According to a recent study by Human Capital Institute, approximately one-third of the U.S. workforce is made up of non-traditional “contract” workers. More than half of those are skilled workers and professionals. Nevertheless, the material handling industry has a surprising dearth of such employees.
Firms which adopt flexible staffing practices may enjoy a competitive advantage. Contract professionals can provide a distributor with the following advantages:
- Knowledge and experience that may not exist in the company’s current workforce
- Lower overall salary costs
- Variable expense
- Liability minimization
- Avoidance of payroll and compliance challenges
- Fewer termination headaches
- Little or no training expenses
- Fresh perspective.
Companies across the nation are continuing to reassess their utilization of full-time employees and concluding that contracted services and individuals provide value. The number of people working in technical consulting services is projected to grow rapidly in the coming decade. This includes individuals who are LLCs, independent workers properly classified under IRS rules as 1099 workers and professionals subcontracted through staffing firms.
Here’s a story you might appreciate. One integration firm needed help locating a contract material handling consultant with expertise in automated storage and retrieval systems (AS/RS). One of the firm’s salespeople had just attended a discovery meeting with a Fortune 100 client planning to build a $20 million distribution center. When asked whether his firm had an AS/RS expert on staff, the salesperson replied in the affirmative to try to win the business, although this was not the case. This firm had previously been reluctant to hire engineers or consultants on a contract basis over the last 30 years, but it quickly changed its stance given the opportunity for this large project.
As another business owner recently said, “We saw a huge uptick in our quoting activity during the second half of 2009, but we don’t know yet how many projects we’re going to land. 2010 will either be a tsunami or a further drought, so we just don’t know what our employment numbers will be. We don’t want to hire someone and have to lay him off in three months.”
Points to Consider
So why are so few distributors using professionals such as engineers on a contract basis? Some are afraid of the premium pay rates often associated with contractors; others avoid hiring contractors because of historical company practice, and they have not re-evaluated the cost-benefit analysis.
Other downsides to using contract professionals do exist. For example, the risk of compromising proprietary information such as customer lists probably increases. Non-disclosure agreements are advisable to prevent such a scenario.
Legal issues can develop concerning the contractor’s employment status. You may remember that Microsoft was successfully sued by independent contractors who claimed they were practically regular full-time employees and therefore were entitled to past-due benefits, including stock options and retirement benefits. The IRS has a helpful section on its Web site, www.irs.gov, entitled “Employee vs. Independent Contractor: 10 Tips for Business Owners.”
A situation of co-employment between the company and the employment agency might be determined to exist when using contractors through an agency. A legal finding of co-employment can have nasty implications in employee relations issues such as sexually hostile work environments. In those cases, you could be liable for the contract employee’s actions even though your name is not on his paycheck.
Utilizing contractors may not have made sense 10-20 years ago, but the economic climate today is different.
Another legal concern involves contractor dismissal. If you fire a contractor in violation of the agreement, you could be liable for damages. Whenever hiring a contractor who is a 1099 contractor, his own LLC or coming via through an agency, consult with an employment attorney in your state in advance.
Finally, hourly rates for contractors tend to be higher than the pay of full-time employees, sometimes by as much as 30 percent. Employee relations issues could develop if pay is not kept confidential.
A Growing Practice
Despite all this, what is driving the growth of contract employment? As companies face increasingly complex employee regulations and technological, economic and internal staffing constraints, they are shifting responsibility for benefits and training to contractors and staffing agencies in an effort to control costs and reduce risks. While utilizing contractors may not have made sense 10-20 years ago, the economic climate today is very different. The growth of this workforce segment demonstrates that companies have re-evaluated the relative costs and benefits and concluded that now it does make sense to maintain a more flexible workforce.
If your company has not re-evaluated the costs and benefits associated with contract employees, now is probably a good time to do so. You may be surprised one of these days by what a salesperson has committed to delivering to a prospective customer.
|Meet the AuthorJohn Cressey is the owner of Supply Chain Consulting Search, an executive search firm located in Cincinnati, Ohio, and on the Web at www.supplychainconsultingsearch.com.|