Q: Speaking to an HR Manager who may not have the ability or budget to utilize a VMS type program, what are some everyday best practices of managing contingent workers?
A: Your company will be afforded the most protection when your contingent worker is the W2 employee of a company, such as a staffing agency of consultant agency. As a W2 employee, you will have certainty that the contingent worker is paying all payroll taxes, is covered by another employer's benefits including workers' compensation, unemployment and others. When hiring an Independent Contractor, you will want to verify insurance coverage for worker's compensation and business insurance through review of a Certificate of Insurance.
Q: Are there cases when an individual (someone with a SSN but not a Fed ID) can be hired as a temp or contract worker?
A: Individuals with a SSN can be brought on as a temporary associate or contract worker through a staffing agency.
Q: Why would a company chose to 1099 vs. W2? What are the benefits or pros and cons of both?
A: W2 employees afford your company the greatest level of protection from employee misclassification and co-employment risk. Quite often, companies engage independent contractors directly and pay them as a 1099 contractor because that is how the contractor chooses to do business.
Benefits of working directly with a contractor as a 1099:
- Lower immediate costs since you will not have to pay any payroll taxes or other employer burdens such as workers' compensation insurance and benefits.
- No overtime pay premiums.
- Provides flexibility and access to special skills needed on a project basis only
- Incur a high level of business risk due to co-employment and employee misclassification issues
- Eliminates co-employment risk which can be very costly
- Eliminates employee misclassification risk which can be very costly
- All payroll taxes, burdens and benefits are paid by the staffing agency
- Provides flexibility and access to special skills needed on a project basis onl
- Upfront hourly cost may be more expensive than working directly with a 1099
- You are on the hook for overtime pay
Cons of working directly with a contractor as a 1099:
Benefits of working with a contingent worker as a W2:
Cons of working with a contingent worker as a W2:
Q: What are your thoughts on the common perception that you get better quality when you 1099 vs. when you W2?
A: The quality of work and services provided is not correlated with the type of contingent worker. The key to identifying the right candidate for the assignment is to ensure that the skill sets of the contingent worker meet the specific needs of your project. On a side note, staffing firms that W2 their contingent workers, typically have a stringent set of on boarding tests/assessments that they put their talent through before sending to a client site. This level of skill assurance ultimately benefits the client and can help with more of an immediate impact on the project need.
Q: Regarding best practices...what is your advice on doing things to include temps, i.e. holiday parties, staff meetings, evaluations, etc?
A: Our advice is to ensure that you are providing your contingent workers with the information, access and company information necessary to perform well on the assignment given to them. Participation in the above practices does not in and of itself place your company at risk of co-employment issues.
Q: What is the best practice of firms engaging a VMS/MSP in allowing staffing firms access to communicating with hiring managers?
A: In order for recruiters to hire talent that will work well within your existing teams and have the skill set you value most, it is important for recruiters to establish a relationship directly with hiring managers. The hiring managers should ensure that they follow the VMS/MSP requirements for processing requisitions and on boarding talent; however, adherence to those rules should not preclude a relationship directly with recruiting staff outside of the VMS/MSP. Quite honestly, we see NOT allowing access to Hiring Managers as one of the biggest detriments to a successful contingent worker relationship with any hiring/staffing firm.
Q: Is it true that I can get out of overtime by using 1099'ers?
A: Yes, but realize that the money you are saving by not paying overtime can be a fraction of the cost of penalties, interest and back taxes should you improperly classify workers as 1099. And you do still have to pay the IC for every hour worked, just not at premium OT rates. And keep in mind, most IC know this up front and probably have their normal hourly rate padded to ensure they do not lose out.
Q: What should I be asking my staffing firm to make sure they are compliant and subsequently I'm not putting my company at risk?
A: The staffing firm should be responsible for the day to day direction of their talent regarding job location, hours, expectations. In addition, the staffing firm maintains a personnel file for all talent with required on boarding with all tax forms and personnel forms. You should ask to see a copy of the Certificate of Insurance with your company named as an additional insured.
Q: Regarding the best practice of using an MSP....how does that effect the quality of talent when you do need specialized skill sets such as Proposal Mgrs or Creative Directors?
A: So long as your hiring managers continue to have a direct relationship with the recruiters, there will be no difference in the quality of talent brought in with a VMS/MSP. If your MSP/VMS restricts communication directly between your hiring managers and the recruiters, then the quality of your talent will decline. Another key is to make sure the MSP is not trying to be "everything to everyone". A staffing firm cannot be an expert in hiring light industrial talent, administrative talent, creative talent, proposal talent, finance/accounting talent, etc. The most effective MSP's have a line up of niche staffing providers as to provide their client with the best possible service and skills. The MSP should also keep in mind that most niche players are not working on the volume that the MSP is accustomed to and the margins/mark ups will typically be a bit higher for professional skill sets.
Q: Regarding the increased use of SOW's...can you utilize a talent on an SOW basis via 1099 AND W2 or just 1099...how does this work exactly? Do staffing firms provide talent on an SOW basis?
A: There are some staffing firms who are set up to provide project based work in addition to temporary assistance. If you chose to engage a contractor on a 1099 basis, realize that the risk of co-employment and employee misclassification increases significantly.
Q: What about conflicts of interest in firms that have MSP but also do staffing (i.e. Adecco)?
A: It is essential that you have clearly communicated rules of engagement between you and your staffing vendors and MSP. Your company must continue to hold the MSP accountable for metrics such as number of vendors solicited per requisition, the timing between receiving the requisition and sending it out to the multiple vendors. Also, the talent placed by the MSP must be held accountable to performance metrics such as turnover, time to fill and talent performance.
For information about how Cella can add value to your business through consulting, coaching, and training, please email cella@cellaconsulting.com.
