External workforce management and governance: A current trend with risks

Flexibility and cost savings are tempting for any company nowadays. For this reason, the employment of external staff is gaining popularity and promises many advantages.

Especially in the project area, many companies now rely on hiring external temporary employees. The contract with these external employees is usually limited to the duration of the project, which means personnel expenses can be reduced significantly.

However, all these benefits come with hidden traps. Issues such as feigned service contracts, feigned contracts for work, feigned independence, covert personnel leasing or wage dumping arise and the management is fully liable for all risks emerging from contracts with external parties. For example, external employees are not bound to internal company guidelines and regulations. They also do not get the same level of protection by the legislator that employees receive. It can be a problem if an external employee has only one customer for the duration of many years. This can lead to social, tax, and criminal penalties and give the impression that the external employee is part of the company’s permanent staff.

A company tax audit can lead to an investigation and, in a worst-case scenario, years of back taxes. The audit could classify a contracted worker as an employee, which would mean back payments for all social security and healthcare payments for the entire length of the service relationship. 

The misappropriation of wages and social security payments may also have penal consequences, including prison sentences for the managing directors. One recent example is the Austrian state of Salzburg, which had to pay 1.6 million Euro in social security and health care payments for two employees following a 2015 audit by the regional healthcare fund. The fund deemed the two independent contracts as fakes and categorized them as employee contracts.

The BIC GRC Solutions (formerly risk2value) from GBTEC (formerly avedos)

• Monitors the risks across all business processes for external workflow governance to secure conformity with standards and laws. 

• Provides EWG, a solution developed in cooperation with EY and GBTEC. It addresses the scenarios for using third-party workers in companies in light of ever tightening laws while helping identify and evaluate risks for the individual cases and usage scenarios. 

• Saves legal fees for ongoing EWG consultations since BIC GRC Solutions automatically picks out cases that require legal clarification.

• Offers security for goal achievement:

  • Robust EWG processes
  • Lower risk of liability for management
  • Compliance with laws and standards