Managing a contingent workforce presents unique compliance challenges. Without the right tools, organizations risk costly fines, legal issues, and operational inefficiencies. A Vendor Management System (VMS) is designed to help you mitigate these risks by streamlining compliance processes and providing greater oversight of your contingent labor program.
What are the risks associated with contingent workers?
The contingent workforce is a complex. Not only are there risks when it comes to the effective management and optimization of this workforce, but there are also legal and compliance risks that your business needs to address.
Here are the two most common legal and compliance risks for contingent workforce programs.
Worker Misclassification:
Misclassification risks arise when a contingent worker is incorrectly designated as an Independent Contractor (IC). If not, they could be considered employees and your organization could be falling foul of misclassification. To ensure proper classification, organizations can either conduct internal audits using well-developed vetting criteria or engage a specialized third-party IC compliance or payrolling provider. If your business lacks in-house expertise, partnering with an external compliance vendor is often the most effective route. Additionally, if your contingent workforce spans multiple countries, be aware that classification regulations vary by region.
Co-Employment Risk:
Most businesses use staffing agencies to source and engage their contingent workers. In this relationship the contingent worker is employed by the staffing agency and placed within your organization for a specific period of time as a temp. It’s crucial that you have the procedures and protocols in place for this relationship not to be seen as co-employment, which would essentially mean your business is categorized as a joint employer of the contingent worker - meaning the worker could take legal action against both you and the staffing agency and receive compensation.
Labor Law Violations:
Contingent workers are required to comply with many of the same regulations as traditional employees, including those governing wages and hours, workplace safety standards, and anti-discrimination. Failure to adhere to these various labor laws - such as those addressing pay practices, safety requirements, or equal employment protections - can expose your organization to significant compliance risks.
Why Compliance Risk Matters
Unlike traditional employees, contingent workers are governed by different labor laws, tax requirements, and safety regulations. Managing these complexities manually is risky and time-consuming. Compliance failures can lead to penalties, co-employment liabilities, and damage to your company’s reputation.
Managing Compliance Risk
As your company’s use of contingent workers increases so do the risks associated with your contingent workforce management program. To avoid any potential costly missteps and to truly optimize the performance of your contingent workforce, it’s crucial to take some steps to mitigate those risks.
1 - Make sure you track and manage compliance processes
Most organizations have fragmented approaches to managing their contingent workforce program, with hiring managers across different departments all using their own procedures and processes to source, engage and pay contingent workers.
This leads to significant risk to your business. Instead, your contingent workforce should be a company-wide initiative.
The use of a vendor management system (VMS) will ensure your business can create a visible contingent workforce program in which all hiring managers stick to company-agreed policies. You’ll then be able to seamlessly track and manage your compliance processes across your entire organization.
2 - Keep up to date with new regulations in your region
No matter how confident you are in your contingent workforce program, the management of such a program is never set in stone. The introduction of new regulations or laws in your region can transform an area of low risk in your contingent workforce program into a potential liability.
Keeping up with legislation changes around contingent workers will ensure that your business is able to quickly adapt its contingent workforce management program, mitigating potentially new risks in your non-employee workforce.
3 - Use a Vendor Management System
Every contingent workforce management program must be underpinned by technology if your business is to mitigate risks. A vendor management system will ensure that your organization is able to manage and track important data, such as supplier performance, contingent workforce spend and compliance processes.
By gaining true visibility into your contingent workforce program, your organization will be able to significantly mitigate risks associated with the hiring of non-employee workers. A VMS makes this process simple by allowing your company to properly document, and manage, your contingent workforce - this seriously mitigates the risk of co-employment and misclassification.
4 - Define compliance processes for hiring managers
To ensure your organization is mitigating contingent workforce compliance risk, it’s important that you implement standardized processes for hiring managers. To do this, you need to define the compliance processes that your hiring managers need to complete for all workers. Break this down into categories such as the requirements needed for a specific position or location.
5 - Enforce all hiring managers to complete these compliance processes
It’s all well and good having standardized processes written down, but not if they aren’t being implemented by your hiring managers. A vendor management system can help here as well.
Through the use of a vendor management system your business can automate many of the processes associated with onboarding and offboarding contingent workers. By using automation to make it easy for hiring managers to complete compliance processes, you’ll better ensure completion of important compliance tasks.
6 - Conduct contingent workforce program audits
To ensure your contingent workforce program is mitigating compliance risk both now and in the future, it’s important to ensure your processes are both up-to-date and being implemented properly. You can double check this by organizing audits of your program each quarter.
Frequent audits of your program will allow your organization to examine that both your hiring managers, and your vendors, are performing the appropriate compliance processes based on your organization’s specific requirements and standards. This will help you identify which areas of your program may be putting you at risk, so you can fix them before it’s too late.
How a Vendor Management System helps you manage Compliance Risk
A Vendor Management System (VMS) is a software platform that automates and centralizes the management of your contingent labor program. It helps track worker credentials, enforce labor regulations, manage vendor performance, and maintain audit-ready records - all essential for reducing compliance risk. Here are 10 ways a VMS helps you manage compliance risk:
1 - Automated Worker Classification
Misclassifying contingent workers can result in hefty fines and legal troubles.
A Vendor Management System (VMS), can automate worker classification by ensuring all engagements comply with local labor laws and independent contractor regulations. It applies standardized criteria to determine whether a worker should be classified as an employee, contractor, or temporary worker, reducing the risk of misclassification.
2 - Centralized Documentation & Record Keeping
Keep all worker and vendor compliance documentation - licenses, certifications, contracts - in a single secure system for easy tracking and auditing.
A VMS is a single source for all worker-related documentation, including contracts, tax forms, background checks, and compliance records. This centralization ensures that businesses can easily access and audit records, which is essential for regulatory and legal compliance.
3 - Automated Compliance Workflows
With built-in compliance workflows, a VMS automates critical processes such as background checks, work authorization verifications, and contract approvals.
These automated workflows reduce human error and ensure all necessary compliance steps are completed before a worker begins an assignment.
4 - Real-Time Labor Law and Regulatory Updates
Labor laws and regulations frequently change, creating a moving target for compliance.
Many VMS platforms integrate with legal databases to provide real-time updates on labor laws and compliance requirements, ensuring organizations remain compliant with local, national, and international regulations.
5 - Enforced Rate & Billing Compliance
Worker misclassification isn’t the only financial compliance risk - billing errors and rate inconsistencies can also lead to penalties.
A VMS helps enforce compliance by setting predefined rate cards, ensuring vendors adhere to agreed-upon billing terms, and preventing unauthorized spending or overcharges.
6 - Data Security & Privacy Compliance
A VMS provides advanced data security measures to ensure compliance with privacy regulations like GDPR, CCPA, and HIPAA.
Features such as encrypted records, role-based access, and audit logs help prevent unauthorized access to sensitive worker information, reducing the risk of data breaches.
7 - Audit-Ready Reporting & Analytics
Compliance audits can be time-consuming and stressful.
A VMS simplifies the process with detailed audit trails, real-time compliance dashboards, and automated reporting. This ensures organizations are always prepared for internal audits or external regulatory inspections.
8 - Standardized On-boarding and Off-boarding
Ensuring contingent workers meet legal and organizational requirements before starting work is crucial for compliance.
A VMS standardizes the onboarding process, ensuring workers complete required training, sign contracts, and obtain necessary certifications. It also ensures proper offboarding, including deactivating system access and finalizing compliance documentation.
9 - Worker Tenure & Co-Employment Risk Mitigation
Worker tenure limits and co-employment risks are major compliance concerns for businesses using long-term contingent labor.
A VMS monitors worker tenure, flagging potential risks and ensuring organizations stay within legal guidelines to avoid claims of co-employment or benefits obligations.
10 - Vendor Compliance & Performance Management
A VMS doesn’t just help companies manage workers - it also ensures that staffing vendors meet compliance requirements.
The system tracks vendor performance, monitors compliance adherence, and provides visibility into vendor contractual obligations, helping organizations hold vendors accountable for compliance standards.
Frequently Asked Questions
What is a Vendor Management System (VMS)?
A VMS is a software platform designed to automate and manage contingent workforce processes, including compliance tracking and vendor management.
How does a VMS improve compliance risk?
By automating credential checks, monitoring worker data, and generating audit trails, a VMS reduces human error and enforces regulatory compliance.
Can a VMS help with co-employment risks?
Yes. A VMS tracks worker status, assignments, and tenure to help avoid co-employment liabilities.
Is a VMS suitable for smaller contingent workforces?
Absolutely. Modern VMS platforms scale to fit organizations of all sizes, including smaller contingent workforce programs.
Implementing a Vendor Management System is a strategic move to safeguard your organization against compliance risks while optimizing your contingent workforce management. With the right VMS, you gain peace of mind and operational control.
Getting Started with a VMS
If you manage contingent workers manually or with disconnected tools, adopting a VMS like Conexis can transform your compliance risk management. The automation, visibility, and control provided by a VMS simplify compliance, reduce risk, and improve operational efficiency.
Ready to see how Conexis VMS can help your organization minimize compliance risks? Request a demo today and let our experts guide you.
Learn More About the Benefits of a VMS
Download our Free VMS Buyer's Guide here:
Discover the Power of Conexis VMS
Conexis VMS is purpose-built for organizations seeking to manage their contingent labor spend effectively. Here’s why we're the right choice:
- Fast Deployment: Get up and running in weeks, not months
- Transparent Pricing: Flexible pricing with no hidden costs
- White-Label Ready: Customize the platform with your brand
- Real-Time Insights: Make faster decisions with built-in analytics
- Audit-Ready Compliance: Store contracts, worker data, and rates in one secure hub
About Conexis VMS
Conexis is an award-winning Vendor Management System built for organizations that want the power of enterprise software without the complexity or cost.
Leveraging the latest technology, Conexis delivers the expertise, reliability and security of enterprise systems, while offering the flexibility, user friendliness and tailored, personal service you require. Learn more about our Company and why organizations Choose Conexis VMS.
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Additional articles on the Managing Contingent Workforce Risk: Managing Risk Guide
- Co-Employment Risk: How a VMS Shields you from Risk
- Misclassification: A Critical Risk for Contingent Workforce Programs
- 10 Ways a VMS helps reduce Contingent Workforce Compliance
- How to Identify the Hidden Risks in Your Contingent Workforce Program
- How to Track Contingent Workforce Compliance Risk with a VMS
- What is Contingent Workforce Compliance Risk?
- Is your Staffing Agency putting your company at risk?
- The Benefits and Risks of Hiring Contingent Workers
- The Top 5 Contingent Workforce Risks and How to Manage them
- How a VMS keeps you compliant and audit-ready
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