The Risk is Real: Contingent Worker Misclassification and How to Avoid It

Worker classification lawsuits are becoming more and more common, and so are the federal government’s efforts to combat worker misclassification. You need look no further than recent news and history to see the damage a lack of a centralized process and system controls, and the absence of automated compliance procedures can do in exposing your business to significant contingent workforce vulnerabilities. The U.S. Department of Labor continues to expand the reach of its “DOL Misclassification Initiative,” where the Wage and Hour Division (WHD) is partnering with the IRS and 29 states to share information and coordinate enforcement. In Fiscal Year 2015, WHD investigations resulted in more than $74 million in back wages for more than 102,000 workers.

Do you have a strategy in place to protect your company from liabilities related to contingent workers—in particular, contingent worker misclassification?
To provide a few specific examples, the L.A. office of the National Labor Relations Board (NLRB) is looking into whether port trucking company Intermodal Bridge Transport engaged in unfair labor practices toward its drivers by misclassifying employees as independent contractors (ICs). Uber agreed to settle two class-action lawsuits for $100 million in a deal that keeps its drivers classified as independent contractors, not employees. Though Uber won the battle of maintaining classification of these workers as ICs, the payout is nonetheless a victory to the 385,000 plaintiff drivers. California-based call center ViaSource Solutions Inc. was fined more than $150,000 when it misclassified workers as independent contractors. Finally, going back to the early 2000s, a class action lawsuit against Microsoft resulted in thousands of temporary and freelance workers being reclassified as employees; the settlement cost the company $97 million.
Contingent worker misclassification violations can be intentionally committed by companies acting in bad faith. But these violations are much more frequently the results of avoidable mistakes by companies that don’t understand the rules or that lack end-to-end visibility into the workforce. Either way, the outcome and financial risk is the same.
Consider this: According to Staffing Industry Analysts, companies misclassify 46% of all contract workers. That’s a significant amount of risk and potential fines across businesses globally.
So how can you mitigate the risk of misclassifying your contingent workers? With a combination of contingent workforce management technology, automated workflows and best practices. A vendor management system (VMS) can provide the framework for the end-to-end visibility and business processes that help you eliminate misclassification risk. Compliance functionality can for example guide your users in selecting the correct classification of contingent workers. Best-practices guidance from your VMS vendor or MSP can keep you informed on trends and legislation related to contingent labor classification, and help you manage your contingent workforce with risk mitigation top of mind.
The benefits that you can reap in integrating contingent workers into your workforce strategy well outweigh the risks—a big one being contingent worker misclassification. Just be prepared; don’t let the risks catch you off guard.

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