Co-employment issues are nothing new for larger companies, but the increased reliance on flexible workforces in sectors such as IT and communications has brought the problem to the forefront like never before. In fact, it is — and has always been — a major area of liability for companies of all sizes.

So, what exactly is co-employment and why should the SME business community care?

While laws can vary by jurisdiction, co-employment refers to an employment arrangement where an individual working as a contractor or freelancer may be able to successfully argue that they have the right to employment benefits. This can lead to court battles, government-levied fines and significant financial settlements in the contractor’s favour.

There is a long list of factors which denote a co-employment situation — all of which are considered by governing bodies when determining the extent of an employment relationship — including:

• The length and extent of the business relationship,

• Which party provides the tools and equipment (i.e., computers, software),

• Who controls the contractor’s schedule, and where they work (i.e. on-site or off-site),

• Whether the contractor is functioning as a legitimate business, servicing multiple clients, and maintaining a marketing presence (e.g. the contractor has a business card, letterhead and other materials marketing themselves as a business),

• How performance is reviewed, and

• The contractor’s level of participation in company events, parties or meetings (things that a regular employee would participate in).

Incorporating a flexible workforce model has significant business value and can save companies time and money on administrative overhead and management. But with this flexibility comes risk which needs to be understood, and managed. Put simply, organizations not only need to comply with employment law in each jurisdiction in which they operate, but must also understand liabilities and what resources are available to effectively manage their contractors.

Over the past decade, I’ve spoken with an ever-growing number of CEOs and managers who began to question their relationship with contractors as courts have continued to rule against companies on this issue.

This increasing awareness has been spurred by cases such as Vizcaino vs. Microsoft, where a group of contractors filed a class action suit against the software giant claiming the company owed them the same perks, benefits and rewards given to full-time staff. They argued that since they worked side-by-side with the full-time employees under very similar circumstances, they were entitled to the same employment compensation and benefits.

The employees won.

So, how does a company know if it’s in breach of legislation and what steps can it take to mitigate the problem? If your organization doesn’t feel confident about the risks you may be exposed to, it may be beneficial to consult with a lawyer who specializes in employment law. Also, it might be beneficial to engage an employment service provider who can help assess each freelancer’s contractor status or work with a staffing company who will take on the responsibilities of the employer-of-record (in the case of freelance employees) or agent-of-record (in the case of contractors).

The challenge is that the scope and complexity of co-employment risk management increases with the number of freelancers you have working in various regions/ jurisdictions whether provincial, national or international.

Three years ago, for example, we began working with a large multinational corporation with a marketing department that relied on a sizable contract workforce to deliver its B2B marketing communications. Realizing they were at increased risk as their contractor numbers increased, we worked together to design a workforce management program that minimized their employment risk by assessing each contract relationship to accurately determine their true employment status (i.e. freelance employee vs. contractor) and transitioned them to Creative Niche’s employment and payroll systems (i.e., we either began paying them as an employee, or we continued paying them as a contractor).

The result? By managing the multinational’s various contractors — who worked in various countries including the U.S., U.K. and Canada — we were able to help the client reduce its administrative burden, including processing multiple invoices and accounts payables. We also provided the contractors with regular weekly/bi-weekly payment (rather than managing their own collections, and long payment cycles e.g. 90 days), and provided them with additional perks and benefits to help retain their services, improve the work experience, and provide greater continuity for their customers (but more on that in another blog).

While it may seem like a minor issue, co-employment poses a major — but highly manageable — risk for companies of all sizes and in all sectors. It just takes the right level of planning and preparation to navigate around the problem.

Until next time,

Stephen

Stephen Hodges is the President at Creative Niche. He is a long-time veteran of both recruiting and graphics industries. Read more about him on Our Team page.