keeping(pace(with(worker(misclassiﬁcabons(in(the(gig( economy · ccwp continuing education and...

©2016 by Crain Communica2ons Inc. All rights reserved.

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Presented by: Stephen M. Clancy, CCWP, Director, Con2ngent Workforce Strategies, Knowledge and Research, Staffing Industry Analysts Fiona Coombe, Director, Legal & Regulatory Research Staffing Industry Analysts Monica Lucero, VP, Strategic Account Development MBO Partners

Keeping Pace with Worker MisclassificaBons in the Gig Economy

June 9, 2016 10 am PDT

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Our Speakers Today…

Stephen M. Clancy, CCWP, Director Con2ngent Workforce Strategies, Knowledge and Research Staffing Industry Analysts Fiona Coombe, Director Legal & Regulatory Research Staffing Industry Analysts Monica Lucero VP, Strategic Account Development MBO Partners


AGENDA •  Introduc2on to the emerging, Gig-‐Economy,

independent contractor (IC), phenomenon

•  Current IC regulatory perspec2ve

•  Strategies for produc2vely leverage the IC Gig-‐Economy trends

•  Q&A

A Gig-‐Economy Snapshot

Source: Research conducted by Burson-‐Marsteller and the Aspen Ins2tute Future of Work Ini2a2ve published in Time Magazine, January 2016…” Here's How Big the Gig Economy Really Is “

90 million people — across

the U.S engaged the

Gig Economy

*********

45 million people — have

engaged work in the G

ig Economy

Work Moving Toward “Human Cloud” Model

Degree of value chain digiBzaBon/ pladorm integraBon

Degree of work conBngency/decomposiBon

Very Mature: Direct Perm Employment Models

Maturing: Online Staffing Plauorm Models

Mature: Staffing Supply Chain Models

Emerging: “Other Human Cloud Models”

From “Supply Chain” to “Human Cloud” Models

Human Cloud

Global Buyers Global Con/ngents

Pla3orm

Buyer/Client Suppliers Con/ngents

Crowdsourcing, Online Outsourcing, TaaS Pla3orms

VMS Job Boards Socials Nets

Poll 1

Have you par2cipated in the Gig Economy in the last 12 months? □ Yes □ No

Poll 2

What is your organiza2on’s management policy for independent contractors (IC)?

Mul/ple Choice Answers (Pick One) □ No Limits □ No formal policy for managing ICs □ Responsibility of the engaging manager □ Formal IC management policies established □ No use of ICs allowed

35%

33%

15%

9%

23%

15%

-‐11%

38%

Net Increase

Worker ClassificaBon Type Growth as a Share of Workforce

America’s Independents: A Rising Economic Force

15

Occasional Independents work irregularly and thus do not

have an “average” work week

Full-‐Timer Independents work 15 or more hours per week in

an average work week

Part-‐Timer Independents work less than 15 hours per week in an average work week

Occasional 10.5 million

Part-‐Time 12.4 million

Full Time 16.9 million

Nearly 40 Million Strong

Source: MBO Partners 2016 State of Independence in America

16

Source: MBO Partners 2016 State of Independence in America

Top reasons Independents work solo

63% 59% 41% Control over my schedule

Increased flexibility

Control over my career

Who are these people?

• Highly Skilled • Accountants, Lawyers, Data Scien2sts, Financial Analysts, Programmers, Engineers, Writer, Re/rees/Alumni, etc..

Service Professionals

• General Skilled • Uber Drivers, Piece Workers, Home Office Workers, Landscapers, House Painters, Laborers, Re/rees/Alumni, etc…

Task Providers

New Hampshire and Massachusetts

sign MOU

Memorandum of Understanding with 11 states,

IRS, DOL

2012 federal budget includes $23M for

“Misclassification

Initiative”

California Senate Bill 459 goes into effect

Solicitor of Labor indicates that misclassified labor is one of

agency’s top priorities

DOL FLSA suits reach all-time high in 2012

Payroll Fraud Prevention Act of 2013 introduced in

U.S. Senate

Iowa signs MOU

New York signs MOU IRS re-starts Questionable

Employment Tax Practices program

Affordable Care Act goes into effect

Payroll Fraud Prevention Act of 2014 introduced in Congress

Executive order adds compliance requirements for federal contractors

Alabama signs MOU

Wyoming signs MOU

Florida signs MOU

Louisiana signs MOU

Wisconsin signs MOU

California AB-1897 passed

2016 Fed Budget focuses on IC misclassification

NY JETF Audit 12,000 Audits 133K Misclassified Workers

Rhode Island signs MOU

Independents Compliance Layers Are Increasing

CA finds Uber driver to be employee

18

Alaska signs MOU (25th state)

Idaho signs MOU

Texas signs MOU

DOL Directive Dr. Weil

Administrator’s Interpretation No.

2015-1

Source: MBO Partners

Current IC Regulatory PerspecBve

20

A Central Conflict Underscores Our Mission’s Importance

The growth of workforce independence con2nues to clash with escala2ng regulatory changes… crea2ng a “perfect storm” of confusion and frustra2on among workers, companies, and government.

“ Source: MBO Partners

Gig-‐Economy MisclassificaBon Suits

§  Uber se\led $100m class ac2on lawsuit in California & Massachuse\s: allowing 2ps & permi{ng drivers to refuse rides, in return for IC classifica2on

§  LyQ se\led for $12.25m to cover expenses, unpaid 2ps and over2me but awaits approval of the California court

§  Fedex Ground se\led a claim for $228m in 2015 for reimbursement of expenses, rest breaks, over2me, deduc2ons in pay and termina2on pay

MisclassificaBon

§  IC misclassifica2on cases cut across virtually all industries: “Hit List” incl. janitorial services; construc2on; nursing; staffing; internet services; transporta2on; security; hotel & catering; oil and gas; landscaping; and car/limousine services (www.Forbes.com)

§  NLRB Regional Director in California has issued a complaint against a transporta2on company alleging they are depriving drivers from the protec2ons of the Na2onal Labor Rela2ons Act

IC ClassificaBon

$10M set for 2017 Federal budget combat IC misuse

Federal target lists

Most Enterprises lack sustainable IC soluBons

Although the misuse of independent contractor classifica2on has been a priority of the U.S. Labor Department, U.S. Wage and Hour Administrator, Dr. David Weil, stated earlier this year that “the use of independent contractors [is] not inherently illegal, . . . [and] legi/mate independent contractors are an important part of our economy.” Likewise, the Secretary of Labor, Thomas Perez, has recently stated, “there’s an important place for independent contractors, but I also believe that there’s ample evidence that that’s been abused.” Forbes/Washington June 2015

“


IRS Common Law Control Test

•  Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?

•  Financial: Are the business aspects of the worker’s job controlled by the payer (e.g., how worker is paid, whether expenses are reimbursed, who provides tools/supplies)?

•  Type of RelaBonship: Are there wri\en contracts or employee type benefits (e.g., pension plan, insurance, vaca2on pay, etc.)? Will the rela2onship con2nue and is the work performed a key aspect of the business?

Economic RealiBes Test (FLSA) •  Extent to which the worker’s services are integral to the

principal’s business •  The permanency of the rela2onship •  The worker’s and principal’s investment in facili2es and

equipment •  The nature and degree of control by the principal •  The opportuni2es for the worker to make a profit/loss •  The worker’s skill and ini2a2ve

U.S. Department of Labor Fact Sheet #13: Employment Rela/onship Under the Fair Labor Standards Act (FLSA) Rev. 2014

PotenBal Consequences of MisclassificaBon

•  Tax, interest and penal2es •  Disqualifica2on of benefit

plans

•  FLSA and employment law liabili2es

•  State unemployment

•  Benefits eligibility •  Immigra2on non-‐compliance

Confiden2al and Proprietary. ©2016 by Crain Communica2ons Inc. All rights reserved.

Poll 3

How many of you have experienced or are aware of a workforce, related government audit ac2on?

□ Yes, I am aware □ No, I am not aware

New Hampshire and Massachusetts

sign MOU

Memorandum of Understanding with 11 states,

IRS, DOL

2012 federal budget includes $23M for

“Misclassification

Initiative”

California Senate Bill 459 goes into effect

Solicitor of Labor indicates that misclassified labor is one of

agency’s top priorities

DOL FLSA suits reach all-time high in 2012

Payroll Fraud Prevention Act of 2013 introduced in

U.S. Senate

Iowa signs MOU

New York signs MOU IRS re-starts Questionable

Employment Tax Practices program

Affordable Care Act goes into effect

Payroll Fraud Prevention Act of 2014 introduced in Congress

Executive order adds compliance requirements for federal contractors

Alabama signs MOU

Wyoming signs MOU

Florida signs MOU

Louisiana signs MOU

Wisconsin signs MOU

California AB-1897 passed

2016 Fed Budget focuses on IC misclassification

NY JETF Audit 12,000 Audits 133K Misclassified Workers

Rhode Island signs MOU

Independents Compliance Layers Are Increasing

CA finds Uber driver to be employee

28

Alaska signs MOU (25th state)

Idaho signs MOU

Texas signs MOU

DOL Directive Dr. Weil

Administrator’s Interpretation No.

2015-1


29

A Need For Some Marketplace Clarity?

Poll 4 How many of your organiza2ons have conducted a formal self-‐audit to determine if independent contractors are properly classified? Mul/ple Choice Answers (Pick One) □ Have not conducted one yet…. □ Once, a couple of years ago □ We audit independent contractors annually □ Not sure if we have ever formally conducted one

IC ClassificaBon Risk Management Steps •  Self-‐audit to determine

if workers are properly classified

•  Determine if your classifica2on system is adequate

•  Modify your classifica2on system

•  Examine your benefit plans

•  Consider IC compliance vendors

Confiden2al and Proprietary. ©2016 by Crain Communica2ons Inc. All rights reserved.

Strategies for ProducBvely Leveraging the IC Gig-‐Economy Phenomenon

Independents ReporBng Annual Earnings of $100k+

Grew 51%

High Earning Independents Con2nue to Grow and Increasing as a Percentage of All Independents

3.01 million

0

2

4

2011 2016

Millions

A 7.6% CAGR vs an overall workforce growth rate of less than 2% during the

same period

1.95 million

12.5%

17.9%

Comprehensive Solu2on Strategy Cycle

SOURCE QUALIFY ENGAGE SUPPORT INSURE PAY

•  All Independent Professionals routed to MBO (Direct or 3rd Party Sourced)

•  Ensured compliance & indemnifica2on

•  Onboard Associates through the right-‐fit engagement services

•  Dedicated Program Management Team offering high-‐touch service to Managers & Associates

•  Business insurance coverage in-‐place with op2onal benefits

•  Single-‐Invoice/Managed Associate Payroll

Landscape of Marketplace Solu2ons

Hourly Payrollees Based on Pay Rate

Self-‐Employed Workers / Independent Businesses Bill Rate or Fixed Fee Project based Service

Vendor Services Payroll Services

Qualified Business Managed with MBO OperaBng System

MBO’s Signature High Touch Service Supports All Contractors

Corporate Services Business Services

MBO Contractor Engagement Services

36

Reduce Risk IC engagement experts = less reclassifica2on risk

Cut Costs Sourcing directly

avoids staffing mark-‐ups

Expand Reach Draw from wider collec2on

of proven candidates

Save Time Faster sourcing + faster

onboarding = on-‐2me projects

Curate Talent Your private talent pool

evolves with your company

Advantages Enterprise

Build Income No up-‐front costs and access to new projects

Find Projects Quickly Advanced search tool shows only suitable opportuni2es

Get a Leg Up See project opportuni2es before they go public

Engage Safely No risk of being reclassified

as an employee

Stay on Course Engage through services

designed for self-‐employed pros

Independent Workers

Poll 5

Is your company planning to use a Private Talent Network solu2on?

□ Ac2vely using one already □ Researching and looking to use one in the next 3-‐9 months □ Not planning on it

3 © 2015 MBO Partners, Inc. | mbopartners.comNOT FOR DISTRIBUTION

Second, many skilled professionals want indepen-dence. These workers are becoming more comfortable turning to independent work, especially the growing number who are looking for greater work/life flexibili-ty, autonomy and career control. These highly talented professionals are realizing they are able to go off on their own and make as much or even more money going independent—and they’re doing it in increasingly larger numbers.

Last, these professionals are in demand and they know it. More than four out of five (83%) of these talented professionals say they have either a lot of choice (48%) or some choice (35%) when deciding what projects to work on and with whom to work. Only 17% felt they needed to take what was offered in terms of work assignments.

Attracting, retaining and managing this new breed of highly skilled workers will require new ways of thinking about corporate talent management and the role external talent plays. To remain competitive, corporations will need to become the “Client of

Choice” for high-end external talent. This requires knowing what makes independent professionals ‘tick’ and understanding what they’re looking for in a client relationship.

This research provides a snapshot of independent service professionals and how they define their engagement with corporate clients. We will also look at factors and work dynamics that make a client become a Client of Choice in the eyes of the independent service professional.

MEET THE INDEPENDENT SERVICE PROFESSIONAL Independents providing services to businesses account for just over one-third (35.6%) of actively engaged (15+ hours/week) independents in the U.S. The other two-thirds provide goods and services to consumers or goods to businesses. For the scope of this report, we focus on independent service professionals serving businesses only.

Meet the Independent Service Professional.

Hours

75% work more than 30 hours each week.

Education

84% attended some college.

Satisfaction

80% vote 7 out of 10 on a 10-point satisfaction

scale.

Age

34% are Millennials.

Becoming a Client of Choice: Beyond Risk Mi2ga2on


talent marketplaces could add $2.7 trillion, or 2 percent, to global GDP and increase employment by 72 million full-time-equivalent positions.

Research conducted by MBO Partners reinforces these findings. The MBO Partners 2015 State of Independence in America study found that 6.4 million Americans report that they provide professional services to corporations on a contingent or contract basis.

Of the Independent Service Professionals identified, 2 million reported earning $75,000 ore more last year, with nearly 70% of that population earning $100,000 or more.

It is this very population that employers are struggling to attract and retain, fighting expensive “talent wars” for top performing independents and still battling issues at the same time of proper classification and treatment.

Not only is this group large—by way of comparison,

this is substantially more than the roughly 4 million Americans who work in the automotive industry, including those working in car dealerships and automotive parts retailing—it’s also growing. The number of independent service professionals serving businesses has been growing at about three times the rate of overall employment over the past 5 years.

COMPETITIVE LANDSCAPEThis large and growing pool of skilled, often distinctly specialized and highly compensated contingent workers have also become a critical part of virtually every company’s talent pool. Once used primarily in clerical positions, contingent workers are increasingly trusted by corporations to do mission-critical work that in the past would have been done by traditional employees. Independent service professionals can be found in key positions in all functional areas, including hard-to-find skill areas such as IT, marketing and R&D.

Two broad shifts are driving the growing corporate use of highly skilled contingent workers. First, companies increasingly need a flexible workforce to compete on a global scale. Businesses are turning to independent workers in growing numbers to meet their needs for agility and flexibility due to an increasingly volatile, complex, competitive, and always-changing global economy.

The number of independent service professionals serving businesses has been growing at about three times the rate

of overall employment over the past 5 years.

2011

2012

2013

2014

2015

4.54.8

5.45.9

6.4

Number of U.S. Independent Works Providing Services to Business (in millions)

“ Independent service professionals can be found in key positions in all functional areas, including hard-to-find skill areas such as IT, marketing and R&D.


The gig economy—where people work on a project or contract basis instead of holding down jobs as traditional full-time employees—has become a major topic of discussion.

Presidential candidates have weighed in on the pluses and minuses of “gig” or contingent work; lawsuits against on-demand work platform economy companies like Uber and Handy are widely covered in the press; and yet investors continue to pour money into startups with valuations in the billions and total full-time headcounts in the teens.

For the most part, the discussions and debates are focused on the “race to the bottom,” highlighting startups that take a marketplace approach to consumer services, ranging from transportation to meal delivery, dog walking and more. But what about the Independent Service Professional, those high-earning independents that include independent contractors, statement-of-work-based labor and freelancers who provide services to corporations on a weekly basis?

Recent research from a variety of sources illustrates the growing use of independent service professionals in corporate settings.

• Supply management firm Ardent Partners reported in their 2015-2016 State of Contingent Workforce Management study reports that nearly 35 percent

BECOMING THE CLIENT OF CHOICE FOR THE INCREASINGLY STRATEGIC CONTINGENT WORKFORCE

of the average company’s workforce fell into the contingent or contract-based category and that this percentage would grow to 45% by 2017.

• Deloitte Consulting’s Global Human Capital Trends 2015 study concurs, reporting that more than half (51 percent) of corporate HR respondents said their need for contingent workers will keep growing over the next three to five years.

• McKinsey Global Institute’s Connecting Talent With Opportunity in the Digital Age study forecasts that the growing use of online contingent

Over the past 5 years, the number of Independents earning $100,000 or more grew more than 6 times faster

than U.S. employment overall.

$100,000+ Earners+45%

U.S. Workforce+7%

Program Success Factors

•  Inclusion of independent professionals as a solution to talent gaps

•  Recognizes characteristics of an independent professional

•  Offers direct access to opportunities

•  Integrates MBO Partners as a key component of your contingent workforce ecosystem

40

Total Talent Management

Strategy

Know the Independent

Space

Standardized, Risk-‐free Process

Direct Access to OpportuniBes

MBO

Client of C

hoice

Success Factors

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