Misclassified Workers - 4 Steps to Prevent the Risk
Over the past month we have been instilling a lot of F.U.D. into our readership. F.U.D. stands for Fear, Uncertainty and Doubt. Now, what good service provider would do such a thing without coming back with some solid solutions?
Therefore, over the next few weeks we want to focus our attention on solutions to the problems that are mounting in the general area of Misclassified Contract Workers. If you are new to the PSC Blog Train, read some of our past posts on the market forces that are bringing these risks to light.
How can I protect my organization against Tax Audits and misclassification risks?
First off, let us say that nothing can make your organization "bullet-proof". We live in a litigious society that allows for both individuals and governments to pursue action freely. However, it is how your organization puts processes and procedures into place that will determine the level exposure you have. NOTE: We strongly recommend that you consult your legal counsel on the proper activities before your institute any of the recommendations in this post. These are merely operational guidance.
1) Be Prepared Like with most legal actions, the court will look more favorably on an organization that has taken prudent actions to demonstrate the diligence to comply with the laws. Ignorance is never an accepted excuse by the court. Make sure your organization has taken documented action to be compliant about the engagement of contractors.
2) Have Documented PoliciesDemonstrating to the authorities that your firm was diligent in attempting to follow the rules and comply will often minimize the exposure in terms of penalties. The organization that get hit the hardest are those where the intent is pecieved as maliciously trying to avoid the tax or claiming ignorance. As a bona fide employer you are obligated to know the laws and comply.
Document policy that is periodically distributed to your organization that stipulates the company's position on the use of contractors and the steps that should be followed to engage such resources.
3) Outsource/Centralize ManagementMany organizations have begun to outsource the management of independent contractors to 3rd parties. This is a great way to demonstrate an effort to provide compliance and organization to the process. It also defers the risk to the outsourcer to manage and shield yourself from the risk. One of our clients once described outsourcing independent contractors "as a cheap form of insurance". Any associated processing fees that an outsourcer would charge, are cheaper than your corporate insurance, headcount to manage and the potential risks of penalties. We'll expand on this point more in next week's post.Another alternative is to centralize the management of this within Human Resources or Procurement. Much like the outsourcer, the centralized organization is responsible for compliance and consistency in the processing of contractors, however, it does not provide that layer of 3rd party protection.
4) Inspect
Insure that you periodically inspect the processes and procedures with internal or external counsel. Case, Federal, State/Provincial laws change often and can effect what and how your policies and procedures need to change. Rigor of the program processes must be checked from time to time to insure there has been no degradation in the exception processing.There is a lot more to cover and we will continue to bring you more enlightenment over the next few weeks. In the interim, if you want to take our Free Risk Assessement, please click and answer the 5 easy to answer questions and we'll be back to you with an overview report.
Have a safe weekend.