The following content is paid for by Sage.
With the shift to remote working, more businesses are using the gig economy (or platform economy) and turning to contingent workers to fulfil their talent needs. It might seem simple to run your business with a workforce that is essentially required to manage itself, but employers are not completely absolved of responsibility.
Contingent worker compliance needs to be top of your priority list if your business plans to use independent contractors.
There are several advantages to using a contingent workforce instead of a team of permanent employees, including:
- Flexibility: An external workforce can be helpful for businesses that need to scale their workforce up or down in accordance with seasons or economic conditions.
- Global talent pool: Companies can access skills from anywhere in the world.
- Cost: The ability to hire talent as-needed helps businesses reduce labour costs and offers access to specialised talent on demand, which is far more affordable than paying for this expertise year-round. Employers also save on benefits typically due to permanent staff, such as paid time off and retirement fund contributions.
- Reduced administrative burdens: Using contingent workers, who may only require short-term, job-specific training and little administration, reduces the time and costs associated with recruiting, hiring, training, and managing regular employees.
There are, however, disadvantages and risks to consider, too.
Contingent workers could initially require more hands-on management as employers are hesitant to trust non-employees who do not know their systems or standards. Companies are also required to place a lot of trust in contingent workers who have access to confidential information. This could potentially lead to sharing of trade secrets or the compromising of protected data.
Hint: Protect yourself by getting contingent workers to sign non-disclosure agreements.
A contingency workforce must be implemented and managed correctly. Non-compliance can cost your business a lot of money, so keeping updated with the HR laws and regulations governing contingent workers is vital.
The workforce: Who’s who?
Typically, a contingent worker is an employee who is hired for a set period and includes independent contractors, freelancers, part-time, and temporary workers.
Contingent workers are a rapidly growing segment of the workforce. According to Statista, the number of temporary workers in South Africa increased from 2.6 million in 2017 to 3.9 million in 2018.
Due to the loss of permanent employment, or the need for a ‘side hustle’ to make ends meet, the gig economy has grown significantly since the COVID-19 pandemic. Given the push for better work-life balance by Millennial and Gen Z employees and the remote work flexibility accelerated by the pandemic, it’s clear that most businesses will need to include these kinds of workers in their future.
One of the most significant barriers to employers expanding their contingent labour base is the additional layer of compliance considerations that comes with it.
The modern workforce’s diversification has resulted in a complicated web of legal requirements that can be difficult for employers accustomed to dealing with a primarily full-time workforce. Keeping track of the reporting, tax considerations, and employment law requirements for a workforce that includes full-time employees and contingent workers needs a clear, well-organised strategy – and the correct technology to support it.
Managing the flexi-force
While contingent workforce compliance is essential, so is understanding how to manage that workforce. Employee talent management software can help you navigate the complexities of managing this flexible workforce. Automating areas of your business can also make it easier to stay compliant with your contingent workforce.
Many businesses are implementing broad management strategies, which generally include developing standardised, cross-functional business processes, policies, and roles across business units and regions, aided by a single information technology platform where possible.
A critical foundational element of any contingent workforce strategy is tracking and administering contingent workers in a single integrated system. Numerous options are available in the market for monitoring and managing contingent workers, ranging from traditional ERP human resource management systems (HRMS) to SaaS-based HRMS providers who offer integrated solutions.
Involving HR, talent, strategic procurement, finance, and IT in managing this workforce helps businesses mitigate risks and encourages accountability from the company as a whole.
Embracing modern payroll processes
Thanks to the gig economy and remote working, employees in one country can easily work for companies in another, and companies can explore opportunities in new markets they weren’t able to access before.
From a payroll perspective, this means businesses will be required to deal with the challenges of making cross-border, multi-currency payments. To meet these global payroll demands, companies will need to invest in agile payroll software that will support them quickly and accurately and keep them compliant regardless of where their employees are in the world.
Earned Wage Access platforms, such as Floatpays, are also forcing the evolution of traditional payroll practices as the workforce increasingly uses on-demand payroll systems. Employees are now also favouring alternative ways of receiving payment, including via digital wallets like Apple Pay, Google Pay, PayPal, e-wallet, and more.
Reading the rights
Contingent workers have specific legal rights when they enter into an agreement with your company.
For example, they have the right to local wage standards, such as minimum wage, overtime pay, and standard working hours. This means that you cannot force an independent contractor to work more than eight hours per day, or 40 hours per week, without compensating them for the extra time.
Contingent workers who deliver their service on-premise are entitled to the same workplace health and safety protections as permanent employees.
Keeping it classified
When you hire an independent contractor, strict rules must be followed because misclassifying a worker can result in significant compliance issues.
Workers classified as independent contractors are responsible for paying most of their taxes, providing their own benefits, and other responsibilities. If you classify a worker as your employee, you will need to provide benefits and pay taxes for that worker.
Misclassifying full-time employees as contingent labour or independent contractors is in direct contravention of labour laws. It negatively impacts the employee through loss of benefits and the government through loss of tax revenue and UIF collections.
Clearly, staying compliant with contingent labour employment laws demands a significant amount of effort, knowledge, and coordination. Automating your human resources functions can help you reduce risk associated with scheduling, classification, and other key compliance issues. When weighed against the financial and reputational risks associated with improper management of contingent workers, a cloud-based compliant HR software solution is a wise investment.
Data security: Shhh, it’s our secret!
Payroll departments handle massive amounts of sensitive information, and data protection laws heavily regulate the storage, use, and transfer of this data.
It’s no wonder that even though 91% of HR and payroll professionals say their organisations are fully compliant with POPIA and the General Data Protection Regulation (GDPR), 48% still worry about compliance, and 63% are concerned about securely sharing personal employee information.
According to Sage research, the top compliance concerns among payroll professionals are:
- Protecting data (24%),
- Information leaks and theft (15%) and
- Cyberattacks (12%).
One of the main risks when hiring contingency workers is that they will leak sensitive information or breach data security.
As businesses increasingly use contingent workers, cybersecurity must top the list of payroll priorities. Cloud-based payroll systems offer increased data security, and an astounding 88% of survey respondents who are already using them say their systems are more secure than ever before, and 65% note that they benefit from safer data processing and storage.
A new era of work
A contingent workforce is becoming an increasingly important component of a comprehensive workforce strategy. Under business and talent market pressure, this category continues to grow in terms of both spend and headcount as a percentage of the total workforce. With increased regulatory pressure and enforcement, businesses are moving quickly to stay ahead of this trend by managing the inherent risks of recruiting non-employee talent.
Leading organisations are making targeted investments in developing the operations capability required to support this population of talent, including integrated cross-functional processes, well-developed, integrated technology, and aligned business functions to drive accountability. This enables the company to gain access to specific resources from a greater talent pool to meet their business needs while reducing costs and managing risks.