http://www.kellyocg.com/Knowledge/White_Papers/Mitigating_and_Managing_Risk_-_Contingent_Labor/

Global companies are relying more heavily on contingent labor to control rising labor costs, bridge skills gaps in key geographic areas and high-value disciplines, and respond to fast-moving market conditions with greater agility. According to the 2012 Aberdeen Group survey, the average company’s workforce is 26 percent contingent. Experts even speculate that for some global companies, the contingent workforce may represent a higher percent of the total workforce than traditional employees.

Yet as companies expand their dependence on outsourcing and third party labor, organizational limitations come into plain view; internal processes and systems are typically not adequate to manage the inherent risks of a contingent labor force, not to mention extract maximum value from this critical resource.

Among the most common and consequential problems:

Regulatory & Compliance Risk: Use of contingent labor exposes companies to serious legal and regulatory risks. Multinational organizations have a difficult time tracking third party labor through a single ‘choke-point,’ and unwittingly take on high levels of compliance-related risk. A company that misclassifies workers may be subject to audits and penalties, which vary country-by-country.

There appears to be growing interest in the US—based on a proposed bill amending the Fair Labor Standards as well as newly published rules on worker classification—to further regulate this area.

Access & Security: Many companies impose less stringent security standards on contingent labor than on employed labor without considering the consequences. A 2011 survey by HireRight found only 48 percent of companies that use contingent labor conduct background checks on those workers. Only 22 percent conducted drug testing. And only seven percent maintained ongoing drug testing.

Visibility/Analytics: Many companies cannot assess the amount of third party labor supporting their company, where those individuals are located (geographically and by job category) and what they have access to.

Technology: Without an integrated solution to manage vendors, ‘on-board’ workers and track spending, organizations are ill-equipped to make the strategic decisions necessary to deploy contingent labor efficiently and safely.

The commitment among global organizations to solve the problem is growing. Forty-one percent of companies surveyed by Aberdeen Group about workforce issues believe they face increasing risk related to managing contingent labor. And 56 percent reported their top 2012 priority was to improve visibility into all facets of contingent workforce management.