Exploring the Pros and Cons of Tenure Limits for Contingent Workers

Last updated on August 20th, 2018 at 05:26 pm

You may remember back in 2000 when thousands of long-term contractors sued Microsoft, alleging they deserved the same benefits as regular workers. The technology giant agreed to pay $97 million to settle the class-action lawsuit. Since then, many companies hoping to avoid the same fate have relied on term limits for contingent workers to protect themselves from co-employment risks. Sounds logical, right?

Well, in spite of how commonplace limiting the length of assignments has become, some lawyers insist that these term limits do little to mitigate co-employment risk. In fact, the disadvantages of engaging contingent workers for a set period of time might far outweigh the perceived benefits and create a false sense of security.

To illustrate the impact, consider that according to a survey titled “Out of Time” conducted by Staffing Industry Analysts, 66 percent of buyers let go of some portion of their contingent workforce to comply with assignment limits during 2011. Moreover, because there’s no set formula for inhibiting risk, companies are just winging it and the rules vary organization to organization, with many imposing anywhere from six-month to 12-month assignment limits in a rolling 18- to 24-month period.

Without firm guidelines, staffing clients and their providers should carefully examine the advantages and disadvantages when establishing term limits for contingent workers.

The Pros

Capping the length of temporary assignments keeps managers from extending contingent workers indefinitely. This actually promotes sound management practices, such as workforce planning, since managers are forced to either convert valuable long-term contractors to full-time status or find another way to manage heavy project workloads. Theoretically, this approach ensures that managers make informed choices about when and how to use external staff.

For instance, a manager may be more inclined to increase her team’s bandwidth through cross-training or justify an increase in full-time headcount as an assignment deadline approaches. In many cases, the policy encourages managers and HR professionals to deal with understaffing issues or underperforming staff members.

In addition, converting contingent workers to full-time status is not only cost-effective, but it can open the door to untapped talent pools as well. Without timely employment status reviews, top performing contingents can be lured away by staffing firms or companies that offer better job security.

When implemented consistently, term limits may also help companies maintain a legal hiring process and avoid exposure to liability by terming out contractors who don’t meet the requirements for new hires. A sound policy should aid in maintaining order and ensure that all applicants are treated fairly and equally.

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The Cons

On the downside, forced turnover of capable, trained contingents can be expensive and counter-productive.

Surveys show that it typically takes eight months for a newly hired employee to reach full productivity. It’s no wonder that maintaining team continuity and achieving key business goals can be difficult when contingent workers who have become familiar with proprietary software programs, stakeholders and project management practices cycle out every six months.

Plus, there’s no guarantee that the contractors in whom you’ve invested time and money will be available when you need them again.

Companies that don’t impose assignment limits or mandatory six-month breaks may have an edge when it comes to competing for the services of contractors with in-demand skillsets. When everything else is equal, contingent workers will often select the assignment with the longest duration and greatest earning potential.

Finally, limiting the length of assignments can drive up recruiting costs, bill rates and the overall cost of contingent labor. Since both cost of hire and the employer’s portion of some payroll taxes are capped, many staffing suppliers offer discounts or rebate programs for contractors on long-term assignments. Reducing those costs can add up to major savings for businesses that utilize a number of highly-compensated contingent workers over the course of a year.

Tenure limits also drive-up costs for HR and line managers. Both parties end up handling more requisitions over the long haul and they spend time on monitoring and compliance instead of value-adding activities.

Creating a policy for every unforeseen event or potential risk can limit a company’s ability to maximize its investment in a flexible workforce. Sure, there may be many sound reasons to limit the length of contingent worker assignments, but it’s important to consider whether the benefits significantly outweigh the associated costs.

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