOR DIRECTOR – GLOBAL SERVICES PROCUREMENT AT KELLYOCG, DESCRIBES THE KEY STEPS NEEDED TO MITIGATE AND MANAGE THIRD-PARTY LABOUR RISK.
INTRODUCTION
4
Global companies are relying more heavily on contingent labour to control rising labour
costs, bridge skills gaps in key geographic areas and high-value disciplines, and respond
to fast-moving market conditions with greater agility. According to a 2011 Aberdeen
Group survey, the average company’s workforce is 22 per cent contingent. Experts even
speculate that for some global companies, the contingent workforce may represent a
higher per cent of the total workforce than traditional employees.
Yet as companies expand their dependence on outsourcing and third party labour,
organisational limitations come into plain view; internal processes and systems are
typically not adequate to manage the inherent risks of a contingent labour force, not to
mention extract maximum value from this critical resource.
Among the most common and consequential problems:
Regulatory & Compliance Risk: Use of contingent labour exposes companies to serious
legal and regulatory risks. Multinational organisations have a difficult time tracking
third party labour through a single ‘choke-point,’ and unwittingly take on high levels of
compliance-related risk. A company that misclassifies workers may be subject to audits
and penalties, which vary country-by-country.
Consider this: Figures from the International Confederation of Private Employment
Agencies (CIETT) show the UK leads Europe with the highest number of temporary
workers—over 1.3 million temps or approximately 5 per cent of the UK workforce.
Companies with highly variable or seasonal demand for workers often rely on contingent
labour, including in some cases a significant number of migrant workers. Employing any
individual who is residing and/or working illegally in the UK is a criminal offence, according
to the Immigration, Asylum and Nationality Act 2006—a ruling that imposes serious civil
penalties for organisations that fall afoul. Conducting appropriate background screening—
including electronic identity validation—is critically important for organisations to ensure
compliance.
ERIC S. WILLIAMS
Visibility/Analytics: Many companies cannot assess the amount of third party labour
supporting their company, where those individuals are located (geographically and by job
category) and what they have access to.
Technology: Without an integrated solution to manage vendors, ‘on-board’ workers and
track spending, organisations are ill-equipped to make the strategic decisions necessary
to deploy contingent labour efficiently and safely.
The commitment among global organisations to solve the problem is growing. Forty-one
per cent of companies surveyed by Aberdeen Group about workforce issues believe they
face increasing risk related to managing contingent labour. And 59 per cent reported
their top 2011 priority was to ‘create more visibility into the entire talent pool.”Staffing
Industry Analysts report, “MSP Structures in Europe.” June 2012.
5
ACHIEVING A HOLISTIC VIEW OF TALENT
To manage a complex global workforce, more and more companies are applying supply chain management principles to talent management. Why?
If a company waits for labour demand to peak before restocking their labour pool, it misses out on critical opportunities. Yet, workforce planning can only be as accurate as the business plan it’s based on. And these days, most organisation’s workforce planning efforts are limited to budgeting and headcount planning.
Organisations must look across the entire workforce—considering full-time employees and third-party labour—and align with business goals beyond the short-term, tactical needs. This holistic view of talent requires the right team, technology, data and processes; organisations willing to invest in this new outlook gain critical agility across global markets.
To learn more: www.kellyocg.com/
Knowledge/White_Papers/
A_Holistic_View_of_Talent/
One of the key risks faced in Europe
is contractor re-classification. It is
essential when hiring temporary
labour to establish whether only
the supplying agency faces tax and
social security liability, or whether
liability is shared with the end
user. In some markets such as the
Netherlands, there are chain law
consequences to be wary of. In
other markets such as Switzerland,
tax and social security enforcement
varies from region to region.”
Staffing Industry Analysts
report, “MSP Structures in
Europe.” June 2012.
6
AREAS OF KEY CONCERN
ACCESS & SECURITY
Conducting background checks varies from country to country within Europe.
Depending on the market, there can be strict laws enforcing against the use of
background checks. Legislation in certain markets such as France and Germany can
make it difficult for employees to perform background checks as they would normally in
other European countries. These legislative limitations can expose employers to certain
risks. Companies with multi-national operations around Europe need to rely heavily
on partner firms or legal departments to guide them in the hiring of their temporary
workforce to ensure they do not fall foul of local law.
Companies must ask:
• Who has physical access to your company sites?
– What level of access do workers have and is it appropriate?
– How long should they have access and how do you ‘de-activate’ access?
– How are access badges controlled? Extinguished upon termination?
• What systems (e.g. computer networks) should these third party resources have access
to?
– How does the company determine who is active?
– How well does the company protect ‘intangible assets’, such as intellectual
property?
• What other assets were issued to third party resources?
– How was the provisioning process initiated?
– Are those assets being properly tracked? Have they been returned if the resource is
no longer actively supporting your company?
COMPANIES PERFORMING BACKGROUND
CHECKS
on contingent
workers: 66%
on employees: 92%
7
ON-BOARDING
Onboarding contingent workers remains a difficult issue; most companies do not clearly
assign which department ‘owns’ the process, and protocols are typically decentralised
and non-standard.
Companies must ask:
• How are on-boarding compliance requirements managed and enforced for third-
party labor? Are those processes consistent across the organization?
• How do you ensure service providers have adhered to their contractual obligations
regarding background checks and certifications?
• Do you have multiple non-standard on-boarding processes? Do your business
managers often scramble to ensure third party resources are fully on-boarded and
integrated?
• How widespread is ‘maverick’ buying (i.e. purchasing contingent labor from vendors
that are not qualified, poorly vetted)?
DATA VISIBILITY
Even companies with good intentions are stymied because they lack an integrated
technology solution that can align finance, procurement, HR, legal and regulatory.
And without an integrated solution, visibility is typically poor and can have large
consequences for risk control and compliance.
Companies must ask:
• What systems are in-place to track selection, on-boarding and performance?
• Are processes automated such that non-compliance is immediately visible?
• What visibility and reporting are you able to provide to ensure (a) security and (b)
compliance/risk management?
POOR CONTROL OF ACCESS BADGES REPRESENTS CRITICAL RISK
A utility company used a large
number of IT contractors, issuing
1,200 active security badges to
temporary workers. Over time,
management discovered only 400
active contractors were on duty,
meaning 800 badges were issued to
individuals no longer engaged by
the company. These workers had no
current relationship to the company,
but had physical access to the site
through their badges.
FIRST STEPS TO MANAGE RISK
ACCESS & SECURITY
To drive compliance and visibility, companies must first map all entry points of third
party labor. Inventory the entire range of outsourced labor and services, including,
but not limited to:
• Temporary staffing
• Consultants and independent contractors
• SOW-based projects
• IT service providers
• Maintenance services
• On-site service providers (e.g. cafeteria, mailroom)
• Outsourced services, delivered on-site
– Business process outsourcing
– Clinical trial outsourcing
– Finance/Accounting outsourcing
– Legal outsourcing
– Recruitment process outsourcing
Next, assess and define the appropriate level of access (e.g. physical access and
access to systems) for each category of worker. Remember, while access protocols will
vary among different types of worker categories, your organizational processes and
procedures for vetting and onboarding new workers should still be consistent across all
categories.
8
TENURE VISIBILITYOnce you’ve defined your access and clearance categories or ‘tiers,’ align these
with your supplier-base. By doing so, your company can proactively drive third party
resources to the appropriate access level profile associated with the employer of each
resource.
Supplier contracts and on-boarding requirements should remain consistent within
each supplier agreement. Ensure that your company has a consistent and timely audit
schedule of its supply-base to ensure the following are in place:
• Clearly defined and consistent screening standards for all contracts with 3rd party
labor vendors (e.g. criminal background checks, drug testing, employment and
education verification).
• Regular vendor audits on samples of workers to ensure your vendors are consistently
screening workers per agreement.
• Indemnification clauses in all staffing, project, and service agreements.
– Example: A worker claiming a violation of labor laws—such as not receiving
overtime—may hold both the staffing agency and the client company responsible
due to ‘co-employment.’ A well-executed contract with a staffing vendor can
ensure the vendor assumes all legal expenses in such a case.
9
Do you track contingent worker
tenure? Tenure is a common area of
non-compliance across the globe;
ideally, technology should allow
you to automate tenure tracking
and flag workers approaching a
tenure limit for those categories
of third party labor that pose the
greatest risk of co-employment.
10
FIRST STEPS TO MANAGE RISK
ON-BOARDING
Aberdeen Group reports that best-in-class contingent worker management is not so
different from those established by human capital management experts. In both cases,
effective talent management includes on-boarding (e.g. establishing building access,
assigning resources) to improve time-to-productivity, and ‘off-boarding’ (e.g. taking
inventory of physical property) to protect physical and intangible assets. Says Aberdeen
Group, “best-in-class organisations are 40 per cent more likely than all others to have
these capabilities as part of their contingent labour management programmes.”
Multinational companies that rely on contingent labour should establish consistent
onboarding procedures supported by processes and technology, whilst being aware
of the differences in law that exist throughout Europe. Begin by benchmarking all
current onboarding processes; document the process used for each category of third-
party labour. This audit will help you identify gaps and inconsistencies, and the likely
cause of each. Is the gap related to technology? Lax processes? Lack of ownership? A
combination of many factors?
It’s important to consider how each problem is related to others. For example, a
particular location may require a standard set of documents completed and ‘signed off’
for each worker; because there is no single point of entry for contingent labour, dozens
of managers are responsible for sign off and compliance is low because no one is
auditing compliance. The solution to this ‘gap’ will likely involve a combination of new
processes, technology, and greater accountability.
A strong on-boarding process will funnel all new contingent workers through a single
initiation point, and enforce a standardised set of processes and procedures for all
contingent workers, regardless of category of work, pay scale, or geography.
To ensure new processes and procedures are sustainable, map out stakeholders in the
on-boarding process—including your internal risk mitigation and compliance office—
and ask them to participate in the early stages of benchmarking and review. This team
will help to drive & support changes to onboarding policies and procedures, and help
to solidify early and ongoing adoption within your enterprise.
Ultimately you will need to assign an outsourced compliance support team to ensure
that clear processes and protocols, as well as technology to reinforce those elements,
are in effect. Define and enforce how compliance will be measured over time (i.e.
who ensures audits are conducted and findings acted upon?). Some companies hire a
dedicated ‘contingent workforce manager’ to monitor the use of contingent labour and
ensure compliance.
Finally, identify automation opportunities. Ensure technology offers, from a visibility
standpoint, a fully ‘auditable’ approval process. Visibility should include on-demand
access to the full range of required documentation for each category of resource (e.g.
background checks and signed NDAs) and the ability to visually verify reports were
reviewed and signed.
11
A GLOBAL PERSPECTIVE ON RISK
Multinational operations must ensure they
follow country-specific laws and regulations
when contracting, onboarding, and
dismissing contingent labour. As an example
of how diverse these country-by-country
regulations can be, consider these European
cases.
• According to Staffing Industry Analysts,
German companies instituting works
councils must count temporary staff
working on site. A March 2013 report
from Staffing Industry Analysts explains,
“The size of the works council is
dependent on the number of employees
working at a company. In this sense,
agency workers may now be classified
as “regular employees.” The ruling will
impact the formation of works councils
as employee representatives could boost
the size of their councils in the future.
• In the UK, says the same report, Agency
Workers Regulations (AWR) will give
employed agency workers with one
year or more in tenure the right to
request a flexible work schedule. Staffing
Industry Analysts explains, “Agency
workers will be entitled to make such
requests only after returning from unpaid
parental leave. Employers (in this case
the employment agency) will have to
seriously consider any application for
flexible working and can only reject it if
there are legitimate business reasons for
doing so.”
A vendor management system (VMS) can
track these country-by-country idiosyncrasies
and flag high-risk hiring and retention
practices to ensure strict adherence to local
laws.
12
FIRST STEPS TO MANAGE RISK
VENDOR MANAGEMENT SYSTEMS: KEY CONSIDERATIONS & BENEFITS
Most larger organisations with third party services and outsourced workforces will
ultimately weigh the benefits of technology partners, in particular VMS tools. A 2012
survey by Aberdeen Group found VMS solutions in use 58 per cent more often within
best-in-class organisations than in all others.
A VMS offers significant efficiencies and risk controls during onboarding and beyond.
VMS tools allow users to incorporate a centralised and automated on-boarding
protocol including user and category specific on-boarding checklists. They also have
the ability to incorporate elaborate headcount approvals to ensure the appropriate
controllers are reviewing and approving headcount and access as needed.
The VMS tool can also integrate with a company’s back-end security system to:
• Initiate the badging process; and
• Provide visibility/acceptance to security personnel that all on-boarding criteria
has been met.
• Enforce access criteria for contingent workers based on their role and location.
For example:
– Defined physical access parameters integrated with the company’s access
badges,
– Computer network access parameters integrated with IT;
– Provisioning (e.g. laptops, workspace) integrated with procurement and facilities.
13
A VMS tool is also a critical tool for real-time reporting of security and compliance
issues. Using it, management can keep a consistent view of high-risk compliance
areas, such as contract compliance, on-boarding policies, third party certifications,
safety training, induction compliance, NDAs, security clearance, drug tests and related
background checks.
What’s more, technology solutions give executives better insights into how third
party labor is being used currently and how to extract maximum value going forward.
For example, which suppliers are companies using category-by-category across the
enterprise? Which sourcing or supplier strategies are missing?
Aberdeen Group research found
that similar to VMS solutions,
Managed Service Providers
(MSPs) are considered crucial for
managing contract talent. MSP and
VMS solutions remain the top two
offerings currently used by Best-in-
Class organisations.
14
Companies across the globe continue to expand their utilisation of third party labour and
outsourced services. With greater utilisation rates, companies must pay close attention to
risk mitigation and control in order to prevent loss of intellectual property and assets, and
ensure compliance to ever-increasing government regulatory requirements.
Centralisation, standardisation and automation are the three key components to a
successful identity management solution—and organizations ultimately need to decide
whether it makes sense to in-source or outsource the management of these processes.
Either way, taking the necessary steps to drive all third party labour categories to a single
on-boarding solution will help ensure policy and regulatory compliance, as well as contain
these resource categories to their appropriate and relevant access levels.
CONCLUSION
REFERENCES
More Employers Take on Temps, but Planning is Paramount. Workforce.com. 5. Juni 2011.
Four Tips for Contingent Workforce Background Screening. HireRight 16. Januar 2012.
US Cracks Down on ‘Contractors’ as Tax Dodge. New York Times. 17. Februar 2010. (http://www.nytimes.com/2010/02/18/business/18workers.html?pagewanted=all)
Contingent Labor Management. May 2011. Aberdeen Group.
The Giant Security Hole in Today’s Workforce. TM magazine. 26. Juli 2010.
Case from NextSource article provided by Kelly. Full citation, including date, unknown.
Screening Your Contingent Workforce: What HR Professionals Should Know. EmployeeScreenIQ.
“More Employers Take on Temps, but Planning is Paramount” Workforce.com. 5. Juni 2011.
Contingent Workforce Management: The Next-Generation Guidebook to Managing the Modern Contingent Workforce Umbrella.
15
ABOUT THE AUTHOR
ERIC S. WILLIAMS is Senior Director, Global Product Lead for Services Procurement Solutions
with Kelly Services. With over sixteen years in the outsourcing arena, he is a seasoned
procurement and consulting professional with a background in solution design, change
management, global program management and project management. Eric is often consulted
for his thought leadership on ways to lower costs, improve sourcing strategies, and deliver
bottom-line value solutions that optimize the way organizations source for services
and talent commodities.
ABOUT KELLYOCG
KellyOCG® is the Outsourcing and Consulting Group of workforce solutions provider, Kelly
Services, Inc. KellyOCG is a global leader in innovative talent management solutions in the areas
of Recruitment Process Outsourcing (RPO), Business Process Outsourcing (BPO), Contingent
Workforce Outsourcing (CWO), including Independent Contractor Solutions, Human Resources
Consulting, Career Transition and Executive Coaching, and Executive Search.
KellyOCG was named to the International Association of Outsourcing
Professionals® 2012 Global Outsourcing 100® list, an annual ranking of the
world’s best outsourcing service providers and advisors.
Further information about KellyOCG may be found at kellyocg.com.
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