Independent contractors (ICs) are a great addition to your company workforce by providing a substantial contribution to the work you do. However, there can be confusion in engagement and management, and some companies commit misclassification of employees as independent contractors. Doing so may result in huge consequences, which may lead to class-action lawsuits.
What are the Risks of Hiring Independent Contractors?
Independent contractors (or freelancers) are a valuable source of the company workforce in that they provide expertise and knowledge in their respective fields. They allow flexibility for your business. However, there are a few things you must bear in mind to avoid getting in trouble.
You Have Less Control
ICs prefer to work independently, and if you’re the type of boss who wants to have a say on how things are done, then hiring an independent contractor is not always necessarily for you. ICs often want little to no interference from their client since they are not employees.
Independent contractors see themselves as a partner in your company’s business – not as people who work for you.
Since freelancing is usually a per-project arrangement, you may also see new faces from time to time because the turnover rate is commonly high. Freelancers come and go, and the consistency of work may be affected.
Worker Misclassification
If you’re thinking of hiring independent contractors, you must be clear on the stipulated agreements in your worker’s contract. Since ICs are not employees, you are not obligated to give them insurance or other benefits for their work.
However, laws may differ from one country to another. In some cases, your ICs may claim an employee status, and this can result in big fines and legal charges.
While there is no standard test to identify a worker as an independent contractor or an employee, there are still ways you can do to keep your company safe and 100% compliant. Most companies pay freelancers through a local payroll provider.
The Possibility of Getting Audited
If you have an independent contractor who would report for misclassification, this can be grounds for state and federal agencies to audit your company. To prevent this from happening, you can conduct an internal audit to ascertain you don’t have misclassified workers.
You may also create stringent guidelines for engaging independent talent, ensuring ICs are properly classified and that your classification practices are compliant.
Co-employment
Co-employment is when you partner with an agency to hire independent contractors, making both of you employers of the contractor. If the contractor thinks they should be treated as an employee, this can increase the potentiality of a company audit and may put you in a bad light.
When partnering with a staffing agency, make sure they have clear guidelines in classifying a worker as an employee or independent contractor. Additionally, you may have to look into how managers deal with these workers to avoid the mistake of treating them as employees.
Avoid Misclassification of Employees as Independent Contractors
At ClearPath, we have set clear and strict guidelines for engaging independent contractors. The methodology we use in classifying talents has been tried and tested over the years. We value the business of each of our partners, so we make sure they won’t get into trouble with independent contractors.
This grants us a reputation as a trusted partner agency for companies worldwide. Call us today to discuss how we can help you.