{"id":1680,"date":"2015-01-20T22:13:44","date_gmt":"2015-01-20T22:13:44","guid":{"rendered":"https:\/\/www.rimonlaw.com\/?p=1680"},"modified":"2021-07-08T18:56:00","modified_gmt":"2021-07-08T18:56:00","slug":"contractors-vs-employees-the-benefits-and-risks-of-hiring-outsourced-workers","status":"publish","type":"post","link":"https:\/\/www.rimonlaw.com\/contractors-vs-employees-the-benefits-and-risks-of-hiring-outsourced-workers\/","title":{"rendered":"Contractors vs. Employees: The Benefits and Risks of Hiring Outsourced Workers"},"content":{"rendered":"

This article, co-authored by\u00a0Thomas M. White and Mark Rosenman, was originally published by\u00a0<\/em>Chief Executive<\/em>. It can be viewed at the original source\u00a0here<\/a>.<\/em><\/p>\n

Alternatives to direct employment are flourishing, as businesses have come to believe they should keep in house only \u201ccore\u201d functions and outsource other activities like IT and HR to specialized service providers. This \u201cemployee light\u201d model shifts labor costs from fixed to variable, enhancing a business\u2019s flexibility to adapt to market changes.<\/p>\n

At the same time, a new kind of organization, the Professional Employer Organization (PEO), provides \u201cleased\u201d employees that function day-to-day like employees but are on the books of the PEO. Businesses are engaging independent contractors to perform specific functions. They should realize, however, that there are risks and hidden costs\u2014both strategic and legal\u2014in the \u201cemployee light\u201d model.<\/p>\n

Major, sophisticated businesses, such as Microsoft and FedEx, have been determined by courts to have mischaracterized a significant portion of their workforces, leading to legal and public relations troubles. Decision makers need to consider the following.<\/p>\n

    \n
  1. Build your HR base first.<\/strong>\u00a0A successful business requires an engaged workforce and a vibrant culture. It\u2019s hard to do that with a talent base consisting almost entirely of contractors and leased employees. You need a base of employees who see the possibility of a long-term future with the business and a single-minded devotion to their work.<\/li>\n
  2. Consider the risks of outsourcing.<\/strong>\u00a0Outsourcing major activities like IT requires that management understand its activities well enough to specify them in a contract and monitor service delivery\u2014and address changes in requirements that arise after the contract is signed. A well known professional services firm that outsourced its recruiting had to bring it back in-house after it struggled to communicate to service providers the nuances of its human resource needs.<\/li>\n
  3. Decide whether to go with independent contractors or employees<\/strong>.\u00a0Decision makers who think they want to go the \u201cemployee light\u201d route need to consider that employee outsourcing may give rise to complex issues under tax and benefit laws. If workers are misclassified as independent contractors rather than employees, the business may be responsible for tax withholding, FICA, FUTA, state unemployment taxes and worker compensation contributions.<\/li>\n
  4. Discuss benefit issues with leased employees.<\/strong>\u00a0All businesses under common control must be aggregated to determine whether benefit plans discriminate against employees. Businesses considering leasing employees that have plans should consult tax and benefits counsel.<\/li>\n
  5. Understand laws that govern the contract.<\/strong>\u00a0Local laws can render terms of an outsourcing contract inoperative or make it hard for the recipient to protect its rights. Litigating a dispute in a foreign forum is difficult and you may not be able to collect a judgment. The recipient needs to control the location where work is performed.<\/li>\n
  6. Measure geopolitical risk.<\/strong>\u00a0Negotiate terms that will permit you to terminate the relationship on short notice in case of disrupted communications or bad working conditions due to political instability. After the terror attack in Mumbai, India in 2008, a number of companies announced they would diversify the countries to which they outsource IT development, adopting a policy of \u201cIndia plus one.\u201d<\/li>\n
  7. Know that there are no intellectual property guarantees.<\/strong>\u00a0Local regulations governing ownership of intellectual property may provide less protection to service recipients than U.S. law. Several years ago it was estimated that American firms lost nearly $48 billion due to Chinese violations of U.S. intellectual property. This may be a significant risk for certain businesses.<\/li>\n<\/ol>\n

    Businesses today can have the best of both worlds: develop a core of talented, dedicated permanent employees, while using outsourcing and \u201cvariable cost\u201d workers to achieve cost savings and flexibility. Smart companies will see the advantages of steering a middle course between a traditional organization and the \u201cemployee light\u201d model.<\/p>\n

    Mark Rosenman is Chief Knowledge Officer of Newport Board Group, a national professional services firm of CEO\u2019s and senior executives.<\/em><\/p>\n

    Thomas M. White is a partner with Rimon, a national law firm. He is based in Chicago and specializes in benefits law.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

    This article, co-authored by\u00a0Thomas M. White and Mark Rosenman, was originally published by\u00a0Chief Executive. It can be viewed at the original source\u00a0here. Alternatives to direct employment are flourishing, as businesses have come to believe they should keep in house only \u201ccore\u201d functions and outsource other activities like IT and HR to specialized service providers. This…<\/p>\n","protected":false},"author":10,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[8],"tags":[540,83,43,539,541,542],"ppma_author":[2085],"acf":[],"yoast_head":"\nContractors vs. Employees: The Benefits and Risks of Hiring Outsourced Workers - Rimon Law<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.rimonlaw.com\/contractors-vs-employees-the-benefits-and-risks-of-hiring-outsourced-workers\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Contractors vs. Employees: The Benefits and Risks of Hiring Outsourced Workers - Rimon Law\" \/>\n<meta property=\"og:description\" content=\"This article, co-authored by\u00a0Thomas M. White and Mark Rosenman, was originally published by\u00a0Chief Executive. It can be viewed at the original source\u00a0here. Alternatives to direct employment are flourishing, as businesses have come to believe they should keep in house only \u201ccore\u201d functions and outsource other activities like IT and HR to specialized service providers. 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