More often than not, issues with workforce compliance are caused by a lack of transparency and visibility through the talent supply chain, hiring and onboarding process.
All too regularly, organisations that are hiring contingent workers at pace fail to ensure that they have the right processes, checkpoints, structure and automation in place to handle an influx of talent. Add the demands of a growing business to the complexities of agency partnerships, ever-changing regulation and legislation, and the dangers of worker misclassification, and you can quickly find that there are a host of issues around managing your contingent workforce that can easily come back to haunt you.
This can lead to reputational damage, increases in hiring costs and potential fines.
Why is workforce compliance so important?
Organisations that are scaling quickly often rely on a contingent workforce to help meet the growing demands of the business. Flexible workers can be sourced and hired quickly, while also bringing high levels of experience and expertise to specialist roles. Over a short-term basis, a contingent workforce can help organisations to manage their operational costs more effectively.
The downside of using a contingent workforce to meet the demands of a scaling business is the difficulty of implementing and maintaining best practice and governance. A large and growing contingent workforce usually means a long list of agencies in the talent supply chain. These agencies may supply contractors on varying pay rates, non-standard contracts, or with incorrect tax codes.
Here’s a few examples of compliance issues that, if not dealt with correctly, can come back to haunt organisations:
Worker Misclassification Risks
Improperly classifying a contractor as an employee (or vice versa) can lead to serious consequences. Consequences such as back taxes, penalties, and lawsuits. Governments are increasingly scrutinizing classification decisions, and noncompliance can trigger audits or legal action.
Regulatory Complexity
Employment law varies significantly depending where in the world you are. Keeping up with these regulations is challenging but necessary to ensure wage compliance, proper benefits handling, and tax reporting.
Co-Employment Concerns
If a contract worker is treated like an employee—receiving direction, supervision, or integration into teams—there’s a risk of co-employment. This can make your company liable for employment obligations such as overtime pay, benefits, or wrongful termination claims.
Data Security and IP Protection
Contract workers often have access to sensitive systems and intellectual property. Without the right compliance protocols—like NDAs and access controls—you risk data breaches and IP theft.
Reputational Risk
Compliance violations can attract negative attention from regulators, media, and the public. A scandal involving unfair treatment or pay for workers can alter perceptions of your organisation as an employer of choice.
Financial Penalties
Non-compliance can result in hefty fines, back pay awards, and litigation costs. In some cases, companies have faced multi-million-dollar settlements.
What do organisations need to get right?
Managing compliance issues in the contingent workforce involves a structured and proactive approach to mitigate legal, financial, and reputational risks. Here are the key factors:
Classification: Understand the differences between employees, independent contractors, and other contingent roles. Use legal frameworks and tests to assess worker classification.
Supply Chain Audit: Ensure vendors follow compliance best practices. Review their contracts, insurance, and processes for worker classification and employment law adherence.
Standardisation: Use templated contracts that address compliance essentials—payment terms, confidentiality, IP ownership, etc. Harmonised invoicing and standardised contracts can reduce the administrative burden and help to reduce costs.
Onboarding/Offboarding: Onboarding and offboarding is critical to creating an engaging – and practically effective – contingent worker experience that ensures you hire informed, inspired and motivated talent.
Changes in Regulatory Environment: Not everybody can be an employment law expert – but you can keep abreast of changes and understand their potential impact on your hiring processes and contingent workforce.
Workforce Visibility: It is good practice to conduct periodic audits of your contingent workforce program to spot and correct compliance gaps.
The role of a Managed Service Provider
The truth is that, if an organisation is growing their contingent workforce at pace, they will often appoint a Managed Service Provider (MSP) to ensure compliance, supply chain performance and effective cost management. An MSP provides the structure, process, technology and hiring capability needed to build and manage the contingent workforce the right way.
A Managed Service Provider can set up your contingent workforce programme in a way that suits you and your long-term strategy for growing your workforce. This can include:
- Implementing a Vendor Management System to formalise your talent supply chain and standardise your agency partnerships.
- Conducting structured auditing around rates of pay, contracts, benefits and best practices adopted by your preferred supplier list.
- Reducing the cost of hiring contingent workers by building your direct-to-talent channel and utilising talent communities.
- Ensuring compliance, regulatory checks and the correct classification of workers.
On average, working with an MSP can reduce the cost of your contingent workforce by 8-12% per annum.
Conclusion
The complexity that surrounds contingent workforce management is easy to overlook when you need to bring specialist skills into your organisation quickly. Hiring a freelancer or contractor can often be the result of an informal relationship with a hiring manager or can be sourced through an agency without full visibility over the sourcing process, contract or agreed rates of pay. Small misalignments can grow into larger, more serious compliance issues if an organisation is scaling at pace.
Partnering with an MSP resolves these issues. Your MSP will help you to manage how talent enters your organisation in a structured way. It allows you to track contingent workers so that they remain visible to the organisation, with clarity around their scope of role, rates of pay and off-boarding. Just as importantly, working with an MSP will create opportunities for significant cost-savings through standardised best practice, process efficiency and better supplier management.
