Dispelling the Myths of Independent Contractors

Article explores the myths surrounding independent contractors and the positive steps to take to correctly identify them.

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Article contributed by Volt Workforce Solutions, June 2011

It’s often said that if it walks like a duck and talks like a duck, then it probably is a duck. Many companies use this “I’ll know it when I see it” reasoning to identify independent contractors (IC’s) in their organization. Unfortunately, this thinking contributes to some of the biggest myths about IC’s, as well as increasing misclassification issues. Some of the myths surrounding IC’s include:

  • Independent contractors offer all the benefits without the costs
  • Reducing my W2 workforce in favor of IC’s will save my company money
  • My company doesn’t use independent contractors
  • It is easier to get rid of IC’s than W2 employees when you need to
  • Having a written agreement declaring workers to be IC’s protects you as a company

Currently, the federal government believes that as many as 30 percent of businesses improperly classify individuals as IC’s. Not only has this led to a $15 billion federal tax gap, which the IRS is actively pursuing, but states also are getting serious about employee misclassification, which has led to the collection of millions more in state tax revenues. These figures do not include fines and penalties.

Because of the wide variety of federal and state standards to assess whether or not a person is an employee, the decision to use IC’s in your organization can be complex; but there are positive steps you can take:

  1. Work with your organization’s legal counsel to determine how your organization evaluates the laws and government rules as they apply to your workforce
  2. Establish policies and procedures on how to handle IC’s, and communicate these clearly throughout your organization
  3. Use a vendor for IC compliance

Once employers ensure that they have a strategy and program in place, using IC’s can allow organizations to reduce or better manage their employee payroll budgets. While you still have the hidden expenses of taxes and other costs that are built into the IC’s rate, there are business reasons why an organization will make the decision to not hire in-house employees and choose other options.

One of these reasons is shared liability. A true IC should have shared responsibility for risk management on projects and service level agreements and have their own insurance coverage.

Another reason is the utilization of highly skilled subject matter experts to help or provide consulting services. There are simply times that you need to have an expert to support a project, but you will not need the skill set on an on-going basis.

This also is the case in some project-based work. If something has a deliverable, does not need to be done using your equipment and under your direction, it can make sense to utilize IC’s to help supplement your full time staff.

According to analysts in the staffing industry, 41 percent of employers currently use a vendor for IC compliance and 34 percent expect to use a vendor in the next two years. As usage of IC’s continues to grow, a vendor with experience and knowledge of IC compliance can assist you with achieving the greater flexibility and access to top talent that is afforded by the use of independent contractors. A recent Corporate United webinar led by Volt Workforce Solutions – “Dispelling the Myths of Independent Contractors” – looked at many of the myths and realities of using IC’s. Attendees learned how to build a solid program to protect their organization while still benefiting from the services of IC’s where appropriate. Visit www.corporateunited.com/webinars.aspx to download the presentation.