Developing a New Workforce Model For the Future
I took part in a fascinating "workforce" webinar this morning [sponsored by Infor Enwisen HCM, whose Enwisen brand provides SaaS solutions for HR services delivery], which affects any company that is trying to come to terms with destabilized markets by moving towards a new workforce model based on contingent workers or independent contractors. And, let’s face it, that may be most of you. In fact, a recent survey by Littler Employment Law Solutions Worldwide, estimates that 50% of new job growth, as we recover from the recession, will be in alternative workforce models.
The presentation, by Angelo Spinola and Nathan Allan, both from Littler, started with now familiar but nevertheless frightening images of mass worker protests in Syria and Cyprus – reflecting the short-term impact on jobs, of governments seeking long-term solutions to their woes. Syria alone has sustained a staggering 81.7% loss of GDP in just two years.
What's interesting is that, far from dampening globalization, the recession is actually accelerating globalization for companies trying to reduce labor costs while remaining competitive. In other words: they are taking increasingly innovative approaches to rebuilding their trimmed down workforces, as they pull themselves out of recession.
But, they are cautiously rebuilding their laborforce differently. Not reflecting their previous structure, but tapping into other markets and utilizing another type of worker. This has led to the rise in offshore work, contingent employees, shared services, and third party contracts. Midsize and smaller companies are particularly proactive, as they identify tasks and services not central to the business and think of creating creative ways to move forwards.
Companies that are not proactive, warns Littler, won't be able to compete. The Detroit auto industry is cited as a prime example, crippled by labor unions and suffering from a lack of flexibility.
What this means for organizations today is that they need to:
1. eliminate risk
2. think proactively about alternative labor models
3. be innovative
Growth in contingent workers and independent contractors
Despite the high unemployment across many markets, major employers are still reporting that they are finding it hard to fill positions [34% of employers worldwide report challenges in filling jobs, reports Littler; and even in China, according to a recent survey, the number one challenge for multinationals is recruiting and retaining good employees – a staggering thought for a country of 1.4 billion people]. This is partly due to the non-menial aspect of some of the work, as well as shortages for jobs in certain categories. Contract work becomes an easy solution to cover the interim.
A stern warning to all of you considering this path, however: it's imperative that you are aware of workforce regulations across different countries. Mistakes can be so expensive, that not only are the savings of contractual workers wiped out, but you may find you would have been better off with full-time employees. Some of the sobering data shared with us concerned wage settlement costs: on average, a single case settlement in 2009 was $6.5 million; in 2010 it was $5.4 million; and in 2011 it was $3 million. Despite the downward trend, these costs are significant – and avoidable.
One of the most important things an employer can do to minimize his risk is follow the IRS 20 Factor Test for deciding whether someone truly counts as an independent contractor. The defining theme is "control" – i.e., how much control does the company have over its worker? [go to minute 29 in the webinar for an analysis of these factors]. Nathan suggests a number of actions to clarify independent contractor status, including avoiding a no-compete restriction, and not referring to bonuses. It’s also a good idea to get a third-party company to provide the independent contractors to you, not to hire them directly, and to include a clear indemnification clause, which transfers liability to the company supplying the workers.
Impact on your overseas hiring practices
So, how do these trends impact your potential expansion to countries outside your domestic one? Considering China is a strategic market for so many industries today, it's worth noting that the number of cases of labor disputes have risen from 50,000 in 1996, to 600,000 in 2010, reflecting, perhaps surprisingly, the Chinese employee’s increasing awareness of his or her rights, and free information flows across the Internet.
In the last quarter of the webinar, Angelo provides an interesting analysis for anyone considering expanding contract workers offshore or overseas: namely, the overtime laws as they apply across different countries. A surprise: Poland, popular for SSCs and BPO centers, is fairly hard-core as far as employer’s rights are concerned: it’s hard to get overtime! And Egypt, increasingly of interest as a services delivery option, limits employees' working hours to 8 a day, and 48 a week [overtime, where paid, can be 70% for "night" work: defined as "sunset to sunrise"].
Click here to watch the webinar in full and gain valuable insights to help protect your organization from litigation as you introduce innovative workforce models to remain competitive in your industry.
Tip: 90% of discrimination suits are the result of employees feeling unfairly treated, not necessarily linking to legal claims. Companies would do well to be aware of this.
Tip: The litigation trend is towards wage and hourly disputes: 90% of all employee class and collective actions fall into this area, according to Littler.