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The State of Contingent Work & Guide to Compliant Direct Sourcing

May 11, 2020

Get the most up-to-date look at the CW industry with never before seen research by Ardent Partners. We’ll explore direct sourcing challenges and compliance strategy for HR and Procurement execs.

The Guests:


Join host Tyler Dlugolecki with guests Christopher Dwyer and Michael Matherly, as they review the newest research and latest trends in Contingent Workforce Management. With Direct Sourcing experiencing rapid growth, it still remains a challenging new frontier for many. They’ll explore the top steps you can take to immediately improve your hiring & compliance strategy.

Audio only:

Full Transcript:

Michael Matherly: OK, can you hear me now?

Tyler Dlugolecki: We can.

Michael Matherly: Excellent. Thank you. Well, before I get started on the complaints side of things. Let me thank Chris for giving a shout out to FLW as we are preparing for this webinar. Chris and I were reminiscing about the days where we worked on SBW services procurement, you know what, seven, eight years ago. And, you know, you know, it still plays ranked third on the list. And now it’s behind direct sourcing. But I think that’s OK. I think direct sourcing is probably a more appropriate focus for technology and innovation. And as some of you who follow me know, I really believe that direct sourcing is going to give a rise to all ships, particularly SSW and service procurement. But today, we’re here to talk about compliance and its impact on direct sourcing and study further found that about half the companies are actively and consistently only about half the companies are actively, consistently reviewing the classification of contingent workers that they engage in. Over half of companies say that they struggle with compliance who risk issues relative to the overall talent acquisition efforts. I don’t think any of us are would be surprised by those numbers, but we should all be concerned, given the changing nature of the work. It’s only increasing its velocity. And if compliance as it typically is a lagger to innovation, then I think we all need to be aware of it and make a real effort to keep it from creating too big of a gap that might adversely impact the benefits of direct sourcing. Chris did a good job of highlighting the impact that technologies are having, how they are driving the appetite for direct sourcing solutions. But not all things direct sourcing or moving at such velocity as as we saw in the prior slide. Regulatory compliance, and specifically as relates to ten ninety nine independent contractor classification are clearly lagging behind.

Michael Matherly: Some might even say that the regulatory environment is moving in the opposite direction, that, you know, that’s a tough reality when we’ve got, you know, a shiny new object in our industry that really seems to be taking off.

Christopher Dwyer: But the fact is, those pesky state and federal worker classification rules still apply. Eighty and five eighty five in California is real. The threat of Senate Bill 863 in New Jersey is real. And while only a few states are taking these aggressive actions to further constrain the market, went to 99 workers in Massachusetts and Illinois’s one or two others to be on the lookout for. The more important observation that we might make in today’s regulatory environment is that no state and no federal agencies appear to be making any significant moves towards relieving or easing the rules for engaging to 99 workers. So it’s not all about what you see. It’s about what you don’t see. So we’re effectively stuck with using a slower, more traditional compliant screening methods in a higher velocity count acquisition model. And those two things, as you know, I don’t think I’m surprising anybody. Those two things appear to be at cross purposes. The two steps forward that direct sourcing solutions are providing to our industry seem to be countered by the one step backward when ten ninety nine classifications screening has to be addressed.

Tyler Dlugolecki: Obviously, the compliance conversation is focused on on how to conduct compliant screening within the various direct sourcing tech on platforms. Chris went over and mentioned inherently, though, it’s important to recognize if we are screening workers for proper classification. We have to acknowledge that all contractors or contractor engagements might not meet that 10 nine nine criteria.

Christopher Dwyer: So a topic for another day is how w to contract or pay rolling aligns with direct sourcing and the platforms that are starting to support it. There are obvious structural and regulatory differences about how W to contract engagements are unboarded and within the context of direct sourcing tech platforms. Today, we’re going to focus on actually conducting the screening and then go beyond the screening into some of the agents of record services that the platform can afford. Again, another day’s topic is supporting pay rolling and W2 contractors in these types of platforms.

Tyler Dlugolecki: OK, recognizing these challenges, we have developed a what we think is a unique approach, and we call it a formula, which is clearly a gross simplification. But but I think it is accurate. This compliance funding formula doesn’t alleviate compliance requirements. You know, if only. Right. But we have redesigned the application of the traditional compliant screening model to better align with with the direct sourcing model itself, the objectives and the benefits that Chris mentioned earlier and to work within the host. And let me mention, I get to work within the host talent platforms, the pools, the freelance management systems, the gig and on demand platforms. Our focus is on preventing and use and reuse preventing of the contractors and preventing of the services those contractors deliver. And we do this from within the platform as contractors are invited to create the profiles. We do this with platform clients prior to them uploading their requests. And we leverage the platform, whether it be a Fremont’s management system, a talent pool, a gig on demand, whatever it may be, we’d leverage that platform to do it all in one place. The reason we do that is it keeps the users on both sides of the equation, both the contractors and the, you know, the engagement side managers, if you will, in a single system versus sending them out to a different system to respond to questionnaires and to upload audio file documentation. Our approach is to do it all within the host platform. And, you know, shortlists has been a great partner collaborating with us on this. And we’ve figured out a way to do it. And we’ll give you a glimpse of how we’re doing it. Short list in just a minute. What does preventing do for us? You know, it’s it’s a critical part of our formula, of our approach. It allows us to apply this simple formula that goes like this. A preventive contractor, plus a ten ninety nine ready engagement equals a compliant ten ninety nine engagement, all screened and managed right there in the host platform. If you if you take that and apply it to the way before we had direct sourcing, before we had these different tech platforms, and you look at kind of the traditional way of doing ICD compliant screening, that’s effectively what we’re doing.

Michael Matherly: There’s two pieces to the screening that have to be addressed. The contractor or the independently established business, you know, the C factor and the ABC test and then the engagement side, you know, is it properly contracted?

Christopher Dwyer: Are the is the direction and control, you know, embedded in the contract? And in fact, are the behaviors during the engagement all aligned with that, a factor of direction, control and making sure it’s not too heavy handed on the client side? And really that the contractor is driving most of that direction and control. To build upon the preventing concept, though, we use the platform environment to facilitate some key compliance aspects that further support our provision of the service of agent of record services to manage those to ninety nine contractor engagements for the platform clients. For instance, our icey agreement incorporates the work orders that are created within the platform between contractors and client requests.

Christopher Dwyer: So no separate SSW to be developed off-line or separately and then separately negotiated. Instead, we leverage the work order details in kind of the matching or the selection process that these innovative technologies have developed and are really the the engine, if you will, behind that that technology or that marketplace.

Christopher Dwyer: We leverage that to go along with icey agreement, master terms in order to form, you know, each individual FLW, which is clearly a requirement for each to 99 engagement.

Michael Matherly: This nearly nearly fully automated S.W. creation methodology enables the on demand the gig platform so that, for instance, a ICI PreCheck contractor that is matched online with a ten ninety nine ready engagement at five p.m. today can actually be fully and compliantly engaged and ready to work a shift or gig that starts at 7:00 a.m. tomorrow morning. That’s the kind of alignment from a compliance perspective that we’re talking about that really doesn’t constrain but actually enhances and reinforces kind of velocity that that new acquisition model that we refer to indirect sourcing. And what the technologies are really driving towards. So we’re super excited about some early successes we have. And we do have a case example to share with you in just a minute. Confusing the compliance into the existing processes built into these direct platform technologies clearly yields a faster onboarding and screening cycle time. It creates a better user experience for both contractors and managers, and it allows the compliance team to monitor. This is important to monitor activity, to identify those yellow and red flags that may lead to intervention of a higher risk engagement due to a material change in contractor status. For instance, if a contractor treats their compliance profile and says they’re in the state of California, but then halfway during an engagement, they hope that they live in Oklahoma, but then halfway turn the engagement they moved to California or New Jersey. That’s something we want to know from a compliance standpoint, using the platform to kind of have visibility to the full engagement and the contractor profile. And obviously a lot of things that we do to sort of set the stage to enable that. It’s really important for us to manage our risk because we’re taking on a fair amount of that risk by being the agent of record, but also help the client in the platform itself manage that risk for everybody involved.

Michael Matherly: OK.

Michael Matherly: So when I just talked through was, you know, I wanted to give you a screenshot of of what we have done short list. We believe that approach, that kind of preventing reuse, platform based solution can really be built into, you know, virtually any of the direct sourcing talent pool on demand gig types of platforms. But we’ve been very fortunate to partner with short list. And this is how we built it into their platform. As you can see in the top screenshot there, the candid onboarding compliance vetting is a very integral part. We work with the clients to determine, you know what? What are they doing to vet them from a skills or an availability or other perspective? And then we kind of tack on the compliance that and it comes across very much like the rest of the profile that that contractor is filling out on that platform. And that’s the key. They barely know that even going into a compliance vetting, because we leverage a lot of the data they’ve already put in into basic information. And then we ask him a few, not a few, maybe a dozen specific compliance related questions. And and then we review it and then we communicate with them. We have them upload the documentation that required right into the shortlist platform. So everything we need from from a compliance team, from a screening perspective is right there at our fingertips. And if we need to go look at the engagements they’ve had or we need to review their resumé or we need to review their address or anything else about that contractor, we have access to their full profile. So it really makes it convenient and easy and quick for us to do that kind of compliance screening. And then the other piece I want to point out was on the bottom screenshot. You know, we refer to it as badging. A lot of platforms get set up as 10 ninety only. Right. So really, you have to meet the 10, nine nine criteria, both on the contractor side and the engagement side in order for this marketplace to sort of match and and create the services to be delivered. Not all platforms are obviously like that. I mean, there’s there’s some that can go both ways. It could be a ten ninety nine or it could be a W2 contractor engagement. In either case, this badging that we do after we complete the pre vetting of the contractor really gives the platform owner, but also their clients an option. Lots of options to sort of say, hey, you know, know, sometimes I have staff augmentation needs, sometimes I have project based needs. And this is a very much a project based need. So I want to make sure that I’m aligning with a ten ninety nine contractor. They go out and they can search for it or they’d look for the badge or they just simply see that, hey, five of my five contractors aligned with this request that I have, that badging allows the selection manager to sort of review and say, oh, I see these two actually, you know, are prevented for four, ten ninety nine contractor status and the other three aren’t. So I think I’ll just narrow my focus and my selection to these two that are that are already badged. It really lends itself to reuse because when we. Compliance with that when we screen a contractor in the platform. It’s not a one and done like traditional screening tends to be. Sometimes we actually maintain those records and we renew them. So if you stay and if a contractor stays in the platform for more than a year, regardless of what their engagement activity, we’re going to go back to them. And just like you would do in the traditional off line kind of compliance environment, we’re gonna re-evaluate them. We’re gonna see what’s changed. We’re gonna make sure that they’re still certified and make sure that they’re, you know, haven’t taken that W-2 job with any other client. We’re going to be looking at any other flags that may arise over time. That reuse, imagine. Really? Pretty much go hand in hand together. All right. Let’s go take a quick look at the case example we put out. And again, you know, we can Tyler, consent is out to you. So I’m not going to read this, you know, verbatim, because I want to make sure that we leave ourselves some time for Q&A. You know, this case study is an actual client that we work through. Short list to set up their global consumer goods company. They they want to use contractors online to do consultations with their customers. And they wanted to leverage only independent contractors across the U.S. to complete these consultations. So the challenges they were facing were, you know, hey, traditional screening really wasn’t a line itself. And when I say traditional screening, what I’m really referring to is the typical five, seven, 10 day or more long screening process that sometimes occurs when you’re not, you know, in a high velocity platform like short list or something, other technologies. But, you know, the traditional screening wouldn’t really support their model. And they needed to have the protection of an agent of record.

Christopher Dwyer: They needed to obviously properly screen and classify each contractor that came into their environment, partly because and they needed to have that strong sense of reuse because because of the short 10 years of the gigs or the engagements that these contractors wouldn’t be working on for the client. And they needed to make sure that workers comp in general liability insurance requirements, which was a client slow down requirement, were put in place. So we we put in place. You can imagine that platform based solution that that I’ve reviewed earlier and it yielded some really cool results is what really gave us some some excitement about, you know, hey, this is a viable solution. And we we’ve built upon it since then. But the initial screening cycle time from when a contractor came in and because we the way we structured the compliance vetting stage of onboarding and leverage the other information that our client was also gathering the ability for short list to, you know, request in handled the upload of documentation we’re seeking. We had an average screening cycle time of the contractor from one point five days, and 30 percent of those were actually less than one day. So super excited about those results. And then the automation compliance, if you could stay on that slide. The automation of that has allowed us to be the agent of record within the platform. So everything we need to do to, you know, be compliant ourselves by providing the service, but also to protect and identify the con clients of the platform are in place. And finally, we didn’t talk much about it in today, but it also enables us to do what we’re referring to as an opt in insurance through bunker. And there are other providers of icey specific insurance, but bunkers that we pioneered with. I wanted to give them a call out.

Michael Matherly: Greater than 90 percent of the contractor population didn’t have their own insurance or their insurance, they had did not meet the clients slowdown requirements. So we leverage the platform questionnaire to actually gauge or offer. We’re not brokers, so we’re not selling it. But we simply offer to make the connection to a compliant insurance package. And over 90 percent of them opted in for it.

Tyler Dlugolecki: We we basically configured that into the short list payment calculations. We extract, you know, one and a half percent. I think it is for their insurance costs and usage based, meaning they don’t have to go out and buy for your premium. And then we and we handle the premium payment back to bunker. It’s so easy for the contractors to say yes and to opt in. They don’t have to fill it out application. They don’t have to answer any of the questions of, hey, do you have your own insurance? And if the answer is no. Would you like some assurance that we could facilitate for you? So. So that’s kind of the results that we’re superexcited about on the on the short list platform with regards to compliance and direct sourcing. I really appreciate you guys. Patients. I know I kind of blew through this, but I wanted to do that so we could leave ourselves. This 10 minutes of Q&A time. So I’ll just kind of turn it back to our moderator, Tyler, to maybe facilitate some Q&A.

Christopher Dwyer: Right. Thank you, Michael. Yeah. Just to end on time here, we have about 10 minutes here for some Q&A. Have a bunch of questions that have come in. So we’ll just choose a couple here. Here’s one for Chris. Why is there so much focus today on direct sourcing? Because it doesn’t necessarily seem like it’s a new concept or strategy.

Tyler Dlugolecki: Again, that’s a great question. Thanks, Tyler. Yeah, you know, I get asked this all the time now, and especially in the wake of some of the newer research findings. Right. That that shows the direct sourcing is a what top to talk to local area in 2020. Yeah. And that’s I mean, it’s not necessarily a bad thing, but direct sourcing has been a viable strategy for talent acquisition for four years. And in fact, a lot of European digital workforce programs, I’m sure, have been leveraging them, leveraging direct sourcing for for such a long time. In fact, you know, a lot of MSA PS that have, you know, huge business overseas and in Europe and other parts of the globe. They have clients that have been leveraging direct sourcing for, again, for a really long time. Why is it just hitting here? Why? Why is it so hot now? Because I do think that in many areas, North America has sort of been more progressive and they’ve been a little bit faster in terms of adopting some of the newer technologies and adopting some of the new strategies and purchase. But when it comes to direct sourcing, I think that there’s sort of an elegance to traditional talent acquisition that’s applied to direct sourcing. And when we’re when we’re moving to a more talent led world of of non employ labor and contingent workforce. Well, I think direct sourcing just makes sense. And so I do think that that’s part of the that’s one big reason why so many organizations today are starting to realize, well, this this is a this is a huge piece of of of how we can really revolutionize the way that we we find an engaged talent. And so it’s it’s all positive. You know, none of it’s negative. There’s there’s nothing that tells me that the focus on direct sourcing today is a bad thing. To me, it only speaks that speaks volumes to the fact that more and more businesses are really rethinking and reimagining how they find the talent that they need.

Michael Matherly: Great. Great. And this one came in for Michael, thinking of different types of industries. Are you seeing certain clients who are more risk adverse and in need of more compliance measures? And our third party risk departments pushing procurement to review services, staff, augmentation processes, or are you seeing compliance more driven by other aspects of the business?

Tyler Dlugolecki: No, it’s a good question and something we we think about, talk about and quite honestly, struggle with all the time.

Tyler Dlugolecki: Mary, the I would say the third party risk departments should be pushing procurement and should be pursing H.R. intown acquisition to review their processes to make sure that compliances is addressed appropriately for for their for their business as far as the different types of industries.

Christopher Dwyer: You know, yes, we always have industry specific questions and, you know, we all kind of know that there’s different kinds of industries that, you know, align themselves well or are more risk or less risk. But what we’ve what we’ve actually been seeing more is more of a geographic push and inquiry about compliance.

Tyler Dlugolecki: I can’t tell you how many phone calls I’ve done. And I know there’s a couple for you on the phone. I see you also out in the compliance business. So we’re very glad you joined us. But I know you’re having these these consultations with existing clients as well as your prospects or just people interested on how to navigate.

Michael Matherly: Five and have it navigate, you know, do business in New Jersey as it’s safe to do business here anymore. And, you know, those conversations are really, I wouldn’t say industry specific.

Christopher Dwyer: All, you know, although there’s some some some carve outs that might suggest otherwise. I think more of the conversation is about how to be addressed, the regulatory environment that is, you know, exploding right before their eyes. And for those who have large populations or portions of their populations in California or New Jersey or elsewhere, you know, there what I’m happy to hear is that they’re becoming aware of it.

Michael Matherly: And a lot of it is happening from companies like Short List. You know, my company, a lot of the companies that are joining us on the phone today who are reaching out and saying, hey. This direct sourcing trend is great, and it’s really giving you access, greater velocity to talent. That’s absolutely the right thing to do. But they’re also adding in. And, hey, let’s not forget about the compliance piece of it. Let’s not, you know, take that one step backwards because we forgot to adequately address compliance. So I’d say it’s across industries. You know.

Christopher Dwyer: The other thing I’ll say before I finish, I’ve got the next question is.

Christopher Dwyer: The types of businesses we’re seeing that are engaging with the direct sourcing, the finance management systems, the online call and demand gig platforms tend to be very technology based. Right. I mean, is their business to do matching of marketing or graphics professionals and clients who need those services? So we’re seeing a lot of those new startup technology based, talent based marketplaces emerging and recognizing that they do need a compliance component to their solution or they’re not going to be able to fully satisfy some of their clients.

Michael Matherly: We found that not all clients are requiring or pushing down the compliance requirements to their tech providers, which isn’t a surprise. But we are starting to see some people to recognize as they’re scaling. Hey, I’m getting bigger now. I’ve got more than 100 contractors and I’m I’m in 20 U.S. states as opposed to just this one during my pilot. They’re starting to recognize, OK, compliance needs to be brought into the picture. We obviously recommend that it be included from the very beginning during pilot stage because there is an economic as well as a procedural impact and you don’t want to be adding it later. It might just disrupt what you the good that you’ve created. So I’ll pause right there, anticipating your questions.

Christopher Dwyer: Yeah, this one came in for Michael as well. So when it comes to independent contract workers, I, CDW 2s, et cetera. What are the major categories of compliance that businesses need to be aware of and prepared to act upon or control for?

Christopher Dwyer: Well, you know, it’s a good question, and I tried to address a little bit and through the complaints we focus on is the oil in today’s conversation, obviously, is worker classification and making sure that the myriad of rules and regulations are addressed and give giving visibility to, you know, as it relates to the contractors being engaged. But the other compliance that really cannot be forgotten is, you know, pay rolling in employment through these through these platforms. You know, we we do the screening and then we make a determination. It’s either a ten ninety nine. I’m putting it bluntly and simply, but think there are ten ninety nine or two W-2. You need to call in, you know, W-2, payroll firm experts to make sure that compliance is being adhered to and particularly around, you know, the number of hours worked overtime. You know, and one of the challenges that I’m sure, John, who is on the call today, would acknowledge to some of these faster pace direct sourcing online platforms is, you know, you have to get the I9 done.

Christopher Dwyer: And there are other onboarding requirements that really don’t lend themselves to really fast processing like we can do on the ten ninety nine sites. So we fully acknowledge that and recognize that. And we bring in payroll experts to help us address that compliance issue, because it really is a different set of rules that you need to follow.

Michael Matherly: But thanks for the question.

Tyler Dlugolecki: Great. Thanks, Michael. And we have one final one for we wrap up here do Clancy short list as a tech vendor or consultancy or recruitment business. How do you how do you guys categorize your business? That’s a great question. I can just take that and then wrap up here. I guess what we would consider ourselves to be as a workforce management platform, serving sort of the end to end life, life cycle of, you know, what we have is essentially an external worker, an independent contractor or freelancer, et cetera, everything from onboarding through to payments and affording. So we really try hard to make compliance and everything that we do, which was a huge goal of this this webinar and to transition. Alex, I want to thank Michael and Chris and thank you to everyone for joining the webinar. I’m just send out a link to today’s webinar in your e-mail for future viewer viewing. Feel free to share with their colleagues or your professional network. I also wanted to let you know that we will be offering a complimentary review for a limited time in regards to your compliance program. So please feel free to get in touch with us regarding that. And I can also stick around for a few minutes to answer any questions. But thank you guys for joining.

Tyler Dlugolecki

Tyler oversees the content production efforts at Shortlist. As a marketer and entrepreneur, he looks to bring fresh thinking to their multi-channel readership. With a background in managing independent contractors, Tyler understands the challenges of modern freelancers and the professionals that hire them.