Independent Contractor Compliance Blog

I recently read an article on a website that gave bad advice for those who employ highly skilled professionals-especially independent contractors. The flawed article was based on a University of Arizona study.

I won’t cite the author, or organization, publishing the web article; however, we tracked down the original University of Arizona study and a series of published reports* on the methodology and conclusions on the original study. The following is a summary and critique of the website article that cited the university study.

I will analyze this website article from two viewpoints:

1. From an employment tax law POV (especially employee versus independent contractor issues).
2. From a best practices management POV.

In this first article I’ll cover the IC Compliance implications. In the next article I’ll cover some management best practices issues.

The website article does not do justice to the actual university study performed and will create problems if you applied the conclusions to your professional IC consultants. 

The website article states:

1. Treating the population of nonstandard employees as a separate workforce (is bad)…
2. Having more temporary coworkers makes full-time workers’ jobs more complicated, since they are always training new people.
3. Helping temporary workers can get in the way of full-time employees completing their work…
4. In the minds of full-time employees their jobs have diminished status when temporary workers occupy similar jobs…
5. Employers can improve the situation by encouraging social interaction among all workers and including temps in thinks (sic) such as formal and informal departmental lunches and holiday parties…
6. Temporary workers who had opportunities to transition to standard employment had better attitudes and were better performers than their peers in standard work arrangements…

Acting on the implications of these statements will weaken your independent contractors’ status.

First, the web article fails to mention this study was done on temporary employees (not IC’s). The article also fails to note the study data was collected on 314 part-time and temporary workers who all performed “clerical and low-level administrative work (such as) payment processing, account reconciliation, and inquiry/complaint handling.” 

None of the workers studied were professional level contingent workers or independent contractors.

So the first mistake the website article makes is not providing this important information. Next, the article misleads the reader by giving the impression you should apply these statements equally to professional level IC’s as well as temporary, low skilled employees.

Which leads us to item 1: You must treat your contingent workers differently than your regular employees, unless you want them to become your regular employees. The more you treat someone like a regular employee the more he/she looks like an employee to a government agency. 

Item 2:  If you train your IC you have just introduced direction and control over how to do the work, which is a major element in creating a misclassified employee.

Items 3 & 4:  If the work being done by the independent contractor consultants is substantially the same as the employees’ work you have blurred the distinction between the two.

Item 5:  Inviting IC’s to functions (such as social events and company meetings) with your employees is another nail in the misclassification coffin, again blurring the distinction between the two.

Item 6:  Creating a temporary IC worker position that may transition into a regular employee position is simply a probationary employee and is considered an employee by government enforcement agencies and for most civil issues.

It’s the old “If it walks like a duck and quacks like a duck…” test

The bottom line is you must treat your temporary workers differently, in significant ways, from your permanent employee staff. Blurring the distinction by treating them the same, makes their status homogenous and will create a misclassification nightmare for your company.

Next time I will make some management best practices observations on this misleading article.

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*FOOTNOTES–SOURCES

          1. MIXING STANDARD WORK AND NONSTANDARD DEALS:  THE CONSEQUENCES OF HETEROGENEITY IN EMPLOYMENT ARRANGEMENTS JOSEPH P. BROSCHAK, University of Illinois at Urbana-Champaign ALISON DAVIS-BLAKE, University of Texas at Austin

2. Nonstandard, Not Substandard  The Relationship Among Work Arrangements, Work Attitudes, and Job Performance

Joseph P. Broschak, University of Arizona; Alison Davis-Blake, University of Minnesota; Emily S. Block, University of Illinois at Urbana-Champaign

3. Speed Bumps or Stepping Stones, The Effects of Labor Market Intermediaries on Relational Wealth, ALISON DAVIS-BLAKE AND JOSEPH P. BROSCHAK