Independent Contractor Compliance: What Employers Need to Consider

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Independent workers – whether they’re called independent contractors, freelancers or the self-employed – continue to be a significant factor in the American economy.

According to Randstad’s Workforce 360 study, 43 percent of the workforce says they are interested in pursuing non-traditional work arrangements, and more than 2.6 million workers are already living the “free agent” lifestyle.

Government agencies at the Federal and State level have noticed this movement. Various agencies on both levels are now targeting this population through legislative efforts and increased audits.

Here are the major legislative changes that will have an impact on employers when planning their blended workforce strategies and engaging independent contractors this year:

1. Delay for employers in implementation of the Affordable Care Act

In July 2013, the Obama administration postponed the implementation of the employer requirements of the Affordable Care Act until January 2015.

Many employment law experts believe the ACA requirements may cause employers to increase their use of independent contractors in two cases:

  1. To get below the 50 full-time employee count threshold where they would be subject to the requirements of the act; and ,
  2. To avoid having to pay for health insurance for some workers by classifying them as independent contractors.

Additionally, with the increased availability of health care uncoupled from employment, all indications are that more than 50 million people could choose to pursue self-employment.

 2.  Introduction of the Payroll Fraud Prevention Act

Sen. Bob Casey, D-PA, Chair of the Senate Subcommittee on Employment and Workplace Safety, introduced the Payroll Fraud Prevention Act and held a hearing on Nov. 12, 2013. This bill represents the ninth independent contractor (IC) misclassification law introduced in Congress over the last six years.

Due to broad reporting and record keeping requirements, it is unlikely to garner bipartisan approval. Despite this fact, the IRS, U.S. Department of Labor and state agencies have become increasingly less tolerant of businesses that misclassify independent contractors. “Paycheck chasing attorneys” are also aggressively pursuing class action litigation, targeting companies they believe are not following the rules.

During the 12-month period from April 2012 to March 2013, nearly 8,000 Wage and Hour cases were filed in the Federal courts. It is clear that this litigious environment will continue, and companies must be prepared to defend their worker classifications.

3. States agree to information sharing with Labor Department

New York and Iowa joined 13 other states and signed information sharing agreements with the U.S. Department of Labor.

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The Labor Department  began executing Memorandums of Understandings (MOUs) with state agencies in September of 2011 to share audit findings and information related to worker classification investigations. The Chief of the IRS Employment Tax Policy Section, John Tuzynski, went on record in May of 2013 during the American Bar Association meeting to state that the IRS will be ramping efforts via the Questionable Employment Tax Practice (QETP) initiative to pursue worker classification cases.

QETP was formed in 2007 as a nationwide collaboration to identify and expose employment tax schemes and illegal practices. The IRS currently has agreements to share data from employment tax audits with 37 states.

This continuing trend to coordinate investigations and enforcement activities has the potential to raise the stakes for employers and increases the likelihood of worker classification investigations.

4. Continued expansion of self-employment free agency

This expansion continues to influence how companies think about, and utilize, traditional workers and free agent talent.

Organizations are creating strategies that address the complete universe of talent, including employees, contractors and contingents as a “blended workforce,” and the ability to embrace continuous change is essential to a company’s success.

As free agents continue to become integral to talent operations, companies must learn to navigate the litigious waters and unique requirements to capitalize on the expertise and competitive advantages of embracing a blended workforce inclusive of independent contractor, free agent talent.

With more than 17 years of progressive experience with Randstad Sourceright,, Beth Mesechoff leads the Contractor Compliance Services offering within the Contingent Workforce Services division. She has proven experience in designing innovative contingent workforce solutions in consultation with Fortune 500 companies in the telecommunications, government, financial services and business services sectors.

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