Managing the world’s fastest growing workforce

Tax authorities are increasingly challenging the employment status of contingent workers, and for good reason. As the panel at the recent Vialto Partners ‘Employment risks and obligations webinar’ pointed out, the number of contingent workers is growing fast, increasing by 50 percent worldwide in 2024 alone¹.

This surge is showing no sign of slowing down. According to Vialto’s Mobility Agility Survey, 94 percent of organizations now use contingent labor as part of their workforce². In APAC, 50%-70% of companies already rely on contingent workers³.

Hiring off-payroll individuals to perform specific roles or deliver services enables enterprises to adjust workforce needs based on demand and manage overall workforce costs. It also presents significant compliance management challenges.

Contingent hiring is under increasing scrutiny

From a regulatory perspective, the difference between hiring someone as an employee or as a contractor boils down to tax obligations. In Australia for example, when a person is an employee, all relevant employment tax obligations apply–including pay-as-you-go withholding, real time payroll reporting, superannuation, payroll tax, and work cover⁴. If that person is a genuine independent contractor, some or possibly all these obligations could fall away.

Armed with advanced analytics technology, increased access to payroll data, and a desire to boost tax revenues, tax authorities are increasingly challenging the employment status of contingent workers, and imposing payroll and social security obligations on organizations. The management of contingent workers has become a C-level concern in Australia following recent High Court rulings and guidance from the Australian Tax Office (ATO)⁵. Other jurisdictions across APAC are also focusing their attention on detecting disguised employment, which often leads to subjective and challenging assessments for organizations.

This focus on contractors, their employment status, as well as the incentives provided to them is expected to continue. As a result, organizations will come under heightened scrutiny to ensure compliance throughout their total workforce— including supply chain personnel. And, as with most compliance issues, failure carries consequences, ranging from financial penalties to significant operational risks, and serious reputational damage.

APAC highlights and hotspots

Globally, the direction of travel is the same: authorities throughout APAC are placing more obligations on organizations to ensure compliance of their contingent workers.

Mainland China

• Contingent workers in different forms are subject to different tax treatments and can also create potential exposures to both companies and individuals.
• Tax authorities are looking carefully at the commercial substance of contingent worker arrangements to ascertain tax treatment and compliance reporting obligations.
• Keeping up with changing regulations is critical. Tracking systems are key to identify and manage potential challenges.

Vietnam

• Tax authorities are closely monitoring contingent workers to enforce tax compliance and to reduce the risks of misclassification of income—specifically, taxpayers receiving business income versus employment income.
• Payment made to non-employees is a frequent focus area during tax audits.

Malaysia

• Contingent workers represent 26 percent of Malaysia’s workforce—primarily freelancers, delivery, and ride-share drivers⁶.
• 2.5 million individuals engage in agency relationships, receiving commissions, rebates or similar payments⁷.
• Heightened regulatory focus is expected when mandatory e-invoicing obligation goes live for all taxpayers on 1 July 2025⁸.
• Self-employed individuals in the financial services and oil and gas sectors are highly susceptible to scrutiny from a misclassification perspective.

Australia

• Increased focus from the courts, including two new tax rulings in the last 12 months⁹.
• State revenue authorities have ramped up review and audit activity.
• Renewed regulatory attention suggests many businesses don’t understand contingent workers or do not seek adequate advice, leading to unintended tax consequences.

New Zealand

• Employee/contractor criteria is being tested in court by Uber drivers claiming to be employees¹⁰.
• Government announced changes to the Employment Relations Act (ERA) which will change the country’s employment landscape significantly and provide greater certainty for contractors and businesses¹¹.

Strategies for success

The intensifying “War for talent” is pressing companies to offer a variety of benefits to recruit and retain personnel. With subjective rules and high risks for non-compliance, businesses are looking for ways to determine tax obligations globally and identify at-risk workers so that they can proactively and effectively manage tax risk. While every business is different, the strategic elements that underpin their success are remarkably similar.

Establish strong governance: Our experience across the APAC region highlights a common challenge—governance of contingent workers tends to lack clear ownership, with responsibilities split across multiple stakeholders and systems.

Managing this population of workers more effectively requires stronger governance. This includes establishing clear roles, responsibilities, and risk levels to ensure accountability across relevant stakeholders and businesses. Implementing oversight mechanisms to monitor compliance is also essential. So is ensuring any independent contractor agreements are tightly framed, and well drafted, with clear onboarding and ongoing processes to ensure there are no gaps.

Understand risks and regulations: The approach to managing contingent workers is
becoming more proactive with companies trying to anticipate and manage tax risks rather than responding to them as they occur. Keeping up-to-date and informed about changes in contingent work employment tax laws and regulations helps organizations stay ahead of compliance challenges. Establishing processes to respond promptly and properly is also critical.

Embrace technology: For most organizations, especially those with time constraints or limited capacity, an automated solution can help reduce the compliance burden, enable
faster responses back to the business, and assist in triaging levels of risk.

However, regardless of which tool is chosen, integrating tax compliance, risk assessment, and reporting into a single platform delivers a host of benefits, including simplicity and proactivity. In practice that means organizations can effectively manage tax risks ahead of time, rather than scrambling to respond after the fact.

Be prepared: The best way to tackle issues associated with a domestic contingent worker may be completely different from what is required for an international contingent worker. Therefore, a strategic plan that details precisely how to handle any cases, as-and-when they arise, is a mission critical consideration.

Adapt and overcome

Of course, sometimes the best way to deal with a problem is to avoid it entirely. In today’s global, hybrid-working and working environment, a growing number of companies are sidestepping some contingent worker challenges by using an employer of record (EOR) organization.

EORs make it easy for companies to hire and manage talent across borders without having to set up a corporate entity. These EORs streamline onboarding and administer payroll and benefits, handle compliance, and ensure all statutory requirements are met.

The statistics are clear: the number of contingent workers in the global workforce is only going to grow. Enterprises need to be certain they understand the risks and are managing them appropriately.

Watch our APAC Contingent Workers: Employment risks and obligations webinar to gain an overview of the constantly changing contingent worker landscape in the APAC region.

Contact us:

Naomi Burwell, Director, New Zealand, Vialto Partners
Brittany Chong, Partner, Vietnam, Vialto Partners
Phing Phing Lim, Partner, Malaysia, Vialto Partners
Kristy Whitnell, Director, Australia, Vialto Partners
Monica Xu, Partner, China, Vialto Partners

For information about our Contingent Worker solution, click here.

Sources:

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