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Mitigating Co-employment Risk for a Global Interactive Entertainment Company

Information Technology | Managed Services Offering

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TEKsystems partnered with the client, a global interactive entertainment company, to establish a co-employment risk mitigation program to limit the risk of future litigation and supply technical resources under a managed services model.

The client, a global interactive entertainment company, produces, markets and distributes games, content and Web services for Internet-connected video game consoles, computers and handheld devices. The client has partnered with TEKsystems since 2002.

An increasing number of organizations across all industries are turning to contingent IT labor to augment their existing staff, fill skills gaps within their IT teams and meet the needs of fluctuating project loads. A 2014 TEKsystems survey of more than 1,500 IT leaders and IT professionals in the U.S. and Canada found that the percentage of IT leaders estimating that contingent IT labor will make up between 11 percent and 25 percent of their overall IT workforce will increase from 25 percent to 35 percent by 2018.1 Utilizing contingent labor allows organizations to engage individuals with specialized or niche skill sets on an as-needed or long-term basis, depending on the nature of the work. While the benefits of contingent labor are clear, organizations using temporary workers need to be aware of certain legal limitations to the practice.

If a consultant is placed at the organization through a third-party service, such as a human capital management firm, the organization runs the risk of entering a gray area of temporary staffing known as co-employment. Co-employment occurs when a consultant has an employer-employee relationship with two separate organizations, blurring the lines of responsibly as they pertain to benefits, compensation and overall accountability. Over the past decade, several co-employment lawsuits have made national news, most notablyVizcaino v. Microsoft Corporation, in which temporary workers successfully sued Microsoft for retroactive compensation for employee benefits, including a stock purchase plan, health benefits and a 401(k) plan.

However, co-employment situations and litigation can be easily avoided with the proper temporary staffing arrangements. Working to acquire contingent labor through a managed services provider can reduce the risk of litigation tied to contingent labor. Under a managed services model, contingent workers self-identify as being an employee of the provider, receiving associated compensation and benefits tied to employment from the provider. The provider takes ownership of human resources functions and responsibilities while affording partnering organizations the flexibility to outsource contingent workers and utilize their unique skills sets with minimal co-employment risks.

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As the demand for cutting-edge, multiplatform digital content has grown, the digital entertainment and gaming industry has become a very competitive landscape. Organizations like our client, a global interactive entertainment company, must make fast business decisions and have a flexible workforce with hard-to-find niche skills in order to remain successful. Contingent labor gives these organizations the ability to ramp up teams quickly, leverage unique and rare skill sets for new product developments, and keep production costs down by not having to inflate their full-time employee workforce.

Having recently settled several class-action lawsuits regarding overtime compensation for former temporary consultants, the client recognized the need to change their policies toward contingent workers in order to protect their business and avoid further co-employment-related litigation. The client first established a tenure limit, which restricted the duration of time consultants could work at the client to no longer than 12 months. They also established that consultants would be classified as hourly workers, which would make them eligible for overtime pay. These stipulations helped to clearly set benefit expectations and outline future contingent labor parameters.

While this new policy helped protect the client against co-employment, the client knew that more often than not their business and project needs would require ongoing work lasting longer than 12 months. The client didn’t have the capacity to fill these projects with full-time employees so they needed to continue to rely on contingent labor to fill the gaps in personnel. However, with routine consultant turnover every 12 months under the new tenure limitations, knowledge and productivity were being lost. Additionally, the client saw increases in the level of management needed for new personnel and a decrease in overall efficiency as it took to time to onboard, train, and get new consultants to a productive state and up to speed with ongoing projects.

The client recognized that partnering with a managed services provider to acquire contingent labor meant consultants would legally be employed by the provider, allowing them to bypass self-imposed tenure limits, reduce the risk for litigation, and create a clearer definition of where and how to apply employer responsibilities and employee benefits. The client saw this type of partnership as the perfect middle ground for acquiring contingent labor with specialized skills sets without assuming co-employment risk.

The client wanted to partner with a managed services provider with a proven ability to establish and implement a co-employment risk mitigation program. They also wanted a partner with local access to highly skilled technical resources available to integrate with existing staff and work on ongoing projects as the need arose.

Serving as a managed services provider, TEKsystems would establish a co-employment risk mitigation program in which we would provide highly skilled IT resources to augment the client’s staff when product schedules or projects required it. We would design the program with clear boundaries of supervision to encourage any resource placed at the client site to self-identify as employed by our organization, thus allowing them to work past the client’s 12-month tenure limit. A managed services model would also allow the client to continue to attract top talent at competitive rates and retain them for extended periods of time.

Expanding the time a resource could stay on site would help foster greater knowledge retention, minimize attrition and increase their sense of “team.” Longer contractual work orders would also increase internal seniority for more seasoned consultants and help create paths for career growth—a rare opportunity for individuals working in the contingent workforce.

As part of our co-employment risk mitigation program, the client would be able to leverage resources from an on-site outsourced capacity. This meant that though resources would be outsourced through a managed services model, they would be under the oversight and daily task management of the client. This type of management would allow the client to better meet product schedules and manage individuals on a daily basis to drive performance and results. The need for overall on-site management from the client would, however, be reduced and consultant productivity levels would increase as they would be imbedded at the client for longer periods of time. In addition, we would institute a formal knowledge management transfer process to help new consultants work productively in a shorter timeline.

The client had seven different internal service organizations that supported their overall business operations. Each of these business units performed specialized services tied to overall product creation, branding and distribution, including:

  • A digital agency that supports product marketing and Web user experiences
  • A digital distributor disseminating content via PC and mobile
  • A release engineering services provider
  • A test engineering services provider for online games

Each business unit had their own unique needs that required different resources with varying skill sets. We would work with the individual business units to identify what types of skills were needed and then screen, hire and deploy consultants to fill those gaps.

To help demonstrate to client leadership the value of their managed services investment, we would track resource attrition, client budget utilization as well as metrics associated with quality and productivity. This information would be shared with client leadership during monthly business reviews. During these meetings, we would also discuss significant project events, review current consultant contracts, outline upcoming business unit or project needs and suggest areas of improvement within the overall co-employment risk mitigation program.

Based on our extensive past experience in providing managed services and our proven ability to identify top talent through our relationships with more than 81 percent of the IT workforce, the client selected TEKsystems as a managed services partner.

Serving as a managed services provider for the client, TEKsystems was able to successfully implement a co-employment risk mitigation program. As part of this program, we provided the client with 60 technical consultants with skills in areas of testing, development, operations support, content management, front-/back-end development, Web design, release management and production coordination.

Having successfully driven the client’s co-employment risk mitigation program, we sought to add value by offering solutions to improve business efficiencies and reduce spending tied to consultant work. As part of our service evolution, we began having meaningful conversations with client leadership on ways to better meet their more strategic, long-term business goals.

One area of improvement we identified was the contract structure drawn and administered for each consultant placed at the client. All 60 consultants had their own individual contract stating their name and individual pay rate. Managing the specifics of 60 different contracts was cumbersome and meant that if a consultant left the client, a brand new contract would have to be developed for the new individual with their unique information.

To increase efficiency and further reduce co-employment risk, we began contractually grouping consultants by function based on their specific skill sets, removing individual consultants’ names and pay rates from the contracts. New contracts would outline functional requirements, include previously agreed upon pricing for the function and allow for improved performance metrics because work done under the respective functions could now be measured in terms of quality, not individual performance. This new structure not only helped bring more value at a functional level but conveyed that the client was buying a service rather than hiring an individual to fill a need.

Under the new contract structure, we were able to consolidate the original 60 individual contracts into 20 function-based contracts, which greatly streamlined the hiring and invoicing process. Going forward, if a position needs to be backfilled, a new contract will not need to be created. Additionally, consultants now have the ability to move between business units since they are not contractually bound to just one for a specific project. This permits business units to share consultants—a great efficiency for shorter-term projects or ones that do not require a full-time resource.

We are in discussions with the client’s chief operating officer and vice president about the possibility of moving toward an off-shore model for certain services as a way to drive costs down. This model would allow the client to maintain the same level or oversight, quality and knowledge retention while reducing overall costs. As a testament to their satisfaction, the client is considering expanding our services to more of their locations.

  • Service evolution. TEKsystems continually looked for ways to evolve our service offerings to reduce the client’s co-employment risk and more specifically address the needs of their individual business units. Through our service evolution, we implemented enhanced processes and procedures in regard to consultants’ contract structure to bolster the validity of our co-employment risk mitigation program and make it easier for placed consultants to move between business units once on site.
  • Talent acquisition. Organizations in the digital entertainment and gaming industry rely on the highly skilled technical professionals with hard-to-find niche skills to develop, produce and deliver next-generation games and content to the marketplace. Drawing on our relationships with more than 81 percent of the IT workforce, we were able to find qualified consultants to fill the specific needs of the client’s various service organizations.
  • Co-employment knowledge. TEKsystems’ managed services team has a deep understanding of co-employment, the risks surrounding infringements and ways to minimize exposure for organizations using contingent labor. Using this knowledge, we provided the client with an effective co-employment risk mitigation program to reduce the possibility of future litigation. Under this program, we placed 60 consultants to augment the client’s existing staff without tenure limitation. Serving as a managed services provider, we were able to bypass their self-imposed 12-month tenure restriction, allowing consultants to continue working on site on lengthier, more substantial client projects. This helped to increase consultant productivity, retain knowledge and minimize attrition.


1 The Contingent Workforce, TEKsystems, 2014

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