Having a workforce that consists of workers that are contract-based or remote employees makes it difficult to keep your business in compliance with the law. Payroll and HR professional have difficulty integrating benefits that are compliant with so many different types of workers. Talent management professionals like Colin Brenna, a global workday deployment leader with Aon Hewitt, sees a trend of businesses using a contingent workforce to grow their company. A contingent workforce consists of workers that work on a non-permanent basis, such as freelancers, temporary contract workers, or remote employees.
What should employers be careful of?
A common mistake made with a contingent workforce is misclassifying workers, which creates liabilities including fines and back payment of taxes and benefits. Companies may mistakenly label an independent contractor as a full-time employee, and vice versa. The IRS and DOL regularly review contingent labor and test that looks at behavioral controls, financial controls and the working relationship. States use their own tests, which are not uniform and have different penalties for violations.
Things like moving contract workers to permanent positions creates challenges to HR and payroll systems that employers must be aware of. Using a contingent workforce requires a look at which departments are using contractors, what staffing suppliers are being utilized, how much are contractors paid, and how that compares to market rates. Lack of standard controls and procedures to manage contingent workers creates tax and benefit liabilities. Your business must have a proper worker classification, especially as it relates to systems and processes used to determine independent contractor status.
What should employers do?
When working with a staffing agency for workers who will work on-site alongside full-time employees, it’s very important to verify that they are properly using the right systems and processes to minimize co-employment. Co-employment is a situation where two or more businesses have the legal rights and obligations of an employer for a worker or group of workers. Staffing agencies must be compliant with Fair Labor Standards Act (FLSA) overtime eligibility regulations and state-specific requirements including mandatory sick pay.
Special attention with independent contractors not paid on a third-party W-2 is even more important. These workers must be classified accurately with a clearly defined and compliant working relationship. Consult a qualified tax advisor if you are unsure of a certain worker’s or group of workers’ employment status. PRO Unlimited CEO and founder Andrew Schultz, writing for Employee Benefit News, advises employers to use a trusted partner with legal expertise in independent contractor compliance. PAYDAY offers tools to assist you with staying in compliance.