I'm sure it will come up in discussions, but I expected to see it as its own, focused discussion.
This serves as a good example that regardless of the importance of the independent contractor issue, it still tends to fly under the radar. Just the name -- independent -- seems to put some companies at ease, but in reality, there are still risks.
In case you missed it, last week the federal government announced increased cooperation with several states to find companies that declassify independent contractors to avoid providing employment protections (and paying taxes). So you know the state and local governments are thinking about it and looking for the associated tax revenue.
So, in lieu of a workshop, here are my top four tips to manage independent contractor risk at your company:
- Track and classify non-employees. The first step is identifying groups of non-employees and putting them into meaningful categories to help you manage the specific risk associated with each. Independent contractors are particularly hard to find because many times their contracts go through procurement, not HR. Also, while managers are just trying to avoid headcount and get things done, they often mix them with temporary workers. Or, they re-hire former employees as independent contractors and don't want them to be scrutinized for fear of losing workers. Accurately classify them. If you can't find them or clearly classify them, you know you have a problem.
- Look for independent contractors doing the same thing as employees. One of the easiest ways to identify potential risk is if you have independent contractors side-by-side, or even in different areas, doing the same exact job as regular employees. Auditors will look closely at this. Many times, it's the independent contractor who sues for benefits after realizing they've been working as an employee but not receiving any benefits. Hire independent contractors for specific tasks. The more specific and unlike regular employee tasks, the better.
- Make sure independent contractors are working independently. This might sound a bit like an oxymoron, but you would be surprised how many companies employ independent contractors and then have them work in the office, use the company's equipment, and take work direction from a company manager. Does that sound independent to you? Independent contractors should be responsible for the tasks they are contracted to complete with the latitude to complete the tasks any way they see fit.
- Don't pay independent contractors like employees or hourly workers. While it might seem more convenient for everyone, resist the temptation to have independent contractors fill out time cards or get paid on an hourly basis. The best way to manage independent contractor payment is through procurement, just like other purchased services. This means that they should invoice the company and be paid according to vendor payment terms (such as net 30 days). While the independent contractor might baulk at this, that's the way a business gets paid, not an employee.
Following the Great Recession and the resulting slow recovery, independent contractors are slowly creeping back into corporations. Without solid processes and guidelines, and both state and federal governments back in the game, risk is also creeping back into your workforce.