Independent contractor usage waxes and wanes. Currently it’s on an upswing, with recent research from SIA indicating program managers expecting to increase their usage of ICs to 54% from 13% over the next 10 years. The skill shortages, coupled with the emergence of online talent platforms, have more companies turning to workers sourced by these platforms. This talent is often used directly by engagement managers, bypassing the CW program. The workers may be self-employed, freelance and/or remote.
IC classification first became an important topic of focus for companies after an increase in IC misclassification class actions left companies liable for various pension and benefit payouts for what the courts deemed as misclassified workers or improperly worded plans. In addition, these lawsuits created a liability for unpaid employment taxes of those workers. The cost of engaging ICs rapidly became considered too risky for companies not to address.
Complex layers. Online talent platforms created new challenges with regard to IC classifications. Numerous factors come into play when engaging workers through these platforms. Mitigating risk around classification became a priority. Questions around the nature of the work — is it hourly, by project or work product delivered — the duration of the work, the amount paid for that work in a given year and who the company pays for the work, among others, needed to be asked and understood in order for the worker to be classified properly.
But knowing whether a worker is appropriately classified as an IC is tricky, because the standard tests used by the IRS and other state/federal agencies continue to change. If you are paying the online talent platform, you might trust they are classifying the workers appropriately and not worry, but there are many variables involved — from varying definitions between localities as well as different federal agencies such as the Department of Labor and the National Labor Relations Board having their own interpretations — and being aware of them is half of the battle.
Mitigating risk. One method of risk mitigation is to engage the services of an outsourced compliance solution, whose experts assume the responsibility of staying on top of the legislation. These relationships can be managed by your MSP or they can be structured as an independent and separate relationship managed directly by your company.
Companies employ different solutions to manage IC engagements. Given the complexity involved, there are those companies that choose to prohibit the use of ICs altogether. While it may work for some, there are other companies that want access to a wide variety of talent including ICs. Still others rely on IC compliance solutions with outsourced providers. The landscape of IC compliance continues to change as state and federal regulations alter with regard to worker classifications.
It’s important for the CW program manager to understand the risks involved with using ICs while continuing to keep up with evolving legislation and new ways of procuring talent. The CW manager should be working closely with the company’s legal department on IC usage and strategies.
Regardless of whether your program uses an outsourced compliance expert or not, it is important to pay attention and keep up to date with the legislative changes around IC classification. Reports from SIA, such as its legal updates, provide CWS Council members with the information on what to question your providers about so you can engage ICs in a safe and compliant manner.