Misclassifying employees as independent contractors carries huge costs. When caught, employers must pay back wages, tax liabilities, retroactive employee benefits, contributions to unemployment insurance; fines and penalties. Blackwater USA and Handy are among those who learned the hard way that classifying workers as independent contractors means big trouble to businesses. Companies are liable whether they avoid an employment relationship with deliberate intent to defraud the government of taxes or the workers of compensation and benefits – or not! The Department of Labor is escalating its efforts to catch more cases of misclassification by inking collaboration agreements with individual states. Laws are being modified to ensure that staffing companies acting as employers of record also face legal liability for claims of discrimination, retaliation or wrongful termination, along with their clients who use these workers.
The US Government Accountability Office (GAO) estimates that 21% of contract personnel working for an energy or utility company could be misclassified. As the government cracks down on erring employers using audits and enforcement actions, employees themselves are asked to refer any doubtful classification issues to the powers that be. When employers deliberately employ workers who lack proper documentation and immigration status, the IRS is joined by other government agencies in prosecuting offenders of a longer list of violations.
A growing number of businesses are adopting contingent workforce programs, using workers who can be legitimately classified as independent contractors, to access skilled and experienced workers who are essential for the success of their business plans. Risk-averse employers do not need to avoid using anyone as an independent contractor. They merely need to understand how to comply with government classification regulations.
Some companies have implemented a Managed Services Program (MSP) supported by a Vendor Management System (VMS) to manage the independent contractors within their contingent workforce program. . An effective MSP/VMS program should include rigorous screening of all workers, evaluation of their classification, and resolution of cases of non-compliance.
A genuine relationship with an independent contractor should be just that. The contract is entered into and the contractor is left fully independent to deliver the results, as specified in the agreement. If you think that the assignment requires you to manage these resources like regular employees, it is best to employ them in the normal way.
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