For years, for better or worse, a major objective for contingent workforce programs has been to minimize any risk associated with co-employment of contingent workers.
The fact is, in a staff augmentation engagement, co-employment exists from the moment the contingent worker takes a first step into the job effort. There are a number of legal factors that define and support this instantaneous joint-employment status.
In the case of a properly managed statement-of-work engagement, however, the opposite is true. There should be no joint-employment/co-employment status because of the business-to–business nature of the transaction — because the client entity is buying an end-result/deliverable at the conclusion of a project/service engaged. The execution of that deliverable(s) will be completely controlled by the SOW solution provider with their expertise, methodologies, tools and resources — none of which would be sourced from the SOW engagement buyer, unless special requirements dictate a unique methodology to execute the SOW engagement.
Co-employment is the relationship among two or more organizations that each qualify as employers of the same worker or group of workers doing the same work. Co-employers often share some degree of liability and responsibility for shared employees (e.g., in safety and training situations or wage-and-hour compliance). In contrast to a contingent work arrangement, which is billed based on time worked, SOW agreements are usually billed based on a fixed price deliverable or for hitting specific milestones.
The key element of difference here is control. In a staff augmentation engagement, there is plenty of jointly managed elements of control, where in the case of an SOW engagement, the solution provider is entirely responsible for controlling the execution and successful completion of the SOW engagement. Certainly, the buyer will define the what and when, but the SOW solution provider will decide the how and by whom on delivering the what and when. The SOW solution provider is in control of the work effort essential to produce the predefined, deliverable requirements.
In order to eliminate any chance of co-employment in an SOW engagement, SOW-related talent should not be treated as an employee and one should apply the same engagement rules as one does for visitors/vendors.
Buyers should apply similar engagement business terms used with vendors/supplier (insurance, business qualification, indemnification, contract pass-throughs, IP ownership protection, etc.).
Wherever possible, you should pay for a product and/or a service deliverable result, not by the hour. Also, you should not reimburse expenses. Rather, you might increase the project engagement rate via a change order, if appropriate, to cover incidental costs of executing the SOW engagement.
Don’t name or dictate talent doing the work in the SOW agreement. One should be hiring the business, not the talent. Where possible, rely on and refer to SOW solution provider expertise in compliance with regulations and industry standards.
Bottom-line, eliminate all execution control except where absolutely necessary. Whether engaging an SOW project or service, approach the relationship as if buying a finished product and co-employment risks will not be a concern in an SOW engagement.
Misclassification of staff augmentation as SOW engagements is a common concern. Because a misclassification finding could lead to co-employment, programs should be mindful of it. I will address this topic in my next CWS 3.0 article.