As we move into a new year and administration, we’re all in goal-making mode. Sure, our most immediate resolutions are to keep safe and pay our bills during this time. After those pressing goals, if you’re like me, maybe you have a goal to eat movie popcorn in a Cineplex while watching the latest big-budget extravaganza someday soon.
All indications for 2021 are that freelance or non-employee talent will be utilized at a high rate. With that in mind, businesses should consider these goals for 2021 when it comes to using independent contractors (ICs):
- Don’t let your thoughts or feelings about what an IC should be get you into trouble. Under almost all laws and tests, a properly classified IC engagement has to have two things: a project structure that is low on direction and control and an IC with a business structure providing these services. If either of those is deficient, and you pay as IC, you’ve committed misclassification. While savvy and knowledgeable compliance firms can help you meet these laws’ requirements, they do still have to be met. What this means is that factors that feel IC (e.g., worker can choose to work or not, low-paid gig work, no heavy directions) do not in many cases make an IC. If that was the case, gig economy companies would not be so frequently sued for misclassification and their workers found to be employees.
- Your company has a legal obligation to properly classify ICs. It isn’t a choice, it’s law. You may never be audited (and here’s hoping you don’t), but it happens every day. I’ll stress this point: it doesn’t matter that you and your IC are happy with the arrangement; your legal obligation isn’t absolved and still must be met. Keep in mind that, like any relationship, it has the potential to go bad. With ICs, one way it can go bad is that a formally contented IC becomes disgruntled and brings a misclassification action against you – it happens. So, while taking the time and making the investment to engage with the best talent you can find in 2021, don’t lose sight of the duty to keep your company out of hot water too.
- This isn’t a name-brand company problem only. While the headlines report on mega-companies like Uber, FedEx, etc., many of the lawsuits by workers or audits by governments are squarely pointed at smaller firms with unfamiliar names. Frankly, unless you’re steeped in the space, you may never be aware of your state’s misclassification activity. Some states, like Wisconsin, report on yearly audit penalties, and the DOL has a press release page where some of this information can be found. The point is, whether you hear about it or not, companies both big and small are targets.
- Don’t undervet your ICs. Reminder – you’re legally required to correctly vet your ICs, freelancers, gig workers, etc. If you have a vetting regime, great, use it. And by use it, I mean, if a project is finally classified as W-2, go forward as W-2. If you have a good company handling your compliance, they’ll make sure to give you accurate, risk-mitigated classifications. If you don’t follow them, it’s another way to misclassify. Also, if you only vet some of your freelance talent, you’re likely misclassifying some of your IC talent. Lastly, if your vetting process to determine worker misclassification is too short or non-comprehensive, then you may be missing large and important pieces that an auditor won’t miss. My advice: we’re in a new year, so now would be a good time to get an outside look from an expert on whether your vetting program will provide your company with enough strength and defense should you face a challenge.
TalentWave can help you stay on track with your goals and keep your organization and your ICs safe from potential worker misclassification. Please contact us with any questions.