A top of mind topic for me these days is resourcing temporary labor. Companies are utilizing temporary employees more than ever. I’ve worked with companies where more than 50% of their staff is comprised on temporary people resources.
There are many good reasons for using temporary labor ranging from speed to acquire specialized talent to ease of staff reduction when the need no longer exists. As easy as it sounds, there is more to consider than just calling up your local temporary staffing agency and handing over the requisition.
Lets start by asking ourselves – What type of temporary employee is needed?
Over the last decade the lines between consultant, contractor, outsourcing, and staff augmentation is often crossed. The recession further blurred the distinction as laid off IT employees re-branded themselves as “Independent Contractor” in their attempt to bridge the gap between permanent employments. Outsourcing industry brought us multi-year agreements that often exceed multiple of millions of dollars.
I like to refer to these resource categories as “Flexible” as capacity can be flexed based on business demands and downturns. To show a suggest application and characteristics of each type I created the following diagram:
As I have pretty strong and often conflicted views of outsourcing I will reserve my perspective on outsourcing to a later conversation. For now we will look at the top three levels in the pyramid – Consultant, Independent Contractor, and Staff Augmentation today.
So what is the difference between Staff Augmentation, Contractors, or Consultants?
We refer to Wikipedia for a definition:
“Staff Augmentation is an outsourcing strategy which is used to staff a project and respond to business objectives. The technique consists of evaluating the existing staff and then determining which additional skills are required. One possible advantage of this approach is that it may leverage existing resources as well as utilize outsourced services and contract workers.”
“An Independent Contractor is a natural person, business, or corporation that provides goods or services to another entity under terms specified in a contract or within a verbal agreement. Unlike an employee, an independent contractor does not work regularly for an employer but works as and when required, during which time he or she may be subject to the Law of Agency. Independent contractors are usually paid on a freelance basis.”
“A Consultant (from Latin: consultare “to discuss”) is a professional who provides professional or expert advice in a particular area such as security (electronic or physical), management, accountancy, law (tax law, in particular), human resources, marketing (and public relations), finance, engineering, or any of many other specialized fields. A consultant is usually an expert or a professional in a specific field and has a wide knowledge of the subject matter.”
– Wikipedia Online Dictionary
Staff augmentation is based on the concept of a “commodity, easily replaceable skill” that is available for an entire category of labor (Administrator, Engineer, Programmer, Database Administrator, Web Designer, etc.). Since IT relies on a large labor pool of technical skills, these are relatively low priced roles. In this case, participants are required to only have the required skills for their specialty, they can be hired and released pretty much on demand.
IT contractors are further up the pyramid in capabilities and value. They are typically companies that deliver a end to end service or system to solve a clearly defined need. This may be such services as a particular operation, application, virtualized infrastructure, or network operation. In many instances it is delivered as a complete package, including hardware, software, utilities, installation, configuration, and testing. Contractor services may be purchased on a per-project or a time-and-expense basis.
At the top of the pyramid is IT consultant. This is a professional service offering filled by highly developed skills and extensive experience in a specialized field. In addition to being a Subject Matter Expert for a particular technology or service, IT consultants are expected to have an extensive knowledge of related activities that include business operations, project management, associated technologies, industry best practices, quality assurance, security, and other operations. They are sought out by organizations for their comprehensive understanding of business-critical operations or other activity than can have broader and deeper impacts. The need for highly specialized skills allows these resources to command a much higher rate than the other flexible staffing categories.
It is in your best interest to understand the differences and capabilities of each category. Unfortunately, these titles are frequently intermixed and tossed around somewhat indiscriminately by organizations. Technical personnel do not automatically become senior consultants just because that’s a self title themselves with it. Unless due diligence is performed beforehand, occasionally some manager may believe they contracted with a senior Consultant for $85 per hr. (plus expenses), when they actually contracted a Staff Augmentation resource. This can quickly become the root cause of poor performance, missed expectations and objectives, and ultimately a failed project.
Risks of a flexible labor pool – co-employment
Before we wrap up our conversation of flexible staffing, let’s touch on an important issue – and that is co-employment. Co-employment is the relationship between two or more employers in which each has actual or potential legal rights and duties with respect to the same employee.
Co-employment issues arise when the client company extends its control beyond the staffing firm/client division of tasks and takes on the role of the primary employer. The issue with co-employment came to light in the now infamous Vizcaino v. Microsoft case. This case was filed on behalf of several contractors to Microsoft who were labeled Independent Contractors, freelancers, and or employees of “staffing” firms.
The case grew into a class action lawsuit resulting in a $97m settlement in 2002. If you are curious to learn more here is two sites to reference. The first is a copy of the legal brief, the second is written in layman’s language.
We don’t want to overreact but at the same time this risk is real both from an IRS generated inspection or an employee generated legal action. I have worked with other companies that faced lawsuits from independent contractors and staffing firm employees claiming entitlement to participate in company benefit plans in the aftermath of the Microsoft settlement.
Flexible staffing is a key management tool that allows organizations to quickly react to business demands. The key is to manage the relationship with the contracted resource. Next week we will go into the implications and mitigation of Co-Employment risks in depth.
Until next time, have a great week! To further this week’s conversation with me, please contact me directly at email@example.com.
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