I have heard words like “misclassification”, “fines” and even “penalties” being used. Many say “I am not touching that type of worker with a 10 foot pole!” (Ok, so I’m paraphrasing a little, but you get the idea.) Recently, I even read on staffingindustry.com how a firm had to pay more than $500,000 in back wages for misclassifying employees as independent contractors. Sadly, they are not alone and this type of thing happens frequently.
I honestly hate to hear the term “Independent Contractor” spoken like it is a dirty word. I have spent a lot of time and energy on this topic not just talking to people, but researching and working through ways to make managing independent contractors easier. And after all that, I feel confident in saying that with a bit of education and the right tools, utilizing this valuable segment of the flexible workforce can be done and done with success. (a la’ no misclassification!)
Who are independent contractors?
It is not always easy to distinguish just who is an independent contractor. The IRS in the United States advises that companies look at three main aspects: financial control, behavioral control, and relationship between parties. You can find more than one checklist out there, but a few things to remember are that independent contractors typically:
- Offer their services to the general public
- Control when, where, and how they complete their work
- Have a particular skill set that is hard to find or replicate (e.g., non-commoditized specialists)
- Provide their own tools, equipment, and resources when working
- Are typically managed by a pass-through vendor (e.g., MBO Partners, Vendor Pass)
- Are engaged through a small Statement of Work (SOW) outlining commitments to deliverables and milestones as well as how they are paid
- Paid by month or deliverable
How do you avoid misclassification?
I highly encourage all companies managing independent contractors to use a Vendor Management System (VMS) as well as consider utilizing a pass-through vendor. Beeline’s VMS gives companies visibility into independent contractor budget and spend, and gives independent contractors the control they require by allowing them to bill and set their own rates. Pass-through vendors provide peace of mind and ensure correct worker classification through a stringent evaluation and qualification process for each independent contractor. Companies can also avoid future liability by working to immediately reclassify all questionable independent contractors – don’t delay.
What is your organization doing to ensure your workers are classified properly?
Beeline was recently able to capture over $650,000 in savings for one of our utility clients that had misclassified workers as independent vs. contingent labor. We can help you too. Whether it is ensuring your current workers are classified correctly or helping you properly manage your future independent contractors, Beeline has a solution for your organization. Don’t let “Independent Contractors” be a dirty word in your organization anymore.