Workforce Misclassification Issue...Not Going Away!
Contractor Misclassification Continues to be Seen as a Revenue Source For Governments
Over the past 24 months we have continued to publish articles about the risks associated with Independent Contractors. Additionally, we have reported on the increased efforts from the IRS Agents cracking down on industries and employers who are “misclassifying workers”. In last month’s CWS30 publication by Staffing Industry Analysts, they assembled a great article that brings all readers up to date in what’s going on within the area of independent contractors and most importantly what some of the preventative measures you can take to protect your organization. Some of the more interesting points in the article are:
- According to Staffing Industry Analysts, the publisher of this newsletter, less than 20 percent of companies believe that their ICs are all classified properly.
- SIA estimates also showed that companies spent roughly $250 billion on independent contractors during 2009.
- "The magic is coming up with a user-friendly process that people are going to follow," says Eric Rumbaugh, partner with Michael Best and Friedrich, a Wisconsin-based law firm. There's no point having a process that works only on paper. Thanks to hiring freezes, hiring managers are forced to come up with ways to get the job done.
- A disgruntled worker may tip off regulators and trigger an audit. Or, perhaps a worker files an unemployment claim after wrapping up a project. That, too, could immediately set off an audit.
- While some companies do have the necessary expertise in-house to classify candidates as contractors or employees, Reed Elsevier, a professional information solutions provider, has outsourced this function.
- Johnson & Johnson uses its MSP to classify contractors
In summary SIA provides the following list of items you should be aware of. We however, encourage all of our clients that without the proper internal resources, do not overestimate the compliance risk required here and consider outsourcing.
At the end of the day, it shouldn't take an independent contractor more than an hour to assemble all documentation needed to shield an organization from liability, experts claim. Your or your provider should supply them a list that a contractor can check off. This list may include:
- Appropriate contract with client in place
- The IC has a valid tax ID number
- Proof ICs are filing their taxes
- Proof the ICs are drawing fair salaries for themselves
- Insurance certificate, licenses, marketing materials
- Other types of insurance (e.g. automobile coverage, general liability) if required
- Proof of workers' compensation coverage
- Different clients
- IC has own offices, equipment
Feature: Get It Right
CWS 30 March 3.6
How companies can use contractors effectively and reduce their risk |
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Every few weeks, independent contractor (IC) compliance issues rear their head in the news. Sometimes the headlines are related to lawsuits, other times introduction of new legislation. Occasionally, they come in the form of warnings issued by the states or the federal government. This is not surprising given the times in which we live. The weak economy has increased the pressure on states and the Internal Revenue Service to obtain revenue, and they've identified companies that misclassify their workers as contractors as a potential source of income. Read the full article here...
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