Legal considerations for managing a contingent workforce

Ultimately, the demand for specialised professional talent in Australia is only going to get hotter

Legal considerations for managing a contingent workforce

by Jonathan Hunter, Expert360's General Counsel & Company Secretary

Thanks to the rise of project-based work and preferences for flexible working options, the freelance economy is booming. Instead of spending years in the one role, workers are increasingly looking for diversity of experience and working formats.

Instead of taking four weeks of holidays a year, who wouldn’t prefer to take breaks every school holidays, or work for three quarters of the year in a range of sectors and roles and travel for the other quarter?

For the modern employee, it’s less about climbing the career ladder and more about getting the right career experience to stay competitive in an age where the landscape of available jobs is expected to undertake a significant transformation.

For the employer, it’s about being able to tap into the best and brightest in the labour market as and when required for the business’ needs. PwC’s most recent CEO Survey says the availability of key skills is one of the top 5 challenges for 2019. Forbes predicts we will see ‘Temp’ and ‘Alumni’ Labour Clouds becoming increasingly mainstream, as companies strive to retain their best talent.

This new modern way of working has been so popular for both sides of the market that over four years there was a 43 percent growth in the number of contingent workers nationwide and this figure will only increase. Last year, the Australia Institute’s Centre for Future Work reported that for the first time, over half of Australia’s working population are in non-permanent roles.

In fact, the global market for freelance services was worth $560 billion in 2017 and $11 billion in Australia (Frost and Sullivan). The fastest growing freelance segment is the white-collar workforce who, according to our data, earn an average daily rate of between $900 - $1500, across various industries. This means organisations looking to future-proof themselves in the war for talent need to employ new systems and processes to source, engage and manage freelance professionals at scale.

Managing freelancers at scale
Rather than paying expensive agency fees, enterprise companies are increasingly turning to technology platforms to simplify and reduce labour costs. However, for many, a leap into a new platform is a journey into the unknown and, to their detriment, they can be slow to adopt effective models. Most large companies have for a long time used human capital management (HCM) software to assist in managing their employees. HCM is not normally outsourced, so in an era of rising contingent labour relative to permanent employees, why is freelancer management outsourced?

Most of their concerns come down to one factor - outsourcing administration and risk (ie. continuing with “the way we’ve always done it”) versus insourcing via a software solution.

Key risks
In terms of outsourced risks, a key difference between the employee workforce and the contractor workforce is ‘employment risk’ - businesses want to know they’re not going to be caught out by freelancers being found to be an employee or find themselves in the middle of a ‘sham contracting’ witch hunt.

While a legitimate concern, historically these issues have typically arisen in the unskilled contract workforce. This is because highly skilled freelance professionals engaged for specific projects can earn significantly more than they would as an employee and have far greater control and flexibility in how, where and when they work, and for these reasons have made a concerted and informed decision to run their own small business working as an independent contractor.

Whether freelance engagement is outsourced or not, organisations need clear processes (such as onboarding) that explain to contractors what they need to do in order to work effectively with their full-time employees. More than ever before, the contingent labour force needs to be viewed as a core part of the workforce, rather than being engaged by individual hiring managers at the fringes.

The business also needs to be clear on what capacity contingent staff are hired and how this differs from employees. While traditional labour hire agencies often contractually accept legal risk, in reality only the business itself can ensure full understanding of and adherence to its operational policies and procedures by its employees and freelance workers.

The other key risk, that a freelancer’s work product is not up to scratch, cannot be alleviated by outsourcing to a labour hire agency. Ultimately, the business needs to ensure key deliverables will be supplied by the freelancer as and when required by the business.

Insured risks (professional indemnity and public liability) obviously ultimately rest with insurance companies. So as long as the independent contractor has the appropriate insurances, there is little practical value in the transfer of risk to an intermediary.

Tech solutions
Traditionally, it was the time and cost of administration that were underlying the real value of outsourcing. Now this can in many cases be effectively replaced by a technological solution. Freelance Management Systems (FMS) are a relatively new class of software, born from the exponential growth in contingent workers.

An FMS can go a long way in streamlining the engagement process and reducing risk by ensuring consistent contractual engagements, compliance, simplified and centralised administration, with the added benefit of enhanced visibility and reporting. It’s an effective solution to work side-by-side current Vendor Management Systems (VMS) and HCM systems.

2019 and beyond
It will be interesting to see how agile workforces play out in the next 12 months, particularly considering the anticipated upcoming regulatory changes following a possible change of government and the Victorian inquiry into the on-demand workforce. Given that many in the Expert360 community view this way of working as a lifestyle, not just a job, it will be important that these changes focus on protecting the blue-collar workforce without infringing on the freedoms of white-collar freelancers and the companies that hire them.

Ultimately, the demand for specialised professional talent in Australia is only going to get hotter. While it might seem like businesses have a choice as to whether they hire a full-time or permanent staff member the reality is more complicated. As skills become increasingly specialised, businesses that rely on full-time generalists will struggle to produce the same results as hybrid teams.

At the same time, companies looking to bring in the most experienced and skilled workers will be forced to look for and manage freelance talent who overwhelmingly choose to be employed as a contractor. My advice for enterprise businesses is to prepare now before they get left behind.


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