During ongoing discussions with CWS Council members (buyers of contingent labor), we continue to see various levels of concern when they are trying to sort out why roles that should be classified as staff augmentation are set up as statement of work and/or other risky engagement classifications. Based on those conversations, we have identified common themes that are present when such misclassification occurs. Here are some of those common elements that drive staff augmentation misclassification.
Organizational Head Count Restrictions and/or Hiring Freezes
Enterprise buyer organizations can and often do receive mandates to freeze or reduce head count. There are so many factors which can drive these mandates, but a dirty little secret is most organizations do not “count” SOW workers as head count. In these cases, business managers can and often do utilize SOWs to continue to get work completed. Engagement managers can find SOW as a way to hide head count when the workers are truly staff augmentation/FTE types. The results for the enterprise buyer organizations can be very costly. There is evidence that misclassified staff augmentation workers in an SOW can cost two times to as much as 10 times what the cost would have been had they been correctly classified.
Difficulty in Engaging the CW Program
We seem to have over-medicated the CW engagement process to mitigate misunderstood risk and co-employment ghosts along with a heavy emphasis on cost controls. As a result, the process for engagement managers is often taxing, overwhelming and complex while missing the mark on an efficient and quality client experience. For instance, it is common for CW programs to require managers to undertake 10-plus process steps to get a contingent worker resource vetted and onboarded.
Using an SOW and/or outsourcing the requirements to an SOW provider can help alleviate the initial level of effort required of the engagement manager. Although the SOW requirements are not always written well by the manager and the provider, and thus can lead to more work later, the perceived immediate relief a manager feels by taking this path can be substantial.
Beyond process burdens, engagement managers can experience low to poor support from the CW program office (internally or externally managed). Some CW programs prohibit managers from having direct contact with the staffing organizations/talent providers. The weight given to job titles and job descriptions can cause issues with managers’ ability to get the right type of skills and personality match for the required CW engagement. By leveraging an SOW, managers can instead communicate with the talent/solution provider directly to help improve their ability to get the highest quality talent they require.
A tenure policy requires enforced limits on the amount of time a contingent worker can be on assignment. In theory, these policies exist for several reasons:
- Cost control
- Co-employment avoidance (which is due to a myth that is still believed within the industry)
- Head count management
Although there may be some good business reasons for tenure policies, they can have a direct impact on the engagement manager’s ability to get work/projects completed. For example, if the staff augmentation project for which the contingent worker is being utilized will take 24 months to complete but the tenure policy only allows for the worker to be on assignment for 12 months, the manager has a few choices:
- Replace the worker with another worker mid-project, which will require additional and new training. This scenario puts the project’s schedule and budget at risk.
- Request an exemption to the tenure policy. This can be arduous for the manager and can also leave the impression they are complaining about company policy and are a troublemaker.
- Move the resource to an SOW or start the project out as an SOW. While this approach avoids the need to worry about tenure policies completely, as noted previously, it can lead to significant cost overruns.
Timely Access to Quality Skilled Talent
When a CW engagement manager is looking for staff augmentation support, the No. 1 want and need is securing a resource that can do the job required. In most cases, the level of quality will range depending on the budget available to fund the work and the timeframe required to complete the work. With that in mind, if the CW program does not deliver the talent quality levels required then alternative resource sourcing channels will be explored. This can lead to risky misclassification engagements to meet unmet needs and requirements.
Misaligned Rate Strategies
Within contingent labor programs and specifically with staff augmentation engagements, the entire CW industry has gained confidence to drive and, in some cases, determine what the rate should be for specific resources. The challenge is rate strategies are not always accurate. When engagement managers feel the pressure of not getting the right quality level of talent because the rates are too low for the required skills the manager is looking for, they can often move these staff augmentation workers to SOW projects, thus causing misclassification. Again, this scenario can be costly to the enterprise buyer organization.
None of these challenges is unique to any single CW program. The best programs in the world have a keen awareness of these challenges and embrace the opportunity to be better. Misclassification has so many negative connotations for the entire ecosystem. While the policies and procedures are put in place to avoid risk, they may very well be causing additional risk by over-medicating mandates that get in the way of business being done in the best, most efficient way possible. Buyer organizations need to think long and hard about their policies and the impact they may be having on the very things they are trying to avoid.
To learn more, register and attend SIA’s Risk Management and Compliance Workshop  event July 20-22.