Collabrusâ„¢ Expert Compliance Blog

I have another question for you:

If you realize your IC is misclassified what are your remedies for fixing the problem?

When a company realizes they have misclassified workers they often aren’t sure how to remedy the problem. Actually there are several paths to properly correcting the relationship.

Here are three options to consider.

Option 1:  Reclassify the misclassified consultant to an employee.

This is a guaranteed way to avoid future liabilities and co-employment conflicts. If this is your preferred option, you should do it as soon as possible. I don’t recommend this action as a wholesale changeover for every IC performing services in the company. Sometimes, the best option is to reclassify the consultant to an employee because they are that valuable to you, the way they operate today. A change in the working relationship just won’t work.

Changing an IC to an employee should involve a thoughtful, case-by-case evaluation of your consultants with the assistance of a true IC compliance expert.

But if we reclassify an IC to an employee won’t that flag us for an IRS or EDD audit?

It may, or may not. However, if you know you have a misclassified worker it is best to correct the situation as soon as possible. The statute of limitations for taxes is generally three years. The sooner you fix it the sooner the statutes drop off on the backend and you become squeaky clean.

Be sure to consultant with a true IC compliance expert before making a change.

A true expert in common law classifications will tell you that not every consultant requires reclassifying. They may be able to recommend several different legitimate options to mitigate your risks without reclassification. Keep reading for several below.

Option 2:  Consider a bonafide restructure of the working relationship.

You need a true expert to do this correctly or you can end up in real trouble. However, sometimes all it takes to change a misclassified worker into a genuine Independent Contractor is to change a few key factors in the working relationship.

For example, look at the chart below to see one limited example.

One column describes an IC the other an employee.  (This is a very simplified example and you should not rely on it to construct an IC model for your business).

Don’t want to give up all that control?  If you get the same end result what do you care?  However, it’s your business and your decision.

The point is a true IC compliance expert will be able to help you decide if you can make a bonafide change that will protect you.

Option 3:  Partner with a contingent workforce management company.

What we are talking about is risk mitigation, but a good contingent workforce management company, like Collabrus, will give you much more.

For example, Collabrus services include:

1.      Risk management Services-Independent Contractor validation (including oversight of other venders  and payroll services you may use), online contract tracking and reporting, and end of engagement processing.

2.       Program Management Services-the hiring and onboarding administrative process, contract management and monitoring, employee and IC contractor support, project oversight, and budget control.

3.       Pay and Benefit Services-a benefits program for contingent employees and voluntary programs available to IC’s, consolidated online invoicing and billing system for time, deliverables, expenses and other payments, employee withholding and reporting, and insurance benefits.

The use of a responsible contingent workforce management company is a practical and viable alternative that allows your IC’s to provide services to the company, yet minimizes your exposure to liability under tax, employee benefits and labor laws.

With this option you may get to have your cake and eat it too.  This alternative can protect you and save money in the long term.

SACRAMENTO-Last week Governor Arnold Schwarzenegger proposed $4.4 billion in new taxes and a similar amount in spending cuts to deal with California’s worsening fiscal crisis.  He also alluded to bringing in more money through other “revenue generators.”

“We must stop the bleeding…We have a dramatic situation here and it takes dramatic solutions…and immediate action,” Schwarzenegger said as he called the Legislature back into session to deal with the budget shortfall.

One of the agenda items will be shoring up the Unemployment Insurance (UI) Fund.  The state budget people are predicting the UI Fund will be insolvent by January 2009.  Currently, there is discussion of borrowing money from the federal government to continue paying benefits to the unemployed.

Governor Schwarzenegger will cite these facts to support raising taxes and cutting spending when he negotiates with the leaders of the state legislature.

Some Republican votes are needed in the Senate and Assembly to reach the two-thirds majority required for spending plans and tax increases.  State Senator George C. Runner Jr., Republican Caucus Chairman, said “Republicans would be open to considering other ways to generate revenue for the state.”

What are some “other revenue generators?”

Ideas that are being discussed include licensing additional offshore oil drilling to collect fees and to consider selling what Senator Runner said are “billions of dollars of surplus properties” the state currently owns.  He said Republican lawmakers oppose boosting gas taxes or the state’s vehicle licensing fee.

However, another typically popular method (by both parties) to boost state revenues is a more aggressive enforcement of existing tax laws.  Two clichés heard regularly in the halls of state government are “Leveling the Playing Field” and “Increasing Compliance in the Underground Economy.”  State tax agencies tell the legislature that if they have better enforcement tools and more resources they can accomplish both.  This course does not require the two-thirds vote.

There will be a direct effect on IC Compliance.

The more misclassified workers are converted to employees and reported on a W-2, the more money flows into the state.

• Misclassified workers are a source of income for the failing Unemployment Insurance Fund.  The fund does not receive unemployment insurance “contributions” for IC’s, but if a former IC worker applies for UI benefits, he/she will probably receive them.  Why?  The Employment Development Department has a biased towards holding your former IC an employee if he/she applies for UI.  This allows the EDD to pay the individual benefits and provides EDD with an audit lead on the company that “misclassified the worker,” which usually leads to an additional tax assessment.
• Identifying misclassified workers is also a source for increasing the state’s general revenue funds.  The state receives personal income tax withholding deposits each time an employee is paid, keeping a constant flow of money coming into the state’s bank account.  However, Independent Contractors are responsible to make their own estimated tax payments throughout the year.  Both the state and federal governments have cited studies indicating the reporting of income is higher when there is third party withholding and reporting (W-2 reporting).

Therefore, from the state’s point-of-view employees are better than IC’s.  The legislature will hear this when deciding how to bring in more revenue.

NEW YORK-Following two straight years of declines in the number of new lawsuits and regulatory proceedings, including a drop in large-dollar cases, a 2008 survey sponsored by international law firm Fulbright & Jaworski L.L.P, indicates that U.S. companies now anticipate an rise in new actions and government probes.

The survey asked the legal counsels and senior counsels of corporations to report on the types and number of cases they are facing and expect to face in the coming year.  The survey covered ten industry groups, including financial services, energy, manufacturing, health care, retail, real estate, insurance, education, technology and telecommunications.  The companies surveyed were from all regions of the U.S. and included a cross section of sizes.

So what did the survey find?

Bigger companies face more disputes.

As the size of U.S. firms increased, so did the chance of being involved in a lawsuit.  However all businesses, regardless of size, faced a significant chance of being involved in a dispute.

• 53% of U.S. firms with revenues under $100 million reported new lawsuits
• 73% of U.S. firms with revenues between $100 million and $999 million reported new lawsuits
• 89% of billion-dollar U.S. firms reported new legal actions

The most common lawsuits facing U.S. companies were labor/employment.

It’s interesting, from my point of view, that the survey singled out California companies as reporting employment actions as their number one legal concern.  However, all across the U.S. employment cases encompass the largest percentage of corporate legal battles.  For example, the report cites wage-and-hour suits, in which employees allege underpayment for overtime, meal and rest times as the largest single issue (19% of U.S. companies cited an increase in wage-and-hour cases during the past year).

U.S. companies also saw increases in five other areas of workplace litigation:

1. Discrimination suits
2. Privacy issues
3. Employee Retirement Income Security Act (ERISA) actions
4. Disability claims
5. Age discrimination suits

The remainder of top litigation issues in the U.S. were:

• Contracts
• Personal injury
• Product liability
• Intellectual property/patents
• Insurance
• Environmentally-toxic torts
• Regulatory
• Class actions
• Professional services

The survey found that government actions are also on a rise.

Nearly half (49%) of U.S. companies responded they had retained outside counsel in the past year to assist in government investigation issues.

30% of U.S. companies were served with a grand jury subpoena or administrative summons this past year (administrative subpoenas and summons are used by various enforcement agencies such as EDD).

U.S. companies facing regulatory/enforcement matters identified more than 15 different agencies and offices calling on them during the year.  I see this as a direct result of government enforcement agencies actively sharing information about businesses more than ever before.  Another indication is that 29% of U.S. companies surveyed indicated they had settled a regulatory proceeding in the past year.

What does this mean?

The survey concluded that the number of actions in the above categories will increase over the next year.  This means if you have a weak spot in your defenses you are more likely to be involved in a government investigation and/or civil action against your company in the near future.

I strongly recommend that you plan ahead for the possibility your company will be involved in an IC/employee/labor dispute.

A small investment now to insure you properly classify your IC’s and employees, that you are properly administering your contingent workforce, and that you are securing the documentation to be able to prove you are right, can save you many times the dollars invested if challenged.  It is even possible plaintiffs and government agents will look elsewhere for a softer target to attack, knowing there is no chance of winning against your company.

Survey Note:  The 2008 Fulbright & Jaworski Litigation Trends Survey was conducted from May 22 through July 18 by Greenwood Associates, a business research firm in Houston. The survey, sponsored by Fulbright, canvassed 358 in-house counsel in the U.S. and U.K.  Primarily only the U.S. results are reported in this article.

For a link to complete survey findings and a descriptive “white paper” go to: www.fulbright.com/litigationtrends28

WASHINGTON-The nation woke up this week to a new political landscape. The Democrats will now have the power to make the changes they want. It could be the perfect tax and enforcement storms coming together.

The Los Angeles Times reported November 5, 2008, “The victory unleashes pent-up demand for a host of Democratic causes, including expanding labor union rights, providing universal healthcare and raising taxes on the wealthy.”

The international edition of the New York Times, Herald Tribune, reports November 5, 2008, “(democrats) gained 19 seats…(giving) Nancy Pelosi, more maneuvering room as she seeks to forge ahead with the agenda of President-elect Barack Obama.”

What are some of those “pent-up causes” and “agendas”?

One of them is a bill that Senator Obama himself sponsored.  It is patiently awaiting action.  U.S. Senate Bill 2044, Sponsored by Senators Obama, Durbin, Kennedy, and Murray, is designed to “provide procedures for the proper classification of employees and Independent Contractors.”

S - 2044 is the U.S. Senate version of a U.S. House of Representatives bill-HR 6111.  Specifically, both of these bills will significantly reduce protection under IRS Safe Harbor Provisions (Internal Revenue Code Section 530) and give the IRS more powerful tools to require businesses to properly classify consultants and contingent workers as employees.  They also put pressure on states to be stronger in enforcing IC compliance laws, or risk losing federal funding. These bills are meant to close loop holes that have been identified by members of Congress, labor organizations and tax bureaucrats for several years.

For more details on these bills go to “IC Legislation” in this blog and search for “Increasing Scrutiny of Independent Contractors.”

President-elect Obama will soon have the opportunity to make the bill, he sponsored as a senator, into a law.

Now is the time to protect your company.

I recommend you get ahead of the curve.  Don’t wait until the IRS knocks on your door.  A few dollars invested in risk mitigation today could save your company many times the investment later.

TEMPLE CITY, CALIFORNIA-The IRS does not discriminate when it comes to IC Compliance and the proper classification of workers.  The Pasadena Star News, reported on October 23, 2008, that Temple City, a suburb of Los Angeles, had been flagged by the IRS for improperly treating full-time employees as Independent Contractors.

Further investigation revealed that Charles Martin, City Manager, was one of the problem areas for this audit. The IRS determined that since taking over the dual roles of city manager and city attorney in 2005, Martin has been improperly considered an Independent Contractor instead of as an employee. The Pasadena Star News reported this allowed the city to avoid providing medical, dental and retirement benefits and “…to pay him less than it might otherwise have to…”

The IRS found the city also did not to pay or withhold any payroll taxes on the city manager’s behalf, or on several other classifications of city workers that the IRS found to be improperly classified.

The Star reports Temple City may be fined $50,000 by the IRS for these misclassifications.

The costs will be more than $50,000 when it’s all over.

Remember the possible $100 million administrative costs I’ve reported to you several times for Fed Ex to change over its system in just California? Well, Temple City will also encounter administration costs to change over-maybe not as large, but it will cost them some money.  Also, there are other costs Temple City will need to address.

• Legal fees
• Paying retroactive employee benefits such as:
  • Health care
  • Retirement
  • Dental
  • Overtime
  • Vacation time
• The time spent dealing with all these conflicts is time not spent operating the city…
• Other enforcement agencies may climb on the band wagon, wanting their share.

It all adds up and this story illustrates that no one is exempt from the proper classification of IC’s and employees. The city apparently did this to save money, but in the long term it’ll cost them more than had they done it right from the start. They should have hired an expert to come in and advise them before trying to make people IC’s.

If the city had attorneys on staff, why didn’t they get it right?

Well, in my not timid opinion, they were obviously not experts in this area, or maybe they thought a city was exempt from the law. Just because someone has a law degree does not make them an expert on the common and statutory laws involving employee and Independent Contractors. You need to engage a real expert to do this for you.  Don’t depend on a part-time hobbyist or what I sometimes refer to as a Weekend Warrior to protect your business.

California’s Governor has called a special session of the lawmakers to address a $10 billion shortfall in budget and in saving the unemployment fund.  This action will effect IC tax enforcement.

SACRAMENTO - Governor Arnold Schwarzenegger, alarmed by the ongoing national and state financial crisis, has called the legislature back into session on November 5^th, one day after the elections, to address the state’s lack of cash flow. According to the Sacramento Bee, October 28, 2008, the governor feels he can not wait for “the new class of lawmakers” being selected in November to resolve this crisis.

In a nutshell:

• California needs more cash.
• Republicans want to cut taxes to lift the economy.  They want to give a variety of tax credits to businesses that hire the unemployed and to those who invest in business growth.
• Democrats want to collect more taxes to fund state spending.  The incoming Senate President Pro Tem Darrell Steinberg stated to the Sacramento Bee that in regards to increasing taxes to meet the budget, “…nothing is off the table…Crisis is opportunity…”
• Both Democrats and Republicans would be willing to make enforcement of tax laws stronger if they believe it would bring in more money.
• In the meantime, the state unemployment rate is currently at 7.7 percent-higher than in many years.
• California is borrowing money to get by “until the cash flow is there…”

It’s customary for California to borrow billions of dollars at the start of the fiscal year to fill its coffers until the usual flood of sales tax receipts comes in after the holidays and income tax receipts arrive in the spring. “California is so large that our short term cash-flow needs exceed the entire budget of some states,” Governor Schwarzenegger said recently.

Another option is to borrow money from the federal government.

The LA Times reported on October 3, 2008, “(Asking the federal government for a loan) is one option on the table,” said Tom Dresslar, a spokesman for Bill Lockyer, California’s State Treasurer. “The treasurer is working with outside financial advisors on a possible emergency plan to sell short-term debt notes to the U.S. government…Lockyer believes that such a plan is both feasible and legal,” Dresslar said.

How does all this effect IC compliance and tax enforcement?

The answer’s in the fine print.  The topics the governor is insisting the legislature come back to address are:

• The state’s mortgage foreclosure crisis
• Saving the states’ Unemployment Insurance fund from going bankrupt
• Fast-tracking previously approved public works projects to bolster jobs
• Creating a new tax commission to recommend changes in the state’s tax structure

Two of these topics are really about taxes:

1. The Unemployment Fund is near bankruptcy. For several years the legislature has resisted, or has been blocked, from raising the taxable limits on the Unemployment Insurance (UI) Tax. I predict the time is near when the $7,000 UI limit will be raised. There are also other proposals lying around that may find life at this time. All are designed to collect more money from employers and make it more difficult to have an IC do your work.

For example, California’s SB 1490, introduced on 2/21/08 and amended on 3/27/08, is currently waiting in California’s Senate Appropriations Committee. It is almost certain this bill will considered, since both parties are willing to increase enforcement if it promises to bring in more money. For more details go back where I covered SB 1490 in July of this year.

I’ve also covered other bills that are awaiting their chance to breathe life. You can find them all in searching the category “IC Legislation” on this blog page.

2. Create a new tax commission:  I think it almost goes without saying, during a time of financial crisis, if you form a tax commission to discuss changes needed in California’s tax law…what will they recommend?

There have been several studies in the past few years by the Employment Development Department (EDD), the Franchise Tax Board (FTB), the Board of Equalization (BOE) and the IRS stating they could collect more tax money if they had stronger tools. Some of these tools are related to employee and Independent Contractor misclassifications. The IC enforcement tools are meant to make it more difficult to classify someone as an IC. They are also designed to increase the penalties if you misclassify your workers (See “IC Legislation” for details).

You may expect many of these proposed laws to raise their little heads in this tax commission and also during the special legislative session being called in November.

All this makes it more important than ever to get your house in order when it comes to IC compliance.  After these measures become law, you’ll be playing catch up…

The Rules are there for everyone to see. They aren’t secret.  However, it is very common for people to misapply them and arrive at a different conclusion than the IRS. Why is that?

Before I answer that, let me list and correlate the two different approaches of explaining the IRS rules for common law.

Category One:  Right to Direct and Control the Details of How the Job is Completed

1. Who, when, and where is the job controlled?
2. Who can control the detailed results on a day-to-day basis?
3. Who controls the hours worked?
4. Who provides the tools?
5. Who provides the supplies?
6. Does the principal train the contractor/consultant?
7. May the consultant hire his/her own assistants without permission?
8. Is the consultant required to attend regular meetings?
9. Is the consultant required to submit routine reports (hours, activities, etc)?

Category Two:  Financial Control

1. Who controls the business/project’s assets?
2. Does the principal control the method of payment and the money?
3. Is the consultant reimbursed for expenses?
4. Can the consultant provide services for others at the same time (even the principle’s competition)?
5. Does the consultant have the ability to make management decisions that will affect their profit and loss for the project?

Category Three:  Relationship of the Parties

1. How do the parties perceive the relationship (intent)?
2. Does the consultant receive benefits (retirement, sick leave, profit sharing, etc)?
3. Can either party terminate the relationship, at will, with no liability incurred for doing so?
4. Is the work being performed an integral part of the business operations?
5. How long will/has the relationship (project) last(ed)?
6. If there is a written contract; what does it say about the relationship?

So there you are. Simple really, except how do you apply these questions to a specific situation?

The Devil is the Application:  It’s rarely as cut-and-dry as adding up how many factors settle on the employee side and the IC side of the equation, with the most giving you the answer.  There isn’t enough time and space to explain how to properly use them in every situation possible. Each of these factors are weighed and applied differently. In some cases “who supplies the equipment” is heavily weighted and in others it has almost no weight at all.  It will be different for each type of job and situation. It takes not only knowledge, but experience to apply these factors with the proper weighting and judgment.

Rely on an Expert: That’s why you should go to an expert to help you. You utilize experts in others fields, specialists who will take a complicated task and perform it effectively and efficiently for you. Applying either the federal or state common law rules of employee and Independent Contractor law is not different from any other high-end technical service. Using an expert will save you time and money in the long term.

Post Script: I didn’t include the IRS Safe Harbor Section 530 and how it can affect this issue-that’s a whole new ball game that I’ll save for another time.

This is the worst time to take shortcuts in your Contingent Worker and IC Consultant Compliance Programs.

Banks are being taken over by the government, Wall Street is being “bailed out” and the unemployment rate is higher than it has been in years. In this economic environment companies that can reduce costs have a better chance of surviving.

Cutting costs to stay competitive in today’s business world is mandatory for survival. One common method is reducing the cost of labor. This can mean not filling vacant positions and downsizing, but it can also mean using Independent Contractors instead of employees for your new projects.

The difference between the cost of an employee and an Independent Contractor can range from 10% to 25% or more. Independent contactors typically do not receive fringe benefits and companies don’t pay the usual government mandated taxes, insurances and other costs.

The savings of using an IC is seductive and real, unless you don’t protect yourself. A misclassified IC can cost you more than you would ever pay for an employee. Also, the risk of being selected for a tax audit during these times is far higher than during normal times.

Companies are taking risks just at the time the government is ramping up their audit programs.

This is the worst possible time for you to make a mistake in your IC compliance program. Why? Think about what happens during tough economic times:

1. Business volume drops.
2. Companies react by cutting costs.
3. Many times they do this by downsizing-letting people go.
4. When people become unemployed, and can’t immediately find work, they begin to look for income. They have food to buy, rent to pay and families to support.
5. It doesn’t matter if they were an IC or an employee, their survival instincts kick in and they go to the well to get a drink.
6. In this case they go to the Unemployment Insurance Benefit Well, which in California is administered by the Employment Development Department (EDD).
7. The problem is only ex-employees are entitled to UI Benefits.  Former IC’s are not.

State employment tax audit programs are funded, in part, by the number of unemployment claims filed.

This means as more people apply for UI benefits, the more money the EDD gets for the audit program. When the government hires more auditors they are going to do more audits, thus increasing your probability of being selected for an audit. So ironically, just as the private sector is hurting for money, the government is flush and has more resources to take private business money in the form of tax assessments.

Companies who have Ex-IC’s are more likely to be audited.

That’s right!  A major source of employment tax audit leads is a claim for unemployment insurance benefits by an ex-IC.  That’s because EDD will want to make your ex-IC, who files for unemployment, your ex-misclassified worker.  It’s what EDD does.  So it becomes very important to be sure you are properly classifying your IC’s and can prove it. Misclassified IC’s will attract auditors to your business.

You may think you are exempt because the IC signed an agreement that said he was not eligible for unemployment as an IC. Those agreements rarely work. Not only is there ample case law to defeat that agreement, but the consultant has now changed colors.

The IC who changed colors for unemployment benefits.

I’ve seen this happen thousands of times in my career. The same consultant who insisted on being an IC, now tells the EDD auditor he just needed a job and they were only hiring IC’s, so he agreed (It doesn’t matter if you have a different recollection-the government will believe them if they are credible). They tells the auditor they signed the contact because they were told to sign the contract or they wouldn’t work. That explanation is a surefire formula to make your former consultant a misclassified employee that will lead to a full-blown tax audit of your company.

How do you protect your company?

Your protection is to insure you have properly classified the IC’s when you engage them, and to properly document the project and relationship in the event you are challenged later. Typically, the challenge will come during difficult times, by a money flushed employment tax audit agency, who has a stake in finding that your IC is misclassified, qualifying them for benefits.

The burden of proof is on you and it is judging what happened in the past. Remember, many times the consultant is making a claim now and listing work he did one, two or three years ago to qualify. So you need to have the documentation that will prove you were right up to three years ago, after memories have faded, your project managers are gone, and the consultant does not work for you anymore.

Don’t cut corners on the IC Compliance Process, thinking you are cutting costs. Doing so could be very expensive.  If you don’t have the expertise in your company to protect yourself then call Collabrus.

Why does the auditor keep reassuring the taxpayer everything is going well during the audit, if there’s going to be a large tax assessment at the end?

Clients often tell me about the auditor who seemed to be such a nice guy.  They say, “He smiled whenever he asked questions, answered all my questions and told me several different times during the audit process that this isn’t a big deal and everything is going very nicely…”

Then in about a month the client receives a huge tax assessment in the mail.*

The short answer: It did go well for the auditor.  He got all the information he needed to make a nice tax assessment and you didn’t argue with him while he was there.

The rest of the story: Remember, to you it’s a tax audit.  To the auditor it’s an 8 to 5 job and he wants to get the information he needs, trouble-free and avoid as much stress as possible.

Smart auditors always keep the taxpayer (which includes individuals and employers or the employer’s representative) off-guard, relaxed and not feeling threatened during the audit process.  This will insure the information flows freely to the auditor.  A relaxed and confident taxpayer is more likely to provide the information freely, which makes the auditor’s job easier.

Experienced auditors know that as soon as the taxpayer feels there is a big tax assessment looming in the future the information flow and friendly cooperation dries up, making their job much more difficult.

Remember, no matter how nice and helpful the auditor appears, they are still a government tax auditor and are not your best friend.  Even in cases where the auditor is indicating there may be a refund the he’ll still be looking for any items to offset the credit with a liability if possible.

(In my experience about one in every 500 employment tax audits produce some credits or refunds).

*  If you are not given an exit interview with the auditor (or the auditor’s supervisor) where you are provided an explanation of the audit findings and have an opportunity to provide evidence in your defense before the tax assessment is issued then your rights have been violated.  You should call your attorney, a tax expert, the tax agency’s Taxpayer Rights Advocate, or all three.  Make some noise!  There are most likely other errors with the audit too.  Get someone to help you find them!

I have a question for you this week.

Are you taking the proper precautions to insure your Independent Contractors are really IC’s?  Or have you assigned a weekend warrior to fight the career professionals who will be challenging the status of your consultants?

Most of you probably will answer, “Yes, of course, we are doing it right.”  However, in my thirty-plus years of experience I have found that most businesses think they are protected, but fall way short of what’s required.

Here are a few things to consider.

Did you properly set up the project to support Independent Contractor status?

When you set up your project and engage an IC:

1. Do you know exactly what they will do for you?
2. How will they operate in the context of your business?
3. How long the project will take?
4. What will the job will look like when it is complete?
5. How much the project will cost?
6. Is there a written contract, clearly stating all expectations so no one is surprised later? (You should develop this information up front in plan language that everyone will understand; not just techy-jargon only the project manager and the consultant claim to understand).
7. Did you engage an experienced IC compliance expert who will insure you set the project up correctly and the consultant qualifies as an IC?
8. Have you properly documented everything so three years from now you will be able to prove you did it right today?
9. Do you review the project periodically to guard against status drift?
10. Do you have someone with the responsibility and skills to insure you do all of the above correctly?

Most companies make an effort but fall way too short of what is required.

If you think this list is either obvious, or over the top advice please think again. I have encountered thousands of businesses that have not properly done these things. They made an effort, but usually fall way short of what is required to prevail under the close scrutiny of a worker misclassification conflict (class action lawsuits, workman’s comp claims, federal or state tax audits, third party tort actions, etc). When one of these events occurs they are shocked at the level of detail and substantiation needed to prevail.  However, unfortunately by then, it’s too late.

Why do their efforts fall short?

Typically, businesses don’t assign enough importance to setting up the project properly in the beginning.  The task is often pawned off to the project manager or the HR manager.  These managers have other talents and skills and generally numerous other duties and responsibilities on their plate.  For them it becomes a one-time task-something they are required to do so they can get back to their real work.  They do the task with a weekend warrior’s mentality and skill level, then promptly forget about it and never look back.

When the conflict comes, the company is probably on the wrong side of the issue.

When the project’s and consultant’s status is challenged two or three years down the road the company is probably in the wrong.  Why do I say that?  Because someone, either inside or outside the company, sees an opening-a weak spot-in the IC classification defenses and is attacking.  That’s what happened to Microsoft in the mid 1990’s and to FedEx more recently.  You hear about the big cases, but it happens everyday somewhere.  Most companies pay up, lick their wounds, and swear not to get caught that way again.  But they have paid a very expensive tuition for their education-many times more than they would have paid doing it right in the beginning.

How to protect your company:

Employ an expert to help you-someone with the knowledge and experience to be right the first time-not a weekend warrior with 25 other jobs on their plate.

This expert will:

• Verify the status of the project and insure it is set up correctly for IC compliance before the job starts.
• Before the consultant is hired verify they qualify as an IC.
• Take you through the above checklist to insure you are protected.
• Perform these tasks accurately, efficiently and cost effectively.

IC compliance is too important to leave to a weekend warrior.

Collabrus is a leader in the contingent workforce service and IC compliance industry.  For example, as Collabrus’ Compliance Service Manager, I have been making the proper employee-independent contractor status determinations, on one side of the tracks or the other, for over thirty years.  I have made literally thousands of these determinations in almost every conceivable industry.  Why do I mention this?  Because this is the level of expertise you must seek out to help you.  Why?  Because the other side will employ such an expert to prove you wrong when the conflict comes-bet on it!