MBO Enterprise Solutions Helps Levi Strauss Sew Up Independent Contractor Compliance

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I really didn’t feel that my team was equipped to handle [IC compliance issues]. We needed some expertise in the area.
Celeste Smith
Director of Procurement Services

For Levi Strauss & Co., a previous audit experience led to concerns about engaging independent contractors. Did its ICs comply with all of the regulations required for working independently? How could they tell? And could another audit lead to bigger worries? Its Procurement Services department needed a trusted partner to guide them toward full compliance. It found MBO.


Known Compliance Issues | Little Risk Education | Inconsistent Processes

For over a century, Levi Strauss & Co. (LS&CO.) has been one of the world’s most prominent apparel brands and one of the fashion world’s most unmistakable icons. But not long ago, the company faced an unfamiliar challenge when it came face to face with the complexities surrounding the use of independent contractors (ICs). An audit revealed that many of its ICs were “non-compliant”; that is, they did not qualify as legitimate independent businesses and were therefore subject to reclassification as W-2 employees.

While the initial audit findings were manageable, LS&CO.’s Director of Procurement Services, Celeste Smith, recognized that significant risk remained. Another audit could prove more challenging. “Workers were coming out of the woodwork, but there was no process, there was no vetting, there was no structure, there was no education — there was really no understanding in terms of the risk.”

Smith’s team was responsible for establishing an IC compliance program that would mitigate reclassification risk. “But I really didn’t feel that my team was equipped to handle it,” said Smith. “We needed some expertise in the area.”

In 2009, Smith’s team learned of MBO Enterprise Solutions at an industry conference. She was immediately impressed by MBO’s consultative approach and its desire to create a true partnership. “They were like, ‘we first want you to understand why you should hire us, so let’s just help you be educated about this landscape.’”

Even before LS&CO. selected its IC compliance partner, MBO was hard at work educating key constituencies — particularly the Legal and Human Resources departments — about the risks of engaging ICs. To Smith, it was critical that these groups understood the importance of a consistent and compliant engagement process. “[MBO] participated in conference calls before we even signed a contract,” continued Smith. “By helping us be able to explain to Legal and HR what this population meant and why we should get our arms around it, it naturally led to us engage them.”


Expert Guidance | Flexible Offerings | Phased Implementation

MBO’s IC compliance experts worked side-by-side with Smith and her team to develop standardized processes for engaging, assessing, and paying LS&CO.’s independent workers. During this phase, Smith relied heavily on MBO’s guidance and expertise. “Instead of trying to reinvent the wheel, we really let them help guide us into the best practices.”

Smith understood that the complexities and legal nuances surrounding IC compliance demanded more than simply an experienced vendor. LS&CO. needed a partner it could trust with its sensitive personnel data, metrics, and policies. “MBO is one of the very few vendors where I feel like I can be absolutely honest and transparent about issues,” said Smith. “I would suggest for people to really open up the doors, let them see all the good, bad, and ugly and then together you can chart your path on how you want to develop your program.”

Prior to implementation, MBO helped Smith recognize that LS&CO. faced a particular challenge. Its ICs ranged from marketing consultants to models, from baristas to display designers — all with different expectations, support requirements, and income levels.

But MBO, said Smith, was up to the task. MBO and LS&CO. worked together to design a process whereby all newly engaged ICs, regardless of role or income level, could be on-boarded quickly and compliantly. MBO rolled out multiple services customized for the specific needs of diverse ICs. And only after the process for new ICs was in place did LS&CO. and MBO turn their attention to existing (or “incumbent”) 1099 workers.


Organizational Acceptance | IC Adoption | MSP Integration

Smith sees the MBO program as a clear success. While some of LS&CO.’s IC populations have not yet been rolled into the program, Smith claims that the company’s IC risk profile has improved dramatically and its visibility into IC spend has skyrocketed.

Ultimately, Smith believes that the program’s success is rooted in IC adoption and organizational acceptance — especially as it relates to the managers who use ICs. “I really think that the MBO process is generally pain-free for the hiring manager,” she said. “It would have been a constant battle if there had been a lot of work put on managers.”

“The process of hiring contingent labor and the process [by which] MBO vets them is very much entrenched in the organization now,” added Smith. “I feel very good that the process is now turn-key — this is what we do, and this is how we do it. And really, no one questions it anymore.”

According to Smith, MBO’s value doesn’t end there. MBO also helped ensure that LS&CO.’s benefit plans were inoculated against the threat of class-action co-employment lawsuits. “MBO really advised us to work with HR to make sure that happened.” Further, MBO has assisted LS&CO. in its evolution toward a more modernized IC engagement platform by helping its recent addition of a Managed Services Provider (MSP).

“At the end of the day, MBO wants our program to be successful,” concluded Smith. “We will continue to come back to MBO as we mature our program… because I feel as though MBO has really been a true partner to us and is really helping guide us every step of the way.”