I was referred to someone with an excellent skill set who says they are an independent contractor, but my internal stakeholders disagree and now I can’t on-board them. Should I call a staffing agency? Do I create a deliverable-based statement of work? Where do I go for direction?”

If you’ve ever been in a situation like this, and like most clients we’ve worked with, decided to overlook cost or risk in favor of the path of least resistance, this article is for you.

Worker classification doesn’t have to be arduous, but it does need to be explicit. Many companies have failed to create clear policy and reliable classification decision tools. Meanwhile, in assisting several Fortune 500 clients develop a classification matrix, we’ve seen an average of 20% of misclassified workers per client, resulting anywhere from $20 million to $50 million in contingent spend overages. Add to that the high cost of a confusing process and/or potential ramifications of misclassification lawsuits and there is major financial benefit to implementing a well-defined classification structure.

Managed service providers have recently introduced a new role called the talent advisor, someone to act as a strategic advisor to the client and individual hiring managers. In theory, the talent advisor helps determine what type of labor is required for a given opening and then how the worker is ultimately classified. However, unless the MSP has hired a resource with deep understanding of worker classification and who also has influence over a client’s policy, the value of this role may fall short of expectations.

While the industry waits to make a final determination on the usefulness of the talent advisor role, companies are scrambling to put a decision framework in place. Here are a few key steps to creating a classification decision framework, with or without the help of an MSP:

  • Define each worker type including employee, contingent worker, temporary/agency worker, independent contractor (IC), SOW-based services and outsourced services.
  • Identify sub-categories of labor such as freelancers, part-time, on/offshore, on/off site domestic and day-rate resources.
  • Review contingent job titles and suppliers for cross pollination. Overlapping titles and suppliers are key indicators in misclassification.
  • Determine drivers for current-state hiring decisions, including culture, policy, process and contract evaluation before designing future state.
  • Update policy and guidelines to support classification.
  • Design decision tool, either automated or manual.
  • Develop communication and change management plan.

By coupling the above steps with a thorough evaluation of contingent hiring behaviors, companies can reduce risk and save a lot of time and money. No one would say that worker classification is the simplest strategy to develop and implement, but it can by far be one of the most meaningful initiatives a contingent workforce management program undertakes.