Payrolling, IC Compliance on a Roll

139536657Staffing Industry Analysts recently released its buyer-focused Payroll and IC Evaluation and Compliance Landscape report. What the report revealed is that the growth of payrolling and independent contractor evaluation and compliance reflects a key development in organizational behavior regarding outside talent. Moving from a mindset of “get me talent” (a staffing-oriented mindset), organizations are now evolving to a mindset of a virtual bench of non-employee talent (an engagement mindset).

And where does my company, MBO fit in? For the staffing industry, the recognition – which puts MBO in the top tier in terms of enterprise spend on independent contractor engagement and compliance (ICEC) – is a pretty big deal.

Here’s why:

  • According to SIA, companies spent 30 percent more on independent contractors and other self-sourced suppliers in 2012 – and this spend category is not going to stop growing.
  • What’s more, the overall spend on independent workers is already 2.5 times bigger than traditional staffing, and represents a core portion of many companies’ investment in knowledge workers
  • MBO’s State of Independence in America data collected over three years shows that enterprises should expect that up to 50 percent of workers will be ICs in the next decade.
  • These self-sourced workers like to work their own way and are not suited to traditional staffing or payrolling models designed for a different work context and enterprise need.

In its report, SIA rightly notes that there are a number of great companies that can assume the role as Employer of Record for temporary workers that companies acquire through their own recruitment efforts. Most handle the full gamut of job categories and many even go beyond the borders of the U.S. workforce. There are also firms that will check if these recruited workers qualify as independent contractors (to get a 1099 tax form.) For the small percentage of workers that do qualify, these firms are willing and capable of assuming the role as an Agent of Record.

However, if you are a buyer of contingent labor or the central point where your firm refers these workers for vetting and approval (internal MSP) you know that there are more and more workers that don’t fit either category. They are not looking for a temporary payroll engagement because they see themselves as a businesses of one, a consultant or a freelancer and want to maintain this business status so they can grow their network of clients and thus their own practices. Until they find clients or legitimately structure their business with expensive liability insurance, legal incorporation and a whole series of IRS, State and company mandates, they may want to retain a self-employed status. The problem is that they just don’t pass the test.

PREMIUM CONTENT: Payrolling and IC Evaluation/Compliance Landscape Report

To top it off, these workers are more likely to be specialized experts that the company managers need, to complete critical work; Scientists, Engineers, Marketing Gurus, Mobile App Developers, Advisors or a variety of freelance talent. With the pressure to avoid the risk of re-classification tugging at these managers, they are forced to find a “backdoor” method of engagement. Many procurement directors are familiar with this and call it “Rogue Spend.”

If your firm has yet to establish a governance program to keep self-employed Independents visible, compliant, you face the risk of “Rogue Spend” by your internal business unit managers. But, even more importantly, you stand the chance of losing access to this talent altogether, which can be the most dangerous risk of all.

With this report, SIA has taken an important first step in defining new category dynamics. But the 30-year staffing guy in me says it’s not done yet, there’s a ways to go. We need to dig deeper as an industry to understand this new dimension of workforce dynamics, and to promote the right solutions for our clients. A 50/50 workforce is a big deal for an enterprise a big deal for workers, and a big deal for internal managers of talent, and that’s not going to change any time soon.

Sign up for the latest State of Independence in America research release here, to learn more about the growth of IC talent.

MORE: Choosing the right IC compliance provider

Jay Lash

Jay Lash
Jay Lash is vice president, marketing strategies of MBO Enterprise Solutions. He can be reached at jlash (at) mbopartners (dot) com.

Jay Lash

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