Independent Contractor Compliance Blog - by Collabrusâ„¢

ABC NEWS reported on May 27, 2009, that, “Millions of Americans in the past year…have lost their jobs as a result of the financial crisis. While many collect their unemployment and send resumes, a growing number of these displaced workers are striking out on their own…”

These highly skilled, and experienced, professionals want to make an impact where they see opportunity. However, without the funding of their struggling employers, they know that opportunity is lost.  They have decided to strike out on their own and carve their own career; a business for which they are responsible and where they can depend on their own efforts.  Most of these professionals are very good at what they do and know how to be successful.

Advantages of engaging independent consultants or contractors (ICs)

These temporarily displaced veterans of the business and high tech world can be a treasure for your company.  They are fresh new entrepreneurs and offer numerous advantages:

• As ICs, they can provide a cost savings to your business.
• Engaging them does not require a long term commitment.
• They have experience, skills, abilities, knowledge and a fresh point of view you may not currently own in your company.
• ICs are very eager to be a success.
• These professionals are not just sending out a resume and sitting around waiting for the phone to ring.  They have a more aggressive and innovative approach to their profession, which they will bring to your company’s project.

In my opinion these fresh new entrepreneurs add a huge value.

Be sure your new consultants and contractors are ICs beyond a title

Unless you have an up-to-date in-house expert to help you set up the relationship, or a credible third party vender, you may be taking on an element of unexpected risk by engaging an IC.

Many times, these individuals have a great set of technical skills and experience but are unaware of how to properly position themselves and establish the engagement as an independent business person.  From my experience most companies also do not know how to safely engage these new entrepreneurs.  That is why enforcement agencies like California’s EDD and the IRS find such a high level of misclassified workers when they audit a company for IC compliance.

Remember, in tough economic times the government is actually funded at higher levels to increase its compliance enforcement activities.  So while you are cutting back on costs these agencies are investing in finding misclassified workers.  Also, since more people are applying for unemployment benefits (a top audit lead for both state and federal enforcement agencies) the odds of questioning true employment increase.  If someone you recently terminated as an IC applies for unemployment benefits, it is likely an auditor will turn to you, his or her last “employer”. 

This is not a good time to take chances with IC compliance.

Why to partner with a compliance expert to help you engage ICs

Companies like Collabrus or M Squared Inc, have the trained resources to assist you in finding a qualified IC.  They also help you to properly engage them so your risks are minimized.  Doing this correctly may require the classification of a consultant as a W-2 for the duration of the engagement, or as a 1099 by the vendor company, but either way you will be protected.

One last bit of advice

When you use an outside service use the best.  I’ve seen some third party vendors say they are protecting clients but cut corners on the qualification and classification processes to increase their profits and leave the client companies exposed to high risk.