The Informal Clearing Agent – HR's Role in Formalizing Precarious Labor
Picture credit: https://allaboutwork.org/2014/10/18/precarious-work-and-the-failure-of-human-resource-management/
For every licensed customs broker in Sri Lanka, there are
perhaps three unregistered "clearing agents" operating in the grey
economy. They work outside formal contracts, pay no taxes, and have no HR
representation. Yet they clear a significant portion of low-value and personal
imports. This is not a small problem. It is the informalization of
logistics labor and HR has largely ignored it.
Who are informal clearing agents?
They are friends of clearing agents, unemployed graduates,
or port workers who learned the system through observation. They operate
through personal relationships with licensed brokers or directly with small
traders. They take cash payments, leave no audit trail, and disappear if
something goes wrong. From an employer's perspective, they offer convenience.
From a worker's perspective, they offer precarity.
Theoretical lens – Precarious work and HRM
The precarious work literature (Kalleberg,
2009) identifies three features of informal labor: employment insecurity, low
wages, and lack of statutory protection. Informal clearing agents experience
all three. Yet mainstream HRM has historically focused on formal employees,
leaving informal workers invisible.
Why HR should care
Informal clearing agents create risks for formal organizations:
- Compliance
risk – Their activities may violate customs regulations
- Reputational
risk – If an agent is caught bribing an officer, the trader they
represent is also implicated
- Ethical
risk – Formalizing precarious labor is a legitimate HR concern
Best practice vs best fit
Global best practice in formalizing informal logistics
workers, seen in parts of India's GST implementation, includes simplified
registration, micro-credit linkages, and portable social security. For Sri
Lanka's best fit, HR professionals in freight forwarding and trading companies
could:
- Require
formal contracts with any clearing agent they engage
- Offer
basic training on compliance and digital systems to informal
agents who register
- Advocate
for a tiered licensing system – a lower-tier license for simpler
clearances, reducing barriers to entry
- Include
informal agents in industry-wide HR surveys to begin measuring
the problem
The larger argument
Ignoring informal labor does not make it disappear. HR has a
strategic choice: continue focusing only on formal employees or engage with the
reality that much of Sri Lanka's logistics workforce operates outside the law. Formalization
is difficult, but not impossible.
What do you think?
Should HR professionals concern themselves with workers who
have no formal employment relationship?
References:
Kalleberg, A. L. (2009). Precarious work, insecure
workers: Employment relations in transition. American Sociological Review,
74(1), 1–22. https://www.researchgate.net/publication/242208046_Precarious_Work_Insecure_Workers_Employment_Relations_in_Transition
Chauhan, S., & Sinha, S. (2024, February 27). Registering
informal workers in India: e-Shram, an opportunity lost? WIEGO. https://www.wiego.org/blog/registering-informal-workers-india-e-shram-opportunity-lost
The framing of HR as a "clearing agent" for informality is a useful provocation. The deeper challenge your post raises is that formalisation efforts tend to be designed by people who have never worked informally — so they impose compliance burdens that make formal registration more costly than staying invisible. The tiered licensing idea is promising precisely because it lowers that barrier. The question worth exploring is whether organisations that benefit most from informal labour — the trading companies and freight forwarders — have any genuine incentive to push for formalisation when the current arrangement transfers all risk downward to the worker.
ReplyDeleteThank you, that’s a very sharp and important extension of the argument.
DeleteYou’re absolutely right to point out the incentive problem. In many cases, formalization fails not because of design, but because key beneficiaries of informal labor, traders and intermediaries, already enjoy flexibility while the risk sits with the worker. That weakens motivation to change the system.
This is why policy or HR interventions alone are often insufficient. Real progress would require aligning incentives, for example through compliance-linked benefits for firms, simplified low-cost registration, and making informal arrangements gradually less attractive than formal ones.
So the challenge is not only technical, but structural: unless the risk–reward balance changes, informality will remain the rational choice for many actors in the system.
Thank you for sharing such an insightful and thought-provoking blog! I really liked how you brought attention to the role of informal clearing agents and connected it with organizational realities. It clearly highlights an important but often overlooked area in the Sri Lankan context, where informal work and self-employment play a significant role in the labor market .
ReplyDeleteFrom an HR angle, your discussion strongly emphasizes the need for organizations to recognize, regulate, and integrate such informal roles into more structured systems. This is important not only for operational efficiency but also for ensuring compliance, fairness, and employee protection. As we know, HR plays a key role in developing policies, ensuring legal compliance, and safeguarding worker rights within organizations . Your blog nicely connects this gap between informal practices and formal HR systems, which is very relevant today.
How can HR departments effectively formalize and manage relationships with informal clearing agents while still maintaining flexibility and ensuring compliance with labor laws and organizational policies?
Thank you, this is a very practical question because it sits right at the tension point between control and flexibility.
DeleteHR can start by not trying to fully “eliminate” informality overnight, but by gradually structuring it. A useful first step is introducing lightweight formal contracts or service agreements for clearing agents, even if they are not traditional employees. This creates accountability without forcing full employment status.
Second, HR can implement a tiered registration system, where informal agents can operate under different levels of certification depending on their experience and compliance training. This allows flexibility while still setting minimum standards.
Finally, compliance can be supported through simple onboarding, basic training on customs procedures, and clear reporting rules. This way, HR builds a bridge between informal practice and formal governance rather than replacing one with the other abruptly.
Even though making informal agents formal seems like an excellent idea, it could turn out to have the opposite effect, being both costly and limiting in nature. Indeed, in certain situations, informality prevails as a more efficient way than formal HR processes.
ReplyDeleteYou make a fair point, formalization is not automatically better in every case.
DeleteIn logistics, informality can sometimes exist because it is faster, cheaper, and more adaptable, especially for small-scale or low-value clearances. If formal systems become too costly or bureaucratic, they may actually push more activity back into the informal space.
That’s why the goal shouldn’t be full formalization in a rigid sense, but “smart formalization”, keeping flexibility where it adds value, while still introducing minimum standards for accountability, compliance, and traceability.
So the real HR challenge is finding the balance: reducing risk without destroying the efficiency that informality currently provides.
Your blog clearly shows how important informal clearing agents are in keeping import and export operations running smoothly. It’s great that you highlighted a group that is often overlooked.
ReplyDeleteHowever, one concern is that many of them don’t have job security or benefits. How can HR support them better while still keeping their flexibility?
Thank you, that’s a very relevant concern.
DeleteHR can support informal clearing agents without removing their flexibility by focusing on basic protections rather than full employment formalization. For example, offering optional registration systems that give access to training, compliance guidance, and recognition can already improve their working conditions.
In addition, creating standard service agreements for frequent agents helps improve job clarity without restricting how they work. Access to basic social protections (through voluntary schemes or industry associations) can also reduce vulnerability.
So the idea is not to turn them into full-time employees, but to extend minimum safeguards while preserving the flexible nature of their work, which is often why the system functions efficiently in the first place.
Very interesting and well-explained article. I like how it highlights the role of the HR informal clearing agent in handling practical workplace situations beyond formal procedures. It clearly shows that HR is not only about policies, but also about coordination, communication, and problem solving in day-to-day operations. This kind of role helps to keep processes smooth and supports both employees and management effectively. Good read and useful insight into real HR functions in organizations.
ReplyDeleteThank you, I really appreciate your observation.
DeleteYou’re absolutely right that HR in practice goes beyond formal policies. In many operational environments, especially in logistics, HR also plays a coordinating role, bridging gaps, solving day-to-day issues, and ensuring communication flows between formal systems and informal realities.
What makes this especially important is that these informal roles often keep operations running smoothly, even when they are not officially recognized in structures or job descriptions.
So the key takeaway is that HR effectiveness is not only about designing systems, but also about how well those systems adapt to real-world working conditions.
The research identifies an essential HRM aspect of logistics operations which remains unexplored by current research because it examines how informal labor achieves operational productivity yet generates major compliance and ethical challenges for established businesses. The study demonstrates that organizations who choose to disregard their informal workforce will face enduring impacts on their regulatory framework and public image and employee management practices.
ReplyDelete