Virtual Call Center

Virtual contact centers have historically been split when it comes to the classification of their agents. While some companies, like Alpine Access, have always hired agents as employees, other centers use independent contractors to handle their call volumes. The employment status of agents may not seem like an important distinction for companies looking to outsource their customer care operations. However, the type of model used by virtual centers directly impacts the services they provide and qualifications of their agents.

The 'employee versus contractor' debate has recently made headlines due to a federal campaign against misclassified workers. With record budget deficits, the government has stepped up its investigation and enforcement activities, with plans to recoup $7 billion over the next 10 years from companies illegally passing off regular employees as contractors. While contractor-based virtual centers have not yet been convicted of intentionally misclassifying workers, several companies have switched to the employee-model to avoid potential lawsuits and increased governmental scrutiny.

Unclear Guidelines and Fraud Lead to Worker Misclassification

According to a federal study, each year 3.4 million workers are wrongly classified as contractors. Some companies purposely try to cut costs by passing off regular employees as contractors. In doing so, they avoid paying minimum wage, overtime, Social Security, Medicare, healthcare and other benefits. To catch these businesses, the IRS has hired additional enforcement agents and begun random audits of 6,000 companies for compliance with the law. If found guilty, these companies could pay fines of up to $5,000 per misclassified employee.

Companies, on the other hand, say the problem stems from the fact that there is not a bright-line test to determine who fits the definition of an independent contractor. Without a single clear, simple, and objective standard, mistakes inadvertently happen. For some assistance, the IRS developed a 20-Factor Test to help recognize if an employer/employee relationship exists. Also, the U.S. Tax Court established a 7-Factor Test to clarify if a worker is an employee or self-employed for income tax purposes. Due to differing interpretations and tests at the federal and state level, there continues to be misunderstanding and frustration over the issue.

Impact On Virtual Contact Centers

Employee misclassification is a reality in nearly every industry, including the virtual contact center market. In one class-action lawsuit, at-home agents alleged that the call center they worked for violated the Fair Labor Standards Act by misclassifying them as independent contractors, failing to pay the federal minimum wage, overtime pay and training pay. Over 30,000 agents were ultimately certified into the class, helping to prompt a Department of Labor investigation into the company's alleged misclassification of home agents as independent contractors. While the lawsuit is in the process of being settled, the legal and financial risk posed by the contractor model compelled the company to terminate more than 13,000 independent contractors and switch to an employer-employee relationship.

Employee vs. Independent Contractor Model: Which to Choose?

To be clear, virtual contact centers - whether employee-based or using independent contractors - provide legitimate solutions to address business needs. Both models offer clients compelling cost savings, improved operational efficiencies, and enhanced flexibility that cannot be obtained through the use of standard brick-and-mortar call centers. While there are some similarities between the two models, there are also significant differences that business leaders need to take into consideration. To select the right customer care partner, executives need to match the appropriate model with the needs of their industry, their business and their customers.

As a general rule, virtual contact centers with independent contractors are primarily engaged for straightforward, scripted call types that require minimal training. With thousands of contractors available at a moment's notice, these virtual centers are typically deployed by businesses with extreme fluctuations in call volumes. For these reasons, the independent contractor approach is most often used in the direct response TV and seasonal retail markets.

Virtual contact centers with agents as employees, on the other hand, are the best choice for companies with complex, unscripted call types that require weeks or months of training such as sales, technical support, collections, and bilingual interactions. The employee model is also well-suited for clients that need an extremely dedicated and committed workforce that can be scheduled and managed, which legally cannot be done with independent contractors. Due to these benefits, Fortune 500 organizations in the communications, financial service, technology and healthcare sectors have embraced the use of employee-based, at-home call center agents.

Following are some additional ways in which these model types differ:

 
As the above comparisons demonstrate, there are many variables when evaluating a virtual contact center partner. For companies with simple calls, minimal training, and little need for management oversight, the contractor model may be a good fit - legal and tax risks notwithstanding. For organizations that require more control and management of a highly trained and dedicated workforce with service level adherence and KPI commitments, the employee model has proven to be the best option. Only after careful consideration of the characteristics of both models can executives determine which approach will deliver the most appropriate solution and best service offering for their callers.

Rob Duncan is Chief Operating Officer of Alpine Access, Inc. a nation-wide provider of call center services using home-based customer service and sales employees. Alpine Access clients include Fortune 100 companies in a wide variety of industries.

Edited by Patrick Barnard