Why the 'Shadow HR' Model Could Work Well in a Flexible Workforce

The pandemic has changed the way people work and has accelerated the shifts of the remote workforce. It is estimated that 20% of the workforce are people that are not on the payroll lists. Thus, they lack compliance and governance. These 'non-employees,' namely freelancers or gig workers, are known as shadow HR.

In the next five years, 50% of the US job market will be dominated by freelancers. There is an exponential growth in the number of freelancers since 2010. More organizations are now moving towards a flexible workforce to scale their businesses due to the pandemic; hence, shadow HR's demand is skyrocketing.

As there is an increasing number of freelancers working for organizations, more countries have come up with new legislation to ensure that these 'non-employees' are correctly classified. For instance, California Assembly Bill 5 (AB5) is also popularly known as the gig worker bill.

Interestingly, most organisations underestimate the number of 'non-employees' that they hire by up to 300%. In fact, most CEOs are oblivious regarding the number of non-payroll workers that they employed. Suppose organizations are not completely clear on the number of people that they are hiring. In that case, they could potentially be submitting miscalculated forms such as tax payments that can lead to fines and penalties.

Shadow HR also reflects organizational needs by sidestepping traditional avenues of hiring and onboarding. It also demonstrates that organisations' internal processes are too slow to keep up with market needs and the pace of current change.

With the transparent management of Shadow HR in a flexible workforce, legal risks can be avoided. Organisations should also keep track of the people they employed to prevent overspending on freelance workers or increasing chances of incurring lawsuits and audits. Suffice to say; this is why shadow HR matters in an organisation.