“What’s in a name? That which we call a rose
By any other name would smell as sweet.”
Clearly, Shakespeare hadn’t encountered any Elizabethan employment or taxation authorities at this early stage of his career. I’m being facetious to illustrate a point — when it comes to the names given to each category of contingent worker, and the definitions to explain the distinction between each, the clarity and specificity of language is critical. This is particularly important for usage of independent contractors (there’s nothing sweet about an IRS independent contractor audit), but applies to all contingent workforce categories.
Many organizations rely on a de facto set of informal terms. Often this includes multiple terms that mean the same thing, but are given different names. At best, this leads to confusion, and worse, misclassification. For example, an organization was concerned about risk associated with its usage of independent contractors and engaged us, to conduct an assessment and provide recommendations. After completing several interviews with client managers who presumably use a lot of ICs, I was puzzled to hear that none of them engaged workers as ICs. I went back to my client sponsor for a sanity check. As it turns out, the pervasive term used for ICs was freelancers (unfortunately this term never came up during the interviews). Despite describing ICs and providing examples, there was still a disconnect during the interviews based on differing terminology. After digging deeper, I found the organization used 11 different terms for all varieties of contingent labor. Among other things, we recommended consolidating terms into four categories:
- Temporary Worker
- SOW Consultant
- Independent Contractor
- Outsource Worker
We also provided specific definitions for each category. The terms themselves aren’t enough to provide sufficient clarity about the characteristics of, and distinctions between, each category. If faced with the need to create your own definitions, consider the following guidelines:
- Be explicit — avoid generalities that are subject to differences of interpretation. For example, to describe the working relationship between a temporary worker and a manager, rather than saying “direction is provided by the internal manager” provide specifics, such as: “Assignment-specific training, day-to-day work direction, and quality monitoring of temporary workers comes from internal managers.”
- Be concise — an unnecessarily verbose definition may be ignored by busy managers who don’t have time (or interest) in deciphering exhaustive definitions. Stick to the key points.
- Avoid unintended overlap — in some cases there will be commonalities across categories, such as with SOW consultants and ICs. In such cases, be sure to highlight the differences that necessitate separate terms.
Once you establish formal definitions, ensure they are stored in a location where they will be readily available to all users of contingent labor (e.g., within an intranet and/or a vendor management system), and repeatedly communicated via e-mail, internal webinars, and hard-copy quick reference cards.
Establishing formal categories and definitions is a foundational building block for any structured contingent workforce management solution, and a key dependency for the success of most other initiatives. The benefits include: increased solution adoption and compliance, reduced misclassification and the associated risks, cost savings, and potential cost avoidance of misclassification penalties. I’m pretty sure that if an IRS auditor comes calling, they won’t give much credence to Shakespearean quotes.