2021’s economic recovery has resulted in a dramatic surge in the number of Independent workers in the United States, increasing from 38.2 million in 2020 to 51.1 million in 2021 – an unprecedented 34%. Managing contractor payroll is a complex employer responsibility that opens organizations up to risk and program overspend.
The truth about contractor payoll
Performing a maturity assessment of your Contractor Payroll Program is the key to determining whether your organization has the Onboarding, Rate Management, Worker Management and Value Add attributes needed to ensure risk mitigation and really drive cost savings.
They may not be aware of it, but many organizations aren’t getting the most out of their contractor payroll program. Yet, in order to save on costs and increase efficiencies, there are key attributes that every program must consist of. The best way to determine whether your organization’s contractor payroll program is delivering the best value is to conduct a program maturity assessment.
Whether your organization refers to them as gig workers, temps, freelancers, or independent contractors, contingent workers can be a valuable asset to your company. But managing temporary talent is also an extremely complex undertaking.
Below, we’ll outline how to conduct a program maturity assessment, while also examining some of the potential risks of a mismanaged contractor payroll program.
What Is a Contractor Payroll Program Maturity Assessment?
In short, a maturity assessment is an evaluation of your contractor payroll program’s effectiveness and efficiency.
A maturity assessment can be conducted by a staffing and contract workforce service provider, or you can complete the assessment in-house. The purpose of the assessment is to identify weaknesses in your current approach to contractor payroll practices.
The maturity assessment is divided into five main categories, which are as follows: Onboarding, Rate Management, Worker Management, Value Added and IC Compliance.
Below is a high-level overview of some of the required program attributes a contractor payroll program must have in order to perform at a best-in-class level.
The onboarding process is an essential part of any contractor payroll program. A seamless onboarding will cut costs and ensure that temporary assets are able to begin working sooner. For instance, an onboarding program that is reduced from three weeks to only one week will reduce organizational expenses and improve project completion efficiency.
When you’re assessing onboarding practices, one “must-have” onboarding attribute includes determining whether your program addresses worker wellbeing services, including health apps, perks, and EAP.
When you’re performing a maturity assessment on your rate management practices, one “must-have” rate management attribute includes determining to what extent your organization is leveraging geographically based rate data to benchmark pay rates for payrolled employees and contingent workers. This practice eliminates large discrepancies in contractor and payroll employee wages.
You should also determine to what extent your outsourcing agency is negotiating pay rates for payrolled workers on your behalf. When done effectively, this negotiation process can save your organization between 5 and 15%.
The third phase of the assessment is to evaluate your worker management practices. In this area there are a few items to look out for. Ideally, you should ensure that temporary employees are being provided access to healthcare benefits and one-on-one support.
As part of your worker management assessment, another “must-have” attribute is ensuring that your program is leveraging a work permit expiration tracking technology. This safeguards you from unlicensed contractors participating in projects that could open your company up to substantial civil liability.
When used properly, a contractor payroll program can add significant value to your organization. Equally, a mismanaged program can open the door for multimillion-dollar lawsuits.With that in mind, you should be leveraging in-house counsel to examine payrolled worker claims and other legal issues. In addition, you can use direct sourcing tools and curation services to build worker communities and source workers for future projects.
Independent Contractor (IC) Compliance
Lastly, your assessment should address the compliance of your Independent Contractor program. You should first determine whether you currently have ICs as part of your contractor payroll program. If so, you should ask the following questions to complete the self-assessment:
- • Do you indemnify the client against liabilities resulting in IC misclassification?
- • Do you evaluate ICs with validated third-party technologies?
- • Do you offer restructuring opportunities so that the worker qualifies as an IC?
- • Do you provide technology that tracks time-sensitive events?
- • Do you provide support to clients in audits being performed by regulatory authorities?
- • Are your payrolling fees funded by ICs?
If your program doesn’t include the functions outlined above, then your organization may be at risk for compliance-related violations. These violations could result in hefty fines or other penalties that could damage your reputation and profitability.
Optimizing Your Workforce with a Contractor Payroll Program Maturity Assessment
If an assessment reveals that your program is covering all your bases, congratulations; you can rest assured you have an industry-leading program adopting all current best practices. Like many other organizations however, your assessment might reveal that your contractor payroll program is not delivering all the value that it could be.
This article addresses some “must-have” program attributes of a best-in-class contractor payroll program. Do you want to gain deeper insights into the full list of program attributes required for a fully optimized program?
We invite you to take a complimentary Contractor Payroll Maturity Assessment below. You will receive feedback on the maturity level of your program and recommendations for improvement.