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Managing risk – The human element

As economies continue to grow and demand for natural resources increases, the availability of sourcing and maintaining a skilled and reliable workforce becomes more and more important.

The most significant social risk identified by respondents in a survey, conducted by Oyster Consulting, is a shortage of skilled labour (and the associated risks of increased staff turnover, rising wages, OH&S and tax).

In an environment where organisations cannot find staff, and where specialised or project based skills are required, contractors may be the only logical option.

Considering that “32% of employees who have been in their current job less than six months are already job searching”1 the benefits of engaging contractors become even more apparent. Provided with a specific timeframe, a contractor is more likely to see the project through, utilising their time more productively and as a result reduce strain across the organisation (ranging from HR and training through to payroll and beyond).

When selecting, engaging and managing contractors there are three broad categories to be considered:

  • Risk Management; (Process, Project and Business Risk)
  • Control and Reporting; and,
  • Cost Benefits and Process Efficiencies.

In regards to contractors, risk management encapsulates the following risks: co-employment, taxation, fixed term contract, insurance, contract expiry, visa expiry, IR, budget overrun and potential Sarbanes-Oxley related risk, as well as statutory and company policy compliance and on-boarding.

So where are the dangers? In a survey conducted in 2010 by the Contingent Workforce Management Association (and followed up in 2011) on behalf of contractor management company, CXC Global, approx 96% of organisations spoken to advised they had no contractors. The survey participants where specifically selected as they signed off on a CXC timesheet for contractors they currently utilised.

An organisation with such poor visibility could be potentially blind sided by an audit and ensuing fines.

As a guide, a worse case scenario of back payments and penalties, for one contractor on $100 phr for one year, could exceed $136,500 (taking into account Superannuation, PAYG tax and ATO penalty). … and that is for one contractor. How many contractors did you say you had?

In recent years, when moving premises, several banks found themselves several floors short. Other organisations have found themselves with 300% more contractors than what they originally thought and found contractors that have been embedded within the organisation for in excess of seven years … receiving all the benefits of permanent employees.

Many organisations know they have no visibility. They simply don’t know how many contractors they have and are incapable of tracking and reporting accurately on project costs. They are incapable of quantifying the effects of the current state and the financial benefits of change.

It is not all doom and gloom. The benefits of contractors can still be realised if an organisation correctly engages a contractor. Dependant on contractor type, a labour hire or contractor management company, like CXC Global, can mitigate risk (except historical and statutory risk) while also providing greater visibility while also reducing costs to the organisation … and in many instances increase a contractors take home pay.

CXC Global™. The global leader in innovative Contractor Remuneration & Contingent Workforce Solutions. Visit www.cxcglobal.com.au for more information.

  1. Source: Development Dimensions International and Monster Intelligence 2006 global study of more than 3,700 job seekers and 1,250 hiring managers.

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