Independent Contractor Compliance Blog - by Collabrus™

If you search the web you’ll find no shortage of news stories about how the economy is beginning to pick up, albeit slowly, and that many businesses who had downsized last year are beginning to replenish their labor force.

For example:

• CareerBuilder/USA Today surveyed 2,924 hiring managers and reported 26% of employers have already started extending job offers to former employees, while an additional 19% will do so in the next quarter.
• USA Today reported that General Motors recently announced that it would recall workers thanks to increased demand for GM automobiles.
• A survey by OI Partners, a labor providing firm, also shows that currently 40% of employers surveyed are planning to “rehire some former workers they laid off as either full-time employees or as consultants and freelancers…”

Some reasons companies rehire their former laid-off employees are:

1. You know what you are getting with a former employee (i.e. skills, they fit into the company’s culture and environment, work ethics, etc.).
2. There is a shortage of high quality experts in specialty areas such as information technology and finance.
3. It costs less to bring back a former employee than it does to recruit, perform background checks and onboard a stranger.

Some businesses will bring former employees back as IC’s

Many employers indicate they may first engage former employees as contingent workers and independent contractors for project work before committing to bring them back as full-time employees. Many businesses believe doing this is a way to keep hiring costs down and maintain flexibility should things not work out either for the individual or in the economy. This practice is common in most industries for the full range of positions from unskilled labor to high-tech.

It can be dangerous if you don’t bring workers back properly.

It is quite common to find these workers stepping right back into the same role they had as an employee. Remember these are the same people who were recently laid-off employees (either yours or someone else’s). The only change some companies make is to call them independent contractors or consultants. The government is on the lookout for this practice. Just at the time you are planning to bring back former employees as independent contractors, the government is gearing up their enforcement activities to discover misclassified workers.

Also, in my field experience, the reconstituted employee-IC contractor is much more likely to file for unemployment insurance benefits if let go as an IC, which will quickly get you noticed for an employment tax audit. They are also high risk to file a civil suit claiming, among other things they were misclassified, to recover the value of the overtime, vacation pay, holiday pay, retirement, stock options and other benefits employees receive. So if you bring them back as an IC I recommend you do it right.

It is possible to safely bring former workers back as Independent Contractors.

Many times, all it takes is a minor restructuring of the working relationship between you and the contingent worker to properly classify an IC. Sometimes it’s not possible because of the nature of the work. But either way you need an expert, like Collabrus, to help you, so later you aren’t fighting a worker misclassification battle either against the government, in a civil lawsuit, or both.