Platt Perspective on Business and Technology

Exceptions and exception handling from the HR perspective 4: outside consultants and contract workers 3

Posted in HR and personnel by Timothy Platt on March 25, 2014

This is my fourth installment in a series on recognizing, understanding and thinking about exceptions, and about exception handing in a Human Resources context (see HR and Personnel, postings 197-199 for Parts 1-3.)

I began discussing outside consultants and contract workers in the context of standard in-house personnel policy and practice, and its exceptions in Part 2 and Part 3 and I continue that here, focusing now on where these workers come from and on the constraints that sourcing can place on hiring businesses as they negotiate and work with them.

When a prospective consultant or contract worker approaches a hiring business on their own, as a separate and fully independent business person, they arrive under essentially the same constraints as an independent job seeker looking for an in-house position. Either would-be in-house employees, or project oriented would-be consultant or contract worker hires might be constrained by prior confidentiality or non-disclosure agreements signed with prior employers, but they are all in a position to negotiate terms of employment within any constraints that these knowledge and information transfer restrictions would specify. As independent job seekers, they are all free and unencumbered in where they would seek work, and in whether they would seek in-house or outsider-status employment with those businesses.

Consultants and contract workers would, under these circumstances, have to provide their own benefits packages. But when these workers hold highly sought after skills and experience, they can often command higher base pay compensation to cover their health insurance and other benefits expenses that would be picked up by a hiring company for its in-house employees. And as outside workers they are far less likely to have to sign non-compete agreements, limiting where they could work next, than new hire in-house employees would be. This can be a significant distinction for some industries and business types.

Consultants and contract workers are often paid out of different lines on the hiring business’ books than are in-house employees (e.g. from the specific budget lines of the department or service that they would work for, rather than from a general personnel expenses line.) And depending on how a business structures and organizes its budgets and accounting, money might be available for their types of outside-sourced help when it is not available for adding to the in-house employee head count.

These issues are all affected when a would-be consultant or contract worker hire comes to a client business through an employment agency or temping firm or from, and as an employee of a consulting or similar business. The perhaps most visibly overt of these differences that would apply to essentially all such hires is that in essentially all cases the sourcing businesses that brings them to a client business requires that they sign a non-compete contract with them, preventing these workers from transitioning into in-house employee status with a client company for at least some contractually specified minimum period of time after completion of their work assignment, unless the hiring company agrees to buy their contract with the worker-sourcing company. So, for example, you find work as a consultant or as a temporary hire with the ABC Company through the CDE Staffing Company. Here and for these issues, CDE could be essentially any type of professional worker provider: a temping agency or a full-fledged consulting company that sends in organized and structured teams. People finding work with clients through them have to sign contracts in which they agree not to seek in-house employment from the client businesses they are placed at, until at least some minimum period of time after they have completed their assignment with them (often one year but sometimes even longer.) And buying off this contractual agreement to allow for earlier in-house hiring can be very expensive.

And with that in mind I return at least briefly to reconsider my case study example from Part 3: non-in-house employees at the Microsoft Corporation.

I wrote in Part 3 about how large numbers of full time staff at Microsoft are kept on as outside workers, and how few of them can make the transition to in-house employee status with in-house benefits and even when they work full time at Microsoft for very long periods. Their numbers do include workers who arrive independently and entirely on their own but Microsoft also sources outside help from other businesses, that do require that people they place sign these contracts with them. So if Microsoft does not often bring their outside sourced workers in-house that is not entirely a result of their unilateral decisions.

Outside workers sourced to a client business from another company might or might not receive employee benefits from the sourcing company. They virtually always do when coming from a consulting company per se. They might when coming from a placement or temping agency if, for example, they work through that agency for sufficient hours per month or during some other qualifying period.

From a Personnel perspective, the hiring, client business is not negotiating or hiring the individual workers who would come to them. They are negotiating with and signing a contract with the sourcing company that provides those workers. Human Resources at least should always be involved in these contractual agreements, and certainly in ensuring that they are entered into according to company-wide standards and processes on the client side. But the lead in bringing in this type of help can come from the department or service that actually requires it. So this calls for consistent set operational processes and procedures coordinating the decisions and actions of the specific client service or department within the hiring business, and their overall business-wide Human Resources department, as a due diligence requirement if nothing else.

I am going to continue this series’ general discussion in a next installment where I will look into flex time, telecommuting and other workplace alternatives. Meanwhile, you can find this posting and series, as well as other related material at HR and Personnel.

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