The Implications of Shadow HR on HR

As we regain our balance after the initial shockwaves of the COVID-19 crisis, one thing is clear: contingent workers have become central to our crisis response by filling in-house staffing gaps and compensating for an increasing shortage of skilled traditional employees. This has led to something of a “freelance revolution” that includes a ballooning freelance workforce tens of millions strong due to layoffs and furloughs brought on by COVID-19. 

And even before the crisis, there were a staggering fifty-seven million people working as freelancers in 2019—five million more than just a decade ago. In fact, more than one in three Americans freelanced at some point in 2018, according to G2 Crowd via Upwork.

Though freelancing is nothing new, the technology that enables a quickly growing number of workers to freelance—combined with more companies allowing flexible scheduling and remote work—has changed the way organizations are managing their talent and structuring their workforces.

This has led to a phenomenon we at Stoke like to refer to as “Shadow HR,”—that is, everyone who’s doing work for your company who’s not on your payroll. These could include your search engine marketing agency, your Salesforce outreach administrator—or any workers you’ve hired via Fiverr or Upwork, like copywriters, designers, SEO specialists and more. .

With the emergence of this freelancer revolution—and the Shadow HR that comes along with it—your role as an HR leader is more important than ever. As we’ve talked about in previous blogs, with this revolution comes the need for you to get more strategic in managing your on-demand workers and bringing your freelancers out of the shadows.

The Implications of Shadow HR on HR

A Snapshot of Freelancers and Today’s Workforce

Today’s freelance workforce is a growing and mighty one, annually contributing more than $715 billion to the economy. What’s more, over 90 percent of organizations now depend on freelancers, according to Forbes. However, many of the freelancers being spoken of here fall into the highly skilled category. Per the same source, three-quarters of organizations are increasing their use of freelancers in order to quickly tap into the right expertise, attract experts who would otherwise be too costly to hire full-time, manage project scopes, and deliver best practices to the organization’s full-time internal staff.

Managing Different Types of Talent

It’s important to note that there’s more than one kind of freelancer your company might be employing, including gig-workers who combine multiple jobs to earn an income. In your organization, this could look like temporary employees hired for data entry jobs or to stuff envelopes for a little while.

However, in the wake of COVID-19, there’s been an explosion of highly qualified knowledge workers, consultants, and experts who are revolutionizing the way leading companies are staffing their departments. Moreover, these types of freelancers can be found at all levels of the organization.

The Implications of Shadow HR on HR

With these facts and figures in mind, the question isn’t whether or not your business has what qualifies as “Shadow HR” but how to manage the shadow workforce that has inevitably cropped up over the past few years.

For starters, it’s good to remember that from a professional standpoint, freelancers want largely the same things as full-timers. In an interview with the Harvard Business Review, John Younger, co-author of the book Agile Talent: How to Source and Manage Outside Experts, discusses the fact that there are certain things on-demand workers want, just like full-time workers.

“People want ongoing communication. They want to know what’s happening, whether they’re part time or full time, whether they’re temporary or permanent,” Younger says. “They want to be involved in key events that affect them, whether they’re, again, on a project, or whether they’re a full-time employee.”

However, as we’ve discussed in our previous blogs about the implications of Shadow HR on legal and finance, and the risks of Shadow HR for HR, the legal and financial ramifications of not properly managing this workforce could have serious consequences.

Taking Ownership of Shadow HR

The first and most important step for HR leaders in putting these processes into place is taking full ownership of Shadow HR.

Historically, ownership of Shadow HR has been left to the managers and employees who typically sidestep official processes when hiring freelancers. And while many managers automatically assume freelancers don’t need as much attention as in-house employees, it’s still to your organization’s benefit to ensure they’re onboarded properly and consistently, given the proper paperwork, and managed with care.

“You still need to actively and thoughtfully manage them so that you can get their best output and ensure they’ll want to work with you again,” writes Amy Gallo of the Harvard Business Review.

However, oftentimes this simply isn’t the case. In our experience, up to 30 percent of HR activity happening in businesses today is happening “in the shadows.” This means there’s a huge amount of important paperwork that’s not getting done and there are employees on your payroll that you’re probably not even aware of.

This opens your business up to all sorts of legal issues, from intellectual property disputes to 1099 discrepancies and more. Therefore, it’s important to find or create consistent tools, processes, and strategies to manage these workforces.

Are You Ready to Bring Freelancers out of the Shadows?

The blended workforce is here, and your company’s freelancers are in desperate need of HR leadership. However, you can’t manage them if you can’t see them. And seeing them requires having processes and policies in place to ensure all on-demand workers are handled consistently and correctly.

In a post-COVID era where freelancers and mixed workforces are the rule—not the exception—there’s no longer an option to allow departmental leaders to manage them in Excel, over email, or with fragmented, incomplete processes. You need to focus on ensuring that the on-demand workers who are brought on-board are tracked correctly.

What’s more, your freelancers deserve a system designated for non-payroll employees, because it protects them as well as you. It won’t just make the employee experience better; it will ultimately have far-reaching positive impacts on your organization’s bottom line and fortify you against a host of legal, financial, and personnel issues down the road.

Written by
Suzanna Colberg

Leave a Reply

Your email address will not be published. Required fields are marked *