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.

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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%

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.