Hedging against employment risk

Hedging against employment risk

By: Brandon Kew
Additional input from: Amarjit Kaur, Withers KhattarWong 

When faced with an unavoidable corporate lay off, how do employers protect the interest of the organisation while remaining as fair and human as we possibly can to employees? Undoubtedly, this has been one of the hardest conundrums many employers and HR professionals had to deal with amidst Covid-19’s economic fallout. 

A number of employers and HR leaders we had engaged with shared common challenges of fulfilling their employment and statutory obligations while navigating termination clauses within employee contracts. Legal experts, the likes of Withers KhattarWong have proportionately responded to a surge in queries around employee rights and employment obligations as the economy continues to bear the brunt of the pandemic.

On the other spectrum are employers whose essential services are in critical demand. While the immediate HR need is staffing up to meet the extraordinary spike, organisations must exercise an equal degree of care to minimise their employment risk.

From a staffing perspective, we advise employers and HR leads in the current economy to consider all options in the market. Some of these alternative workforce solutions include:

1. Contracting

Tenured employment contracts have defined start and end dates. On the expiry of contract, the employment relationship ceases and there is no further obligation from both parties.  

During the Asian financial crisis in 1997, many organisations adopted the use of tenured contracts as part of their hiring strategy to mitigate employment risks for the organisation’s “non-core” workforce.

This allows for the agile reaction to manpower requirements, employment benefits, compensation reviews and organisational structure to ensure the organisation remains highly adaptable to market dynamics and business needs. In adopting such a model, employers may wish to commit to the Tripartite Standard on Employment of Term Contract Employees, which sets out best practices and recommends providing leave benefits proportionate to their total length of service. 

2. Outsourcing

Multinationals and government bodies in recent years have adopted this manpower outsourcing model that transfers their employment risks to third parties through clearly defined scope-of-work projects. 

Though the operation expenditure may be slightly higher than in-house hiring , this comes with the benefit of outsourcing employment matters to third parties with greater industry expertise and up-to-date knowledge of employment obligations, especially in the midst of the rapidly evolving Covid-19 situation. Organisations are also able to expressly dictate the perimeters of their operational requirements and desired outcome within their project agreement. Caveats in the form of liquidated damages can also be included as a guarantee to satisfactory performance.

Organisations retain direct and immediate visibility over their outsourced teams as the latter is usually housed within the organisation’s premises.

3. Supplier engagement 

When the scope of work requires more than manpower, usually involving extensive capital investment such as warehousing, real estate, machinery or vehicles, organisations defray their set-up cost by outsourcing these operations to competent third parties with the expertise to implement best practices within their industry.

Apart from core businesses, the HR team can assess the organisation and identify current and planned functions that can be undertaken by professionals. Key considerations are investment and operational costs, knowledge and expertise, current and potential operational risks, and critical impact to the organisation’s core businesses.

Within client-supplier contracts outlined in the earlier two options above, business risks such as attrition (resulting in loss of performance), employee health and safety, extended statutory benefits, employee discipline, economic and insurance risks can be transferred to the third party.  

Ultimately, the onus is on organisations to determine the best-fit model to implement. As employers and HR practitioners, our immediate responsibility is to adapt to current market dynamics and take active, agile steps to address all risks involved to achieve the best outcome for the organisation.  

For additional advice or options to address your contracting and outsourcing needs, feel free to reach out to my colleagues or myself.