Managing Risk

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Information about Managing Risk

Published on March 3, 2014

Author: thetalentproject


Managing risk contingent labour Asia-pacific region Tatiana Ohm

/02 As economies in the Asia-Pacific region continue their rapid growth trajectory, the reliance on contingent labour to meet skill demands is more prevalent than ever. Global companies in particular are increasing their reliance on contingent labour, but may be failing to use the same checks and balances they apply to traditional workers.

Introduction /03 According to a 2012 Aberdeen Group survey, the average company’s workforce is currently 26 per cent contingent. However, many calculations of ‘contingent’ workers do not take into consideration offshore projects or BPO workforces, nor often program offices that run specific projects. So, the real proportion of contingent workers may well be much, much higher. Indeed, some predictions see them comprising up to 50% of the workforce in the foreseeable future. The advantages of contingent workers are clear. Contingent workers are generally highly skilled and experienced, they offer lower fixed costs and a higher degree of structural flexibility. Yet, as companies expand their dependence on outsourcing and third-party labour, organisational limitations become apparent. Suddenly, HR processes and management practices that were set up with permanent employees in mind are no longer robust enough to manage high volumes of different worker categories. Most internal processes and systems are typically not adequate to manage the inherent risks of a contingent labour force, not to mention extract maximum value from this critical resource. Does this sound like it could be true for your organisation? If yes, these are our tips for getting the most out of this labour category while mitigating the potential risks of misclassification and management.

Top 9 markets for contingent workforce engagement in the Asia-Pacific region /04 Contingent workers can be: Temporary workers HONG KONG 3.60 Interns or alumni/semi-retired NEW ZEALAND 3.54 Consultants or independent AUSTRALIA 3.22 contractors and freelancers SINGAPORE 3.19 MALAYSIA 3.17 THAILAND 3.08 INDIA 3.03 CHINA 2.94 PHILIPPINES 2.92 Offshore workers SOW-based projects IT service providers Maintenance services On-site service providers (e.g. cafeteria, mailroom) Outsourced services, delivered on-site such as: • BPO/RPO • Clinical trial outsourcing • Finance/Accounting/ Legal outsourcing Source: Manpower Group

/05 Only 27% of employers surveyed said they screened contingent workers. HireRight’s 2011 Employment Screening Benchmark Report1 1 Just 48% conduct background checks.

/06 Legislative variation2 2 Baker & Mackenzie, The Global Employer: A Global Flexible Workforce: Temporary and Other Contingent Workers

Legislative variation Asia-Pacific is a diverse legislative region. For this reason it poses a greater level of legislative risk for companies seeking to engage temporary labour across geographical boundaries. /07 China Philippines Vi China Contingent workers and independent contractors are not official employee categories under Chinese legislation introduced in 2012. Contract labour is only supplementary, shall ONLY be practiced for’ temporary’, ‘auxiliary’ or ‘substitute’ positions. • ‘Temporary’ only refers to those positions with tenure of no more than six months. • ‘Auxiliary’ positions are those enabling functions that only provide support to positions created around main business areas. • ‘Substitute’ positions refer to those needed when current employers are away on non-pay study leave or vacation. Aust/NZ Japan Indonesi

Legislative variation /08 This significantly limits the ways in which companies can hire staff through agencies. Staffing agents can ‘second’ their employees to work for client companies under what is termed a ‘labour dispatch‘ arrangement, but there are restrictions on the length of China Philippines Vietnam the assignment and on the proportion of staff that individual companies can hire via this method. Often, contingent workers have significant entitlements in China and therefore are less flexible than they can be in other countries. And, contract labour has the right to receive equal pay for equal work within the same job category and job scope. Aust/NZ Indonesia Japan Indonesia Widespread labour protests have prompted Indonesia’s Manpower Ministry to issue a decree to restrict the use of temporary and contract workers. China Philippines Vietnam Vietnam The new Labour Code, which took effect in May 2013, will legalise the practice of subleasing workers —a hybrid of temporary staffing and labour outsourcing—and add protections for the sub-leased workers. Aust/NZ Japan Indonesia

China Philippines Legislative variation V /09 China Philippines Vietnam Philippines A Senate bill seeks to penalise employers or recruitment agencies that make a person’s age the basis for employment. It is hoped that this will end age discrimination and provide greater opportunities for older workers. Aust/NZ Japan Australia Some 29 per cent of Australian workers are employed on a contingent basis. The new Workforce Gender Equality Act focuses on fostering gender equality in the workplace by promoting equal pay between women and men, and helping eliminate discrimination on Aust/NZ the basis of family and caring responsibilities.   Japan Indonesia Indones

/10 41% of companies surveyed believe they face increasing risk related to managing contingent labour. 3 Aberdeen Group 56% reported their top 2012 priority was to improve visibility of contingent workforce management3. How many have actually done so?

/011 Key risks in managing temporary and contingent workers 01 Regulatory and compliance risks 02 Access and security risks 03 Visibility and analytics risks 04 Technology risks

01 Key risks in managing temporary and contingent workers Managing regulatory & compliance risks Multinational organisations have a difficult time tracking third-party labour through a single checkpoint, and can unwittingly take on high levels of risk, particularly in diverse regions such as Asia-Pacific. A company that misclassifies workers may be subject to audits and penalties, which vary country by country. For example, significant fines exist for misclassifying workers or terminating contracts early. Multinational companies that rely on contingent labour should (theoretically) establish consistent on-boarding procedures supported by processes and technology. This will enforce a standardised set of processes and procedures for all contingent workers, regardless of category of work, pay scale, or geography—yet, this is rarely how companies actually do things. On-boarding risk On-boarding contingent workers remains a difficult issue. Most companies do not clearly assign which department ‘owns’ the process, and protocols are typically decentralised and non-standard. /12 This will enforce a standardised set of processes and procedures for all contingent workers, regardless of category of work, pay scale, or geography.

Key risks in managing temporary and contingent workers When hiring managers do not understand all of the legal and compliance obligations that apply to talent, the risk can be significant. For example: a worker claiming a violation of labour laws—such as not receiving overtime—may hold both the staffing agency and the client company responsible due to ‘co-employment.’ The solution to this ‘gap’ will likely involve a combination of new processes, technology, and greater accountability. An audit of on-boarding processes for contingent workers will help you identify gaps and inconsistencies, and the likely cause of each. Is the gap related to technology? Lax processes? Lack of ownership? A combination of many factors? When completing an audit it is important to consider how each problem is related to others. For example, a particular location may require a standard set of documents completed and ‘signed off’ for each worker. Yet, because there is no single point of entry for contingent labour, dozens of managers are responsible for sign off and compliance is low because no one area is auditing compliance. To ensure new processes and procedures are sustainable, map out stakeholders in the on-boarding process—including your internal risk mitigation and compliance office—and ask them to participate in the early stages of benchmarking and review. This team will help to drive and support changes to on-boarding policies and procedures, and help to solidify early and ongoing adoption within your enterprise. /13 Because there is no single point of entry for contingent labour, dozens of managers are responsible for sign off and compliance is low because no one area is auditing compliance.

Key risks in managing temporary and contingent workers Ultimately, you will need to assign an outsourced compliance support team to ensure that clear processes and protocols, as well as technology to reinforce those elements, are in place. Define and enforce how compliance will be measured over time (i.e. who ensures audits are conducted and findings acted upon?). Some companies hire a dedicated ‘contingent workforce manager’ to monitor the use of contingent labour and ensure compliance. However the end goal is achieved, a strong on-boarding process is defined by its ability to funnel all new contingent workers through a single initiation point. Companies must ask: How are on-boarding How widespread is ‘maverick’ How are our contracts compliance requirements buying (i.e. purchasing structured? Does the staffing managed and enforced for contingent labour from vendor assume the legal third-party labour? Are those vendors that are not qualified, risk in any case where an processes consistent across poorly vetted)? employee is misclassified? the organisation? /14 Some companies hire a dedicated ‘contingent workforce manager’ to monitor the use of contingent labour and ensure compliance.

02 Key risks in managing temporary and contingent workers Managing access & security Many companies impose less stringent security standards on contingent labour than on employed labour without considering the consequences. Conducting background checks is a routine occurrence when on-boarding employees, but still infrequently imposed on elements of the contingent workforce. Map entry points To improve compliance and visibility, companies must first map all entry points of thirdparty labour. Then, they must assess and define the appropriate level of access (e.g. physical access and access to systems) for each category of worker. Remember, while access protocols will vary among different types of worker categories, your organisational processes and procedures for vetting and on-boarding new workers should still be consistent across all categories. Once you’ve defined your access and clearance categories or ‘tiers,’ align these with your supplier base so that all resources have the appropriate access-level profile. /15 Organizational processes and procedures for vetting and on-boarding new workers should still be consistent across all categories.

Key risks in managing temporary and contingent workers Ensure contracts are consistent Supplier contracts and on-boarding requirements should remain consistent within each supplier agreement. Ensure that your company has a consistent and timely audit schedule of its supply base to ensure the following are in place: • Clearly defined and consistent screening standards for all contracts with third-party labour vendors (e.g. criminal background checks, drug testing, employment and education verification) • Regular vendor audits on samples of workers to ensure your vendors are consistently screening workers per agreement • Indemnification clauses in all staffing, project and service agreements. /16 Ensure that your company has a consistent and timely audit schedule of its supply base.

Key risks in managing temporary and contingent workers /17 Companies must ask: Who has physical access to What systems (e.g. computer What other assets were issued How do you ensure service Best-in-class contingent your company sites? networks) should these third- to third-party resources? providers have adhered to worker management is not • What level of access do party resources have access • How was the provisioning their contractual obligations so different from permanent regarding background checks employee management. and certifications? In both cases it includes workers have and is it to? appropriate? • How does the company • How long should they have access and how do you ‘de-activate’ access? • How are access badges controlled? Extinguished upon termination? determine who is active? • How well does the process initiated? • Are those assets being properly tracked? Have they been returned if company protect the resource is no longer ‘intangible assets’, such as actively supporting your intellectual property? company? Do you have multiple nonstandard on-boarding processes? Do your business managers often scramble to ensure third-party resources are fully on-boarded and integrated? effective on-boarding (e.g. establishing building access, assigning resources) to improve time-to-productivity, and off-boarding (e.g. taking inventory of physical property) to protect physical and intangible assets.

03 Key risks in managing temporary and contingent workers Managing visibility & analytics Many companies have significant difficulty assessing the amount of third-party labour supporting their company at any given point in time. Typically, when audits of workforces and contracts are conducted, significant issues are found, including expired contracts, workers that have ceased working for the company but still have access to buildings and systems and more. Being able to optimise the labour-force of any one organisation requires reliable data that can be analysed for gaps and opportunities. However, sometimes it is even difficult to ascertain where employed individuals are located (geographically and by job category), particularly as flexible working arrangements, as well as workforce mobility and virtualisation arrangements, increase. Data visibility Even companies with good intentions are stymied because they lack an integrated technology solution that can align finance, procurement, HR, legal and regulatory requirements. And without an integrated solution, visibility is typically poor and can have serious consequences for risk control and compliance. /18 Without an integrated solution, visibility is typically poor and can have serious consequences for risk control and compliance.

Key risks in managing temporary and contingent workers Companies must ask: How accurate is our Are processes automated What visibility and reporting regarding such that non-compliance reporting are you able selection, on-boarding and is immediately visible? to provide to ensure performance of employees security and compliance/ and contingent labour? risk management? /19

04 Key risks in managing temporary and contingent workers Managing technology Without an integrated solution to manage vendors, to track workers, and HR-related spending, organisations are ill-equipped to make the strategic decisions necessary to deploy contingent labour efficiently and safely. Vendor Management Systems Most large organisations with third-party services and outsourced workforces will ultimately weigh up the benefits of technology partners, in particular VMS tools. A 2012 survey by Aberdeen Group found VMS solutions in use 58 per cent more often within best-in-class organisations than in all others. A VMS offers significant efficiencies and risk controls during on-boarding and beyond. VMS tools allow users to incorporate a centralized and automated on-boarding protocol including user and category specific on-boarding checklists. They also have the ability to incorporate elaborate headcount approvals to ensure the appropriate controllers are reviewing and approving headcount and access as needed. /20 A VMS offers significant efficiencies and risk controls during on-boarding and beyond.

Key risks in managing temporary and contingent workers The VMS tool can also integrate with a company’s backend security system to: • Initiate the badging process • Provide visibility/acceptance to security personnel that all on-boarding criteria has been met • Enforce access criteria for contingent workers based on their role and location. For example: • Defined physical access parameters integrated with the company’s access badges, • Computer network access parameters integrated with IT; • Provisioning (e.g. laptops, workspace) integrated with procurement and facilities. A VMS tool is also a critical tool for real-time reporting of security and compliance issues. Using it, management can keep a consistent view of high-risk compliance areas, such as contract compliance, on-boarding policies, third-party certifications, safety training, induction compliance, NDAs, security clearance, drug tests and related background checks. /21 Using it, management can keep a consistent view of high-risk compliance areas.

Key risks in managing temporary and contingent workers What’s more, technology solutions give executives better insights into how third-party labour is currently being used and how to extract maximum value going forward. For example, which suppliers is the company using category-by-category across the enterprise? Which sourcing or supplier strategies are missing? Finally, identify automation opportunities. Ensure technology offers, from a visibility standpoint, a fully ‘auditable’ approval process. Visibility should include on-demand access to the full range of required documentation for each category of resource (e.g. drug tests, background checks and signed NDAs) and the ability to visually verify reports were reviewed and signed. /22 Ensure technology offers, from a visibility standpoint, a fully ‘auditable’ approval process.

conclusion Companies continue to expand their utilisation of third-party labour and outsourced services, even while governments across the globe ramp up their scrutiny and regulation of contract labour. With risk from outsourced talent on the rise, companies are looking for quick, efficient risk-mitigation controls—controls that deliver standardisation, visibility and compliance across a corporate enterprise. Centralisation, standardisation and automation are the three key components to a successful identity management solution—and companies ultimately need to decide whether it makes sense to in-source or outsource the management of these processes. Either way, taking the necessary steps to funnel all labour categories through a single onboarding and off-boarding solution will help ensure policy and regulatory compliance, as well as contain these resource categories to their appropriate and relevant access levels. /23

REFERENCES Presentation/PublicationAttachment/67c3be49-d0d6-4767-963e-01cd2d0716c4/bk_employment_ globalflexibleworkforce_may13.pdf Is the full-time job dying? (BRW Magazine, 16 July 2013), Fiona Smith /24

For more thought leadership go to About the author tatiana ohm is Senior Director, Global Solutions, Professional Experience at Kelly Services. Tatiana is currently managing the Global Solutions organisation for the Asia-Pacific region. She is a practitioner who ensures that Kelly programs deliver above-and-beyond results to the customers across the region. Her international experience, deep understanding of the global market drivers and insight into emerging customer needs help her to create competitive solutions for our global customer. Tatiana started in the recruitment business in 1996 in Russia and has held various international roles since then. She launched the Professional and Technical offering for Kelly Services in 2002 in Germany and launched and managed the first outsourcing programs in the German speaking market. Prior to moving to APAC, Tatiana held a dual role: managing the Business Process Outsourcing Practice and the strategic accounts relationship in EMEA region. Tatiana graduated from St. Petersburg State University with a Masters degree in Biochemistry. Tatiana is based in Singapore. About Kelly Services® Kelly Services, Inc. (NASDAQ: KELYA, KELYB) is a leader in providing workforce solutions. Kelly® offers a comprehensive array of outsourcing and consulting services as well as world-class staffing on a temporary, temporary-to-hire, and direct-hire basis. Serving clients around the globe, Kelly provided employment to approximately 540,000 employees in 2013. Revenue in 2013 was $5.4 billion. Visit and connect with us on Facebook, LinkedIn, and Twitter. Download The Talent Project, a free iPad® app by Kelly Services. This information may not be published, broadcast, sold, or otherwise distributed without prior written permission from the authorized party. All trademarks are property of their respective owners. An Equal Opportunity Employer. © 2014 Kelly Services, Inc. EXIT

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