Independent Contractor Compliance Blog

We get this question all the time. It goes something like this: If we use a third party payroll service company or an IC vender service company for our contingent workers and ICs are we off the hook for errors or delinquencies?

The short answer:

No, if you are the employer you are the employer and you can not delegate your responsibility under the law to a third party. If you are the payer to the ICs then you are responsible for their proper classification.

The explanation:

It doesn’t matter to the government (for payroll taxes, wage and hour laws, workman’s compensation coverage, or for IC compliance) that you pay a third party vender to administer your contingent workforce and your independent contractors. The government works with the payrolling companies because generally they provide a valuable service and it is convenient for all parties. However, you must watch these vender companies and insure they are properly executing their responsibilities on your behalf. In my experience this is not something you may take for granted.

For contingent employees: If the third party you engaged does not properly protect you, the government will still hold your company responsible for any errors or liabilities. 

For example, even if the payroll company withholds properly (and charges you the fees) but fails to pay over the unemployment tax, income tax withholding, Social Security and Medicare taxes to the government (this happens more then you may believe), your company would still be held liable for both the employee’s and the employer’s portion. It becomes your problem to recover the money from the payroll vender in a civil action. In the meantime, the government still considers it your mistake.

For IC compliance: If the IC compliance is not properly handled and an enforcement agency determines you have misclassified workers, the government will look to you for any enforcement actions. They practically ignore the IC vender. Again, the cost and blame for the error is yours.

Always use a proven expert.

So, it becomes very important to insure the third party vender you employ to administer your contingent worker payroll and to validate and administer your IC compliance is an established, proven company that will do it correctly and fully protect you.