There's a battle looming on the horizon. Eight states have joined efforts to express concern around Fed Ex Ground drivers' employment classification. These states' representatives--Iowa, Kansas, Kentucky, Missouri, New Jersey, Ohio, Rhode Island and Vermont--are arguing that the misclassification allows companies like FedEx to avoid paying taxes, and prevents them from fulfilling obligations to their employees.
This follows on the heals of the U.S. Court of Appeals overturning the National Labor Relations Board's (NLRA) assessment that FedEx drivers are common law employees. After reviewing the common law factors, the Court ruled that they favor independent contractor status.
This is additional support of a topic we've written about several times in June: states seeking revenue will not stop scrutinizing firms they believe to be in violation of state employment and tax laws, and will aggressively try to recoup lost tax revenue and fees associated with misclassification.
The increasing number of co-employment violation allegations underscores the importance of taking time to evaluate the entire composition of the workforce, ensuring every segment is well managed and monitored for compliance and fiscal performance. This effort becomes even more critical as firms begin to prepare for an economic turnaround. The increased volume of pending litigation also confirms that we are truly at a turning point in the way in which the workforce is managed. In fact, it's likely that states will not stop such tactics, and after realizing the amount of revenue available from procedural audits, will standardize the practice as a permanent part of their revenue departments.
Business and HR leadership must collaborate to respond with clear strategies for evaluating the composition of the entire workforce and develop well documented procedures that allow them to build the talent inventory to remain in compliance in the states they do business. This means a willingness to face resistance head on. For instance, firms will occasionally look to independent contractors to avoid internal headcount restrictions. Ironically, by doing so, they open themselves up to co-employment risk, and also end up paying premiums on this talent.
HR must provide the infrastructure to enable the business to find quality talent at more affordable rates and ensure the mitigation of co-employment risk. And the business must change its behavior to leverage such tactics. Implicit in these changes, leadership must remove prohibitive head count restrictions and eliminate end-runs around policy.
The fight between the aforementioned states, FedEx and the NLRA will be an interesting one to watch.
Five ways to prepare your workforce for an economic turnaround
Conversations across the media, blogs, and boardrooms are turning toward the inevitable economic turnaround. Forward thinking firms are beginning to consider strategies to handle staffing up when the market improves. Some industries, like high-tech and semiconductors, are expected to see renewed demand first and have been preparing for it all year.
What will the post-recession workforce management look like? I’ve written before about the notion that the very make up of today’s workforce is evolving and unlikely to ever look the same. Gone are the days when an HR manager can evaluate his or her full-time exempt and non-exempt W2s, but not overly concern themselves with any other segment of labor. Now HR execs are forced to carefully evaluate every single element of the talent supply chain, from top to bottom.
The HR execs we talk to have all indicated a desire to be better prepared for the extremes of the market, from an all out war for a minimal pool of talent, to implementing more efficient and cost effective ways to keep the workforce at the best level possible with as few bodies possible. There is an overriding sense that HR was caught a bit flat footed at the start of the global economic downturn, unable to respond until well into the crisis. It was a painful process for many leaders to execute such drastic cost cutting, and make tough, but necessary decisions regarding their workforce that would inevitably hurt their broader corporate strategy.
To help them transition out of this down economy, and at the same time improve talent supply chain efficiencies in a way that advances broader strategic objectives, here are a few pieces of advice:
Evaluate segmentation. Take a close look at how your workforce today is segmented, and then make decisions on how you will ramp staff back up. Can you use a higher percentage of flexible workers? Are there contextual areas of your operations that can be handled with outsourcing and partner strategy? If so, start mapping out an execution plan now that will allow you to source the right skills into the right roles as soon as demand increases.
Refine your recruitment strategy. In order to respond quickly to better market conditions, focus on identifying acceptable time-to-hire and cost-per-hire metrics. Begin with an honest evaluation of what your time-to-hire and cost-per-hire was during large staff increases in the past, and make sure this occasion improves upon those standards. Most importantly, consider the amount of time your hiring managers have been asked to devote to talent acquisition. They should only be involved in 15% or less of the acquisition and on-boarding process. Even 5 points higher than that can result in delays and increased cost-per-hire.
A technology company in the Northeast recently eliminated over 130 contracted recruiters. Forgetting for a moment that they probably violated co-employment regulations, this recruiting force was well paid and provided good results, but was incredibly autonomous and not measured for performance. It is my guess that this firm will never again invest that sort of money in maintaining such a large and expensive recruitment army.
Identify your employment brand. Now is the time for a serious discussion about your employment brand. Most large firms have strict rules about how their employees can communicate with the public in order to maintain their brand’s value. But too frequently those standards don’t translate to the talent acquisition process. If you used third parties to assist with your recruitment, there must be a strategy in place to communicate the right message about your employment brand to the marketplace. And that’s just the bare minimum.
HR managers should also work closely with their marketing and PR colleagues to communicate a clear, strong employment brand through advertising, the press, social media and other vehicles. That way, incoming recruits and job candidates already have an accurate and consistent perception of your company before walking through the door. It is essential that this strategy not just be used in the recruitment of full time staff, but for any laborer recruited into the organization. Too frequently their talent suppliers are not required to adhere to employment brand standards.
Re-evaluate work classifications. This period of time before the turnaround is also a good moment to closely evaluate how project work, consulting and simple statement of work engagements are executed. Ideally, the evaluation should turn up instances where the need is for a finite and easily defined skill set, rather than a specific deliverable. In these cases, there are better, more cost-effective ways to procure the right talent than issuing an RFP that solicits bids against a defined statement of work, and will end up costing you a premium. The goal should be to turn up about 3% to 5% of that type of work, which are better classified as skill requirements.
Don’t lose sight of the basics. Even with an economic turnaround, state revenue improvements will lag behind, leaving states still on the hunt for easy revenue by auditing against 1099 tax code. Companies should immediately take steps to make sure use of independent contractors is well managed so it doesn’t get lost amid summer vacations or the rush to staff up. Too often, once things get going, we forget about some basic housecleaning. It could be a costly mistake to indiscriminately hire independent contractors without well documented policies and procedures. Without a plan, at best you will pay premium prices for them, and at worst you will have serious co-employment risk.
What will the post-recession workforce management look like? I’ve written before about the notion that the very make up of today’s workforce is evolving and unlikely to ever look the same. Gone are the days when an HR manager can evaluate his or her full-time exempt and non-exempt W2s, but not overly concern themselves with any other segment of labor. Now HR execs are forced to carefully evaluate every single element of the talent supply chain, from top to bottom.
The HR execs we talk to have all indicated a desire to be better prepared for the extremes of the market, from an all out war for a minimal pool of talent, to implementing more efficient and cost effective ways to keep the workforce at the best level possible with as few bodies possible. There is an overriding sense that HR was caught a bit flat footed at the start of the global economic downturn, unable to respond until well into the crisis. It was a painful process for many leaders to execute such drastic cost cutting, and make tough, but necessary decisions regarding their workforce that would inevitably hurt their broader corporate strategy.
To help them transition out of this down economy, and at the same time improve talent supply chain efficiencies in a way that advances broader strategic objectives, here are a few pieces of advice:
Evaluate segmentation. Take a close look at how your workforce today is segmented, and then make decisions on how you will ramp staff back up. Can you use a higher percentage of flexible workers? Are there contextual areas of your operations that can be handled with outsourcing and partner strategy? If so, start mapping out an execution plan now that will allow you to source the right skills into the right roles as soon as demand increases.
Refine your recruitment strategy. In order to respond quickly to better market conditions, focus on identifying acceptable time-to-hire and cost-per-hire metrics. Begin with an honest evaluation of what your time-to-hire and cost-per-hire was during large staff increases in the past, and make sure this occasion improves upon those standards. Most importantly, consider the amount of time your hiring managers have been asked to devote to talent acquisition. They should only be involved in 15% or less of the acquisition and on-boarding process. Even 5 points higher than that can result in delays and increased cost-per-hire.
A technology company in the Northeast recently eliminated over 130 contracted recruiters. Forgetting for a moment that they probably violated co-employment regulations, this recruiting force was well paid and provided good results, but was incredibly autonomous and not measured for performance. It is my guess that this firm will never again invest that sort of money in maintaining such a large and expensive recruitment army.
Identify your employment brand. Now is the time for a serious discussion about your employment brand. Most large firms have strict rules about how their employees can communicate with the public in order to maintain their brand’s value. But too frequently those standards don’t translate to the talent acquisition process. If you used third parties to assist with your recruitment, there must be a strategy in place to communicate the right message about your employment brand to the marketplace. And that’s just the bare minimum.
HR managers should also work closely with their marketing and PR colleagues to communicate a clear, strong employment brand through advertising, the press, social media and other vehicles. That way, incoming recruits and job candidates already have an accurate and consistent perception of your company before walking through the door. It is essential that this strategy not just be used in the recruitment of full time staff, but for any laborer recruited into the organization. Too frequently their talent suppliers are not required to adhere to employment brand standards.
Re-evaluate work classifications. This period of time before the turnaround is also a good moment to closely evaluate how project work, consulting and simple statement of work engagements are executed. Ideally, the evaluation should turn up instances where the need is for a finite and easily defined skill set, rather than a specific deliverable. In these cases, there are better, more cost-effective ways to procure the right talent than issuing an RFP that solicits bids against a defined statement of work, and will end up costing you a premium. The goal should be to turn up about 3% to 5% of that type of work, which are better classified as skill requirements.
Don’t lose sight of the basics. Even with an economic turnaround, state revenue improvements will lag behind, leaving states still on the hunt for easy revenue by auditing against 1099 tax code. Companies should immediately take steps to make sure use of independent contractors is well managed so it doesn’t get lost amid summer vacations or the rush to staff up. Too often, once things get going, we forget about some basic housecleaning. It could be a costly mistake to indiscriminately hire independent contractors without well documented policies and procedures. Without a plan, at best you will pay premium prices for them, and at worst you will have serious co-employment risk.
More misclassification news: Northwestern Mutual involved in class-action suit
There's more misclassification litigation being reported by Staffing Industry Analysts, and this time, it's against Northwestern Mutual Life Insurance Company. Former sales representatives are claiming they were misclassified as independent contractors, and were denied minimum wage and overtime. The class-action lawsuit seeks $200 million from Northwestern Mutual.
Some of the CFOs I have spoken with recently have told me that this issue is definitely on their minds. And it's not going to be the last we hear of this type of litigation--it's almost certain to pick up steam.
We've touched on this before, but it's critical to emphasize again: if you're in a cash strapped state, it's crucial to conduct your own audit now, and make the criteria for independent contractors as strict as possible. It's probably not a bad idea to thoroughly document your policies and procedures along the way as well.
Some of the CFOs I have spoken with recently have told me that this issue is definitely on their minds. And it's not going to be the last we hear of this type of litigation--it's almost certain to pick up steam.
We've touched on this before, but it's critical to emphasize again: if you're in a cash strapped state, it's crucial to conduct your own audit now, and make the criteria for independent contractors as strict as possible. It's probably not a bad idea to thoroughly document your policies and procedures along the way as well.
In Case You Missed It :June 25
One of our main objectives is to help readers achieve a truly seamless workforce. We hope to do that by addressing the complexities of the workforce and sharing insight from industry leaders.
But another important step is to keep up with the latest news and trends...which leads us to The Seamless Workforce's first "In Case You Missed It." At least once a month, we'll post links to some of the relevant blog posts, news stories and events that are important for comprehending the new reality of today's workforce.
But another important step is to keep up with the latest news and trends...which leads us to The Seamless Workforce's first "In Case You Missed It." At least once a month, we'll post links to some of the relevant blog posts, news stories and events that are important for comprehending the new reality of today's workforce.
- Computerworld: Best Places to Work in 2009. In addition to profiling the best companies to work for in IT, the special report includes some interesting statistics on hiring forecasts, staffing, compensation and employee morale.
- SHRM: Annual Conference Blog. The conference may not begin until next week, but there are already updates and highlighted events posted.
Best practices to recruit and retain high-impact talent
Believe it or not, despite record-breaking layoffs and unemployment levels, a war for talent still exists. Competition for high-impact talent, those highly-qualified and experienced employees that can help businesses streamline operations and become more efficient, are always in demand.
As we start to see signs of an economic upturn, the competition for these high performers will become even fiercer. I recently shared some of my best practices on recruiting and retaining high-impact talent with Computerworld readers. The key is to create an atmosphere that motivates, respects, rewards, and cultivates the skills and growth of employees.
Your employees need to understand how valuable they are to the organization. Make sure they see how their roles fit into the bigger company vision. Acknowledge their accomplishments, whether in some form of company-wide communication or through small perks or gifts.
Perhaps most importantly, demonstrate that your organization is about more than just making a buck. We're facing tough economic times, and though costs and profits are important, they shouldn't dominate the corporate culture. Your company needs to be value-driven.
For example, at Yoh, we have four key values: safety, diversity, integrity, and success. We begin every meeting we have -- whether internal or with customers -- with a brief message touching on each of these areas. This practice helps our employees connect with the company's vision.
This goal can also be achieved through company participation in community or charity events. A simple gesture that can have an exceptionally profound effect on your employment brand.
When a candidate is selecting a job, the decision is often more emotional than financial. By articulating your company's goals and values and demonstrating the altruistic side of your organization, you'll create the type of environment in which employees can envision themselves feeling comfortable and thriving. It'll give you an edge over your competitors, and help you hold on to your top talent.
As we start to see signs of an economic upturn, the competition for these high performers will become even fiercer. I recently shared some of my best practices on recruiting and retaining high-impact talent with Computerworld readers. The key is to create an atmosphere that motivates, respects, rewards, and cultivates the skills and growth of employees.
Your employees need to understand how valuable they are to the organization. Make sure they see how their roles fit into the bigger company vision. Acknowledge their accomplishments, whether in some form of company-wide communication or through small perks or gifts.
Perhaps most importantly, demonstrate that your organization is about more than just making a buck. We're facing tough economic times, and though costs and profits are important, they shouldn't dominate the corporate culture. Your company needs to be value-driven.
For example, at Yoh, we have four key values: safety, diversity, integrity, and success. We begin every meeting we have -- whether internal or with customers -- with a brief message touching on each of these areas. This practice helps our employees connect with the company's vision.
This goal can also be achieved through company participation in community or charity events. A simple gesture that can have an exceptionally profound effect on your employment brand.
When a candidate is selecting a job, the decision is often more emotional than financial. By articulating your company's goals and values and demonstrating the altruistic side of your organization, you'll create the type of environment in which employees can envision themselves feeling comfortable and thriving. It'll give you an edge over your competitors, and help you hold on to your top talent.
2009 Labor Market Review
Friday's Bureau of Labor Statistics' (BLS) Unemployment Report offered a glimmer of hope in an otherwise gloomy economy. Although the unemployment rate rose to 9.4 percent, the overall pace of job losses slowed to 345,000 in May.
On the heels of this announcement, one of our clients asked me to pull together my thoughts on the market. The most recent Yoh Index of Technology Wages showed very minor change in wages, just a slight increase over the past 12 months. This trend is indicative of the uncertain economic climate, and counter-intuitive to an economy with high unemployment.
However, as companies continue to cut jobs, remaining staff is expected to be more productive. Some companies only retaining high-performers may find this population demanding more recognition and upward mobility during these trying times. While this may artificially lower labor costs in certain sectors, the unforeseen wage increases are likely to off-set a portion of savings.
As the economy gets back on track, these areas are projected to be of specific concern:
On the heels of this announcement, one of our clients asked me to pull together my thoughts on the market. The most recent Yoh Index of Technology Wages showed very minor change in wages, just a slight increase over the past 12 months. This trend is indicative of the uncertain economic climate, and counter-intuitive to an economy with high unemployment.
However, as companies continue to cut jobs, remaining staff is expected to be more productive. Some companies only retaining high-performers may find this population demanding more recognition and upward mobility during these trying times. While this may artificially lower labor costs in certain sectors, the unforeseen wage increases are likely to off-set a portion of savings.
As the economy gets back on track, these areas are projected to be of specific concern:
- Benefits: With renewed focus on retaining the remaining high-performers, companies will have to carefully consider changes to benefit programs. The most competitive employers will be one of the first companies to improve in this area once the economy starts moving.
- Legislation: President Obama's administration is likely to enact legislation in health care and employee rights which may impact HR processes and labor costs.
- Recalibration: As companies look to be more competitive, focus shifts back to core businesses and processes. This change in focus impact talent needs and demand. Companies able to provide a timely response to changing conditions will need streamlined talent evaluation processes in place.
- 1099s: Independent contractors are a target for cash strapped states looking for revenue. As states become more aggressive in pursuing non-compliant 1099 tax revenue, employers will suffer from fines, interrupted work and full-time employees burdened by auditors. Traditionally, this category of workers has seen limited controls and oversight on quality and visibility. Yoh Talent Solutions' Workforce Trends Survey found that companies haven't reduced the use of independent contractors as significantly as in other areas of the workforce. Independent contractors will prove to be a substantial risk in the months to come.
Implications of improper classifications for independent contractors
Today, I came across two articles that underscore the very nature of what we've been discussing here at The Seamless Workforce. They are seemingly unrelated at first glance, but considered together, they should serve as a wake up call for any organization that is doing business in a cash-strapped state.
First, we have the case of a Mr. Elienberg of Roxbury, Mass., which was highlighted in Tuesday's Boston Herald. Mr. Elienberg is the face of a class-action lawsuit against broadband company RCN, alleging that RCN abused his classification as an "independent contractor" -- along with over 1,000 other RCN contracted employees.
Then, there is today's Wall Street Journal article about the revenue shortage facing some states, and the dilemma of potentially raising state income, sales, and other taxes to compensate.
So, how are the two related?
Let's go back to Mr. Elienberg's case. While the article doesn't report on this aspect of the story, one has to ask what the tax repercussions are going to be if the court finds in favor of Mr. Elienberg. Quite likely, it will be significant for Massachusetts -- the state will collect back payroll taxes.
On the flip side, RCN will most likely incur fees for the back taxes, as well as potential punitive damages for violating the policy. And because RCN does business in states up and down the East Coast, it is likely other states will decide to audit the independent contracting practices of RCN.
The debate often turns to the necessity of raising or lowering taxes, but the fact is that there are plenty of state tax codes being examined by revenue departments of every beleaguered state in search of a minimally tapped revenue stream. There is no need to pass new legislation, no need to get a referendum passed, and no humiliating headlines about increased taxes. Instead, there is just unencumbered revenue already entitled to the state.
The message for corporations in states such as these is simple: Conduct your own audit and get your house in order as soon as possible.
First, we have the case of a Mr. Elienberg of Roxbury, Mass., which was highlighted in Tuesday's Boston Herald. Mr. Elienberg is the face of a class-action lawsuit against broadband company RCN, alleging that RCN abused his classification as an "independent contractor" -- along with over 1,000 other RCN contracted employees.
Then, there is today's Wall Street Journal article about the revenue shortage facing some states, and the dilemma of potentially raising state income, sales, and other taxes to compensate.
So, how are the two related?
Let's go back to Mr. Elienberg's case. While the article doesn't report on this aspect of the story, one has to ask what the tax repercussions are going to be if the court finds in favor of Mr. Elienberg. Quite likely, it will be significant for Massachusetts -- the state will collect back payroll taxes.
On the flip side, RCN will most likely incur fees for the back taxes, as well as potential punitive damages for violating the policy. And because RCN does business in states up and down the East Coast, it is likely other states will decide to audit the independent contracting practices of RCN.
The debate often turns to the necessity of raising or lowering taxes, but the fact is that there are plenty of state tax codes being examined by revenue departments of every beleaguered state in search of a minimally tapped revenue stream. There is no need to pass new legislation, no need to get a referendum passed, and no humiliating headlines about increased taxes. Instead, there is just unencumbered revenue already entitled to the state.
The message for corporations in states such as these is simple: Conduct your own audit and get your house in order as soon as possible.
Achieving talent supply chain efficiency
Recently, my colleague Dan Cobb was quoted in an article in PROCESSOR by Sixto Ortiz Jr. about staffing challenges faced during the economic crisis. The article underscores the importance of considering multiple factors when establishing a full strategic workforce plan, and highlights outsourcing as a viable alternative to meeting the staffing needs of your company.
It's a point that we've openly agreed with. Outsourcing removes a huge burden from the shoulders of HR and management -- but only if it's done correctly. It's critical to find a trusted partner that understands the operational side of fulfillment and focuses on improving internal processes to achieve supply chain-like efficiency.
Some specifics to keep in mind:
Training investments. Technology, and the skill sets required to manage it, changes at a more rapid pace than any other area of the business. Outsourcing the search and training of these tech employees removes the burden from your staff, and allows them to focus on more important matters -- for example, how their computing infrastructure is poised to handle the next big acquisition, product line, or cost cutting measure. An ideal outsourcing partner develops the skill sets of certain types of technical resources, and will deliver a solution that provides your company with the best, brightest, and most technically up-to-date resources on demand.
Employment brand. This must be considered when selecting a staffing partner. Vendor-neutral labor programs can damage and water down your company's employment brand. Partners must have a stake in your success, and demonstrate their willingness to organize and manage the supply chain.
On-boarding efficiency. This refers to the speed with which you can have a new resource up and running, or move a resource from one area to another with minimal impact or lag. A recruitment partner should be able to complete these transitions with ease and minimal disruption to the organization.
Today's economic conditions are forcing companies to consider new best practices for human capital management, including focusing on nontraditional segments of the workforce. For those new to the idea of "non-employees," as well as those who are already familiar with it, RPO can be an excellent tool for managing your workforce.
It's a point that we've openly agreed with. Outsourcing removes a huge burden from the shoulders of HR and management -- but only if it's done correctly. It's critical to find a trusted partner that understands the operational side of fulfillment and focuses on improving internal processes to achieve supply chain-like efficiency.
Some specifics to keep in mind:
Training investments. Technology, and the skill sets required to manage it, changes at a more rapid pace than any other area of the business. Outsourcing the search and training of these tech employees removes the burden from your staff, and allows them to focus on more important matters -- for example, how their computing infrastructure is poised to handle the next big acquisition, product line, or cost cutting measure. An ideal outsourcing partner develops the skill sets of certain types of technical resources, and will deliver a solution that provides your company with the best, brightest, and most technically up-to-date resources on demand.
Employment brand. This must be considered when selecting a staffing partner. Vendor-neutral labor programs can damage and water down your company's employment brand. Partners must have a stake in your success, and demonstrate their willingness to organize and manage the supply chain.
On-boarding efficiency. This refers to the speed with which you can have a new resource up and running, or move a resource from one area to another with minimal impact or lag. A recruitment partner should be able to complete these transitions with ease and minimal disruption to the organization.
Today's economic conditions are forcing companies to consider new best practices for human capital management, including focusing on nontraditional segments of the workforce. For those new to the idea of "non-employees," as well as those who are already familiar with it, RPO can be an excellent tool for managing your workforce.
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