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The Contingent Quandary

Today's HR leaders must recognize and understand the opportunities the so-called gig economy presents to their organizations, but must steer clear of potential legal problems it poses, too.

Tuesday, November 3, 2015
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Eric Castro has never even seen, let alone met, the overwhelming majority of the people who work for his company.

An army of approximately 2,300 technicians who work as independent contractors make up the bulk of Atlanta-based Ammacore's workforce. Their work includes installing cabling and rack servers, and performing other electronic-maintenance and troubleshooting work at the firm's clients around the country.

The company uses a crowdsourcing platform to find these workers and assign them to clients. Once a job is finished, Ammacore rates the technicians on the quality of their work and their reliability -- and, likewise, the techs rate the company on its reliability, support and the timeliness of its payments.

"We've always used this model," says Castro, Ammacore's chief operating officer, who oversees its HR function.

The arrangement is beneficial to both Ammacore and the technicians, he says. In fact, Castro thinks it's a model for the employment relationship of the future.

"People enjoy being their own boss and having the ability to turn down work they don't want, and crowdsourcing gives them visibility into the companies that want to hire them," he says.

Castro is far from alone. Proponents of the "gig economy" -- also referred to as the sharing economy, the 1099 economy, etc. -- say it gives workers more freedom to choose who they work for, and when and how they work. Smartphone apps have enabled companies such as Uber, Lyft and Taskrabbit to assemble virtual workforces that can be summoned by customers with a few taps -- while giving the workers themselves the freedom to accept or decline assignments.

"I'm seeing a gradual movement to people being able to realize a bit more entrepreneurial freedom," says Steve Cadigan, the former chief human resource officer of LinkedIn who's now started his own consulting firm, Cadigan Talent Ventures. Cadigan, whose recruiting staff at LinkedIn consisted of 40 percent contingents, cites the Affordable Care Act as one of the enablers of the "1099 workforce," as it makes it easier for people to obtain health insurance that isn't tied to a full-time job. 

Statistics on the size of the gig workforce are hard to come by. The Bureau of Labor Statistics' last attempt to measure the number of freelance workers was in 2005, when it found that 31 percent of the U.S. population worked as freelancers.

Much more recent studies -- one from MBO Partners, the other from the Freelancers Union and Upwork -- suggest the current number of freelancers accounts for 19 percent and 34 percent of the U.S. workforce, respectively. Both sources have skin in the game, it should be noted -- MBO Partners sells products and services to freelancers and the Freelancers Union/Upwork offers job listings for these workers -- and their surveys were not scientifically conducted. 

However, the number for the category of jobs performed mostly by part-time freelancers or part-time independent contractors grew from 20 million to 32 million between 2001 and 2014, rising to almost 18 percent of all jobs, according to Economic Modeling Specialists International, a labor market and analytics firm based in Moscow, Idaho.

The gig economy is also controversial -- a lawsuit filed against ride-sharing service Uber in California asserting the company's drivers are misclassified as independent contractors is just one of a number of cases being filed against these sharing-economy companies. Although the Uber case is specific to California law, "what happens in California doesn't necessarily stay in California," warns employment attorney Robert Whitman, a partner at Seyfarth Shaw in New York (see sidebar).

The use of contingent labor draws scrutiny from states as well as the federal government due to the potential for missed tax revenue (companies don't pay federal or state payroll taxes when they use contingents), experts warn.

Even so, proponents say the gig economy -- in its various forms -- brings with it too many benefits for it to be considered just a trend. And HR leaders, they say, need to understand it and determine whether and how it fits in with their organization's talent-management strategy. 

"HR [leaders have] not done a great job of acknowledging the gig-economy concept and committing themselves to go[ing] through all the different channels to find the right person," says Jason Averbook, CEO of Los Angeles-based The Marcus Buckingham Cos. "Most of the time, they just open a requisition and try to recruit a full-timer."

Connecting with Talent

Castro oversaw a major shift to contract workers at his previous employer, computer retailer CompUSA. Under his direction, the firm changed its computer-repair and services arm from a traditional employment model to one comprised almost entirely of independent contractors.

Under the old model, uneven customer demand meant full-time technicians and their vans were often idle while waiting for calls.

"We let go of 80 percent of the technicians we had and switched to a 100-percent outsourced model," says Castro. "We ended up having no backlogs, we were no longer constricted by the skill sets we had on hand and we were thus able to take on a greater variety of jobs."

Castro says companies and independent contractors benefit from the crowdsourcing model, in which both parties rate each other on their reliability, dependability and results. To find its technicians, Ammacore uses Work Market, a New York-based "freelance-management system" designed to connect clients with independent contractors. Work Market offers screening and credentialing services designed to help companies find qualified workers in a given geographic area. Other vendors that offer similar services include Upwork (formed by the merger of Elance and oDesk); MBO Connect, from MBO Partners; and Freelancer.com.

Ammacore employs a community manager who communicates with the techs before, during and after a project to ensure they have all the information they need. The company rates the techs via Work Market on their promptness, performance and reliability. Meanwhile, the techs rate Ammacore on factors such as the timeliness of their payments, reliability and communication during projects.

It's a symbiotic relationship, says Castro.

Techs who perform poorly are warned they risk being grouped into "the bottom 10 percent," he says. Those who perform well -- including individuals who receive compliments from customers -- receive small bonuses. At the same time, Ammacore depends on the good ratings it receives to attract talented workers.

"1099s live paycheck to paycheck, so pay timeliness is very important to them," says Castro. "If they weren't paid on time, it would affect our ratings and make it harder for us to attract the best people." He's proud of the company's 98.4 percent rating from techs on Work Market.

"You can't push people in this model -- they can choose whether to do business with you or not and, if you don't treat people well, you could find yourself out of business," he says.

The "Human Cloud"

Organizations that would rather not deal with the hassle of finding contingent workers themselves also have options other than relying on full-time employees.

Tammy Browning, senior vice president for field operations at Philadelphia-based Yoh Staffing, says a growing number of companies are contracting out major chunks of work -- such as building new software or creating new video games -- to outside staffing firms.

"We're seeing changes in terms of managed-services business, in which companies outsource a particular line of business for another company to manage -- that way, there are no blurred lines in terms of who's managing whom," she says. "It's a growing sector of our business."

Another option is to "crowdsource" a job by breaking it down into components and having outsiders do it. Amazon's Mechanical Turks, People Per Hour, Archability and Topcoder, which was acquired by San Francisco-based Appirio in 2013, are examples of these so-called "human cloud" services.

"I describe it as our clients using us to find results, not talent," says Harry West, Appirio's vice president of services product management.

On Topcoder, companies create a challenge -- solve this problem, build an app that does this, etc. -- and offer prize money for whoever comes up with the best solution. One of the firm's clients, Honeywell, used Topcoder to create a mobile app that can tap into Internet-connected sensors embedded in a building's HVAC systems to make it easier for customers to monitor their facilities via a tablet.

"They'd tried building it themselves for several months but lacked the skills to take all those requirements and turn them into a compelling mobile customer experience," says West.

So who are these people on Topcoder who can do this sort of work?

Many are scientists, while others are software engineers who work at places such as Google, and some are talented coders from overseas, in countries where a cash prize of $6,000 can be equivalent to several months' salary, says West.

"A lot of them have full-time jobs elsewhere, but view working on Topcoder as a development opportunity," he says. "These tend to be people who like to learn."

Similar to other crowdsourcing platforms, Topcoder has a ranking system for its members: Red is the top rating, while gold is second best.

 Although crowdsourcing eliminates the need to screen and hire people, HR still has an important role to play, says West. 

"It makes sense for HR to learn about which areas of work lend themselves to the crowd so they can intervene when a department can't find a qualified person [and ask], 'Is there a crowd equivalent that would get us a better result, rather than trying to add headcount to our organization?' " he says.

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"How much sense does it make to fight a talent war you're never going to win?" says West. "You don't need to own the talent to have the capability."

Like other aspects of the gig economy, crowdsourcing platforms haven't been immune to legal problems. CrowdFlower, a "micro-tasking" crowd service, recently paid a $600,000 settlement to plaintiffs who filed a lawsuit claiming their compensation for assignments via CrowdFlower amounted to far less than minimum wage.

Nevertheless, crowdsourcing's proponents say it's an intriguing option that HR needs to pay attention to, especially in an era when the pressure some companies are under from upstarts in their industry can make hiring for the long-term costlier and riskier.

"Crowdsourcing is a very creative approach, and I would like to see the HR community get more aggressive in this regard," says Averbook.

Training Still Matters

Regardless of whether gig workers do their work in your office or in a far-off country, manager training is crucial. 

For on-site workers, "If HR doesn't do a good job of blending these workers together, there's a high probability that some of these workers could get bullied and those companies will have a harder time leveraging the gig economy than those that are prepared for it," says Averbook, whose company counts at least 50 gig workers among its total workforce of about 100.

Companies that successfully manage freelancers do several things, says Donna Wells, CEO of Palo Alto, Calif.-based online training firm Mindflash: They take the time to orient the freelancers on the "big picture" of what they're working on to help give them context, and they work to make themselves "clients of choice" among freelancers, the same way companies strive to be employers of choice for full-time talent.

"You also need to think seriously about your headquarters managers -- very few people are great managers, but it's an order of magnitude easier to manage people who are co-located compared to remote freelancers and independent contractors," says Wells.

HR needs to train managers in how to interview effectively over the phone, how to onboard freelancers remotely and how to know when the work is getting done -- and done based on a quality standard -- when you're not seeing them every day, she says.

Interestingly, freelancers have the opportunity to serve as "reverse mentors," considering the opportunities they've had to observe firsthand what works and what doesn't work at other companies in the field, she says.

"I think there's a reverse-training opportunity, where the freelancer -- who's seen the best and worst practices in a given industry -- can put together a presentation on it," says Wells. "I've always found freelancers to be delighted to be asked to be the teacher and not the student."

When it comes to freelance talent, one of the biggest challenges is maintaining an "alumni base" of such talent and, of course, knowing which ones to choose, says Averbook. "It's really understanding who's worked with us before and who we call on again before we start searching for new gig talent," he says.

Many core HR systems, including those from Workday, SuccessFactors and Oracle, have the ability to store data on contingent workers.

"Most HR people don't use their systems for that, which is a tragedy and a travesty -- instead, they end up storing this information with accounts payable," says Averbook.

By doing this, HR is missing an opportunity to track freelance talent -- how successful they were, work histories, security clearances and their performance.

"Teams these days are almost always made up of full-timers and freelancers, so in order to truly understand a team's performance, you can't just look at the employees -- you also have to look at the freelancers and contractors," he says.

Instead, many business leaders go out and hire freelancers on their own without involving HR, he says.

Human resource professionals should also -- to the extent that is legally possible -- try and help contingent workers stay engaged, says Averbook.

"We often communicate to employees, but because we don't want to share confidential information with contractors, we don't include them in communications and don't include them in employee meetings," he says. "That ends up driving down engagement among these workers."

At TMBC, Averbook now includes gig workers in all employee meetings, and addresses confidentiality concerns by having them sign strict nondisclosure agreements as part of their contract.

"When you have all these rules around how you deal with gig workers, at a certain point they start asking, 'Why do I want to get treated like this?' Treat them as close to employees as humanly possible."

Read also:

Scrutiny Over Independent Contractors

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