Independent Contractors: What HR Needs to Know About Compliance

2016 is shaping up to be the year of the independent contractor as IC numbers continue to soar. It shouldn’t come as much of a surprise, now that employers are fully realizing the value in working with 1099 workers. There is an opportunity for both ICs and employers to benefit from working together. ICs remain in control of their work flexibility while employers gain access to the much-needed talent without the need to hire for a position. While this relationship has great potential, organizations have to be mindful when engaging with 1099 workers. Here are some helpful tips to aid in keeping a compliant working relationship with an IC.

1099 or W-2?

Classifying ICs correctly is a tricky issue. It’s not a simple change in title and there are certain rules and guidelines that organizations need to abide by. 1099 workers are part of the company, so they are not provided benefits and would sign a W9 to work with businesses. W-2 workers, on the other hand, are employed by an organization, so certain labor rights protect them. While the current legislation surrounding the 1099 workforce is relatively vague, recent lawsuits and judgments have shown us that misclassification can have financial repercussions for those out of compliance. In order to create a mutually beneficial and compliant relationship, begin by defining the scope of the role.

Recent lawsuits and judgments have shown us that misclassification can have financial repercussions for those out of compliance

Set Working Perimeters

From beginning to end, the work process is up to the contractor.

Independent contractors and freelancers are self-employed individuals who provide services to businesses without direct affiliation to the organization. In order to stay compliant to IC classifications, organizations using ICs cannot have control over the project. According to the IRS, the general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. This means from beginning to end, the work process is up to the contractor. Organizations can ask for changes and specifications, but only after completion. In the beginning, however, be sure to explain your needs to the IC, so that they have a firm understanding of your desired results.

Get it in Writing

It’s always a good rule of thumb to have your IC sign a contract or agreement for a project. For starters, it’s mutually beneficial for both parties, as both are contractually agreeing to hold up their end of the bargain. Furthermore, it establishes the nature of the relationship. Independent contractors are businesses too, so it’s a great business practice. Lastly, should the contractor need internal resources or private company information, be sure to get a non-disclosure agreement (NDA). NDAs secure your organization’s right to privacy while still allowing ICs the ability to get the job done. Should legal recourse be necessary, having an NDA works in your favor.

A New Way to Work

Bottom line, the workforce and how we work is evolving. The new talent landscape requires flexibility and autonomy for a growing demographic and business leaders cannot afford to overlook independent contractors. Organizations that want to key into talented individuals with specialized skill sets have to start considering independent contractors and freelancers. Not only are companies getting access to much needed skills, they are able to contract and expand as needed without having to spend money on hiring and training new employees.

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