How to Mitigate Co-Employment Risk In Procurement

Published July 2020

  1. Introduction

    There is an ever-increasing emphasis on the need to mitigate risk associated with non-employee workforces. The unpredictable economic environment requiring organisations to readily increase or decrease resources.

    Procuring and managing costs associated with these resources is typically handled in a very manual fashion. Spreadsheets and emails often being the tools employed.

    Also, a co-employment* agreement is normally signed by all parties. However, a co-employment agreement does not eliminate inherent risks, it only addresses some of the administrative burdens of independent contractor engagement.

    Even with the best agreements, hidden risk can often be uncovered in misclassified workers being paid through loopholes, such as simply paying off of an invoice received or through a Statement of Work that includes time and materials or staff costs.

    There are, however, better ways to manage this process and ensure legal compliance.

    There are three key things to address to manage Co-employees:

  2. Independent contractors are typically their own business entity...

    ...and you should define them as such.

    It is important that you set up a vendor record associated with all your independent contractors and that they are defined as an independent business that you have contracted with.

    Treating each of them as a business entity is important, so that you can transact in a clear buyer/supplier relationship.

  3. Ensure they are Properly Classified

    To avoid being audited for employee misclassification it is important to ensure that any individuals you engage are properly vetted and classified.

    If you are working with a staffing agency, make sure they have a vetting and classification process in place.

    All vetting evidence should be recorded and each vendor’s services, or capabilities, classified specifically within your company vendor records.

  4. Vendors are clearly defined as independent contractors

    You and your team may develop good working-relationships with vendors (independent contractors), but it’s important not to place yourself in an employer-employee position. Ensure there is a clear separation of full-time employees of the organization and non-employee workers who are completing work for the organization.

    It should be made clear that these vendors are engaged in independent programs and you should record all evidence that would support this.

    Placing orders, for non-employee resources, within a project framework will help. This clearly defines the domain within which the non-employee is working.

  5. How can Claritum help?

    The Claritum platform can be used to manage these independent contractor relationships, helping you to reduce co-employment risk:

    a. Properly Classifying

    All vetting evidence can be recorded in the platform and each vendor’s (Independent contractor’s) services or capabilities can be classified specifically for your company on the platform.

    b. Independent contractors clearly defined as vendors and not described as Employees

    By placing these groups onto the Claritum platform you are already defining them as a vendor. Evidence, such as emails and contracts, can be stored on the platform and associated with the contractor, making it clear that they are engaged in independent programs.

    Any quotes, orders and invoices are also tracked, with appropriate reviews and sign-offs added within your defined process steps.

    You can also place these activities within specific projects, further setting boundaries for the work being contracted.

    c. Vendors are Their Own Business Entity

    The Claritum platform assumes all vendors are independent contractors and are described as a business. The platform treats each vendor as a business entity.

    The platform also allows the recruiter to state if their work requires them to be on site.


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