Independent contractors are an integral part of today’s business landscape, perhaps no more so than in the software industry.

In 2015 alone, $308 billion dollars were spent in the U.S. on enterprise software – helping make our daily personal and business tasks possible, and the need for independent contractors is increasing even more, as 10 percent of the U.S. workforce is comprised of independent contractors. And that figure is growing annually.

As an increasing number of companies rely on ICs, it becomes increasingly difficult to manage them and ensure they’re categorized and indentified in a way that’s IRS compliant. No company wants to come face-to-face with the IRS, which is why a global software giant asked Yoh exclusively to manage their ICs to ensure tax compliance.

The Dilemma

In today’s fast-paced and demanding business world, employing hundreds of independent contractors and third-party vendors every day can lead to some complications with compliance. Who qualifies as what and how they should be paid is more complex than it seems. Yoh’s client, a global software mogul, uses hundreds of contractors and vendors at one time period with varying employment schedules categorized in a number of different ways.

As the amount of ICs increased, it became more and more difficult to manage and identify who the independent contractors are versus freelancer workers versus part-time employees.  And with vastly different tax laws for the unique classifications of contract workers, significant IRS penalties can be incurred simply by mistakenly mislabeling individual workers.

The Strategy

With so many moving parts and new contractors of different types coming and leaving the organization regularly, Yoh needed to implement a strategy for correctly classifying, paying and policing the onboarding and offboarding processes. But before implementing any new strategy plan, Yoh began by extensively auditing all of the company’s existing contract workers.

Setting a baseline for where errors were and what changes needed to be made to existing processes helped guarantee that the customized strategy Yoh was set to implement would fit the company’s needs. Following the audit, Yoh created a customized compliance questionnaire and checklist to help identify and manage those individuals ahead of time and ensure no IC would be misidentified in the future.

Above introducing a tracking and monitoring systems for all independent contractors, Yoh saved the client from a potentially messy situation with the IRS right away after finding a few misidentified ICs and correcting their classification.

The Impact

Hundreds of questionnaires later, Yoh successfully launched a formalized independent contractor process plan, identifying red flags ahead of time and eliminating any cause for IRS concern. Yoh singlehandedly made sure its client was compliant with IRS regulations and even saved some money in the end by identifying ICs who weren’t being paid their true market value and correcting for those errors.

Due to the diligence and organization of Yoh’s MSP, the client never has to worry about tax issues or overpaying for work it receives. Now, mislabeling vendors is a thing of the past.