A total talent strategy is an integrated approach in which organizations strategically attract, manage and deploy both permanent employees and external workers, such as freelancers and contractors, to meet the needs of their operations and projects. This strategy seeks to create a holistic view of talent within the organization and promote flexibility in an ever-changing labor market.
Hybrid populations, where employees are employed in employee and self-employed status (freelancers), are commonplace in many industries.
In addition to managing risks of false self-employment and/or sham employment, other issues arise, such as: how do I ensure fair compensation for freelancers that is comparable to employees?
Because imagine the following situation. The pay for your employees is indexed by 11%. And the (self-employed) freelancers ask you how their compensation will be adjusted for the increase in longevity. How do you deal with that?
But hybrid populations of employees and independents also occur in certain contexts or levels within a company - think executive management, C-level and (informal) board committees.
The risk of false self-employment naturally presents itself there as well. But in that context, there is also often a risk of sham employment. In the higher echelons of companies, there is also a corporate law approach.
For example. Is it desirable to establish a (formal) board of directors to mitigate the risk of false self-employment? What are other companies doing?
Beyond legal risks, the risk of fair policy is, if anything, even more important.
Issues of fairness (aka equity) fall into several hatches, including distributive justice and procedural justice. Finally, there is also the aspect of interactional justice (in short, am I being treated with respect?).
An unjust policy leads to demotivation. Therefore, do not underestimate the impact of organizational justice: it is a hygiene factor. Conversely, a just policy does not necessarily lead to motivation. However, a fair policy is the basic prerequisite for a motivated population of employees - be they employees or freelancers.
Specifically: am I being paid correctly relative to (a) an internal employee (= internal distributive justice and (b) a comparable person in the labor market (= external distributive justice).
The difficulty, of course, lies in the fact that the self-employed and employees are not comparable in anything, at least in terms of gross compensation. It is also difficult to draw meaningful conclusions from the perspective of the employer's cost, except that the total cost to the employer should serve as a ceiling.
The only relevant way to compare employees with the self-employed is in terms of the net income they take home more, not only in the short term, but also in the long term (example par excellence is pension accrual) and in hypothetical situations such as guaranteed income in case of illness.
Not an obvious exercise, but it can be done. True, it requires a multidisciplinary approach, deep domain expertise in (para)taxation and labor law, and sophisticated mathematical models.
Thanks to our multidisciplinary team, we have all the knowledge and skills to bring such projects to fruition and even exceed expectations.
Because you could say. Let's take the easiest way, calculate the cost of gross wages and divide that by the number of working days per year. Done. That's certainly a valid, budget-friendly route. It's not as complex and not as labor-intensive.
So why bother to address this more thoroughly.
There are three main arguments for this.
In short: what if it turns out that the daily fees you are using are 100 EUR per day too high?
Would your freelancers be less motivated to deliver the necessary results with a daily fee of EUR 550 versus a daily fee of EUR 650? If your story and the factual underpinnings are right, in our experience this is very often not the case.
And when your freelancers would be equally motivated for a lower daily fee, it means that your investment in your human capital is not getting an optimal return.
More than that, you could use the freed-up budget to reinvest in your human capital in a way that does pay off! So a distributive justice exercise is not a mere savings exercise, it is an exercise in the economically efficient use of scarce resources.
In turn, determining what choices it is best to invest in and what it is best not to invest in belongs to the realm of wage strategy.
First, a benchmark is an exercise in external distributive justice, and says nothing yet about internal distributive justice.
Second, it does not make practical sense to benchmark freelance fees. And there are three main reasons for this.
If it is already difficult to collect the necessary data for salary studies (employee benchmarks), it is even more difficult to collect data from companies regarding freelance fees, especially since that data is usually not in HR, but procurement.
Freelance fees are established (exclusively) through positional bargaining and the mere operation of the market. One of the reasons you benchmark is to install greater (distributive) equity among freelancers, but certainly also between freelancers and employees.
The lack of methodology (at least so far 😉 ) has just created an injustice between freelancers and employees. Using the distributively inequitable fees in a benchmark solves nothing. A benchmark would only perpetuate the prevailing injustice.
No weight is given to freelance fees based on, for example, the complexity of the assignment, a freelancer's expertise and/or experience, etc. Why not? Because that data is simply not available.
Imagine the following situation taken from life.
A prospective employee has applied for a job opening. The candidate is included in the selection process, which includes a total of four interviews, tests and an assessment center. The candidate has already passed a first interview. And now the candidate is waiting for the next step. The total lead time is smoothly 13 weeks. The candidate is now in week 3 of the process.
Full of impatience, the candidate proceeds to explore the website of the company he applied to. There he sees that there is also a position for a freelancer that closely matches the employee vacancy he applied for. The candidate contacts him, has an interview with procurement regarding the fees and scope, and is able to interview with the business unit manager just two days later. The interview went smoothly and the candidate was immediately given the green light to draw up a contract proposal for 6 months. The candidate can start work on the following Monday. Fun fact: the candidate will also earn more than as an employee.
This doesn't feel very fair, does it?
And yet this is still commonplace today. Freelancers are recruited through procurement and the business function. Employees are recruited through HR. This two-track policy can be perceived by the candidate, the current population of employees and the current population of freelancers as procedurally unfair.
As we touched on at the beginning, you obviously cannot lose sight of the risk of false self-employment (or sham employment). The probability of the risk of false self-employment is high and so is the financial impact of the risk of false self-employment.
Therefore, traditional HR legal consultants and lawyers are scared to death of them and discourage HR from engaging with freelancers. As a result, freelancers are often treated stepmotherly within the organization.
We do not agree with this at all. The risk of false self-employment can be greatly reduced if the company properly cooperates with freelancers. In certain cases, the risk can even be reduced to zero.
The risk of distributive and procedural injustice is potentially much higher. By being overly rigid, you might actually lose valuable talent (or have a hard time attracting talent). For example, why would you refuse an employee who would like to freelance? Unless you have good arguments for doing so, of course, except that one or the other social status is not a valid argument in itself. If the person in question wants to, then he will work as a freelancer - just not in your organization, but perhaps in the competition. And then in many cases you had better facilitate this.
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