Independent Contractors
The composition of the American workforce has been changing and will continue to evolve. Whereas regular employment used to be almost the only classification of worker, now more and more in the “gig economy” people are hired as independent contractors.
Companies may choose to hire independent contractors for several of the same reasons they would a temp: staffing flexibility, reduced employment costs, or to meet a temporary need. Independent contractors can also fill a specific, more regular role the company may not need full-time, such as marketing, IT support, HR, or bookkeeping.
The CPA Practice Advisor explains that small businesses hire independent contractors more than regular employees. Since small companies must be more streamlined in their operations and are more impacted by client demand and budget fluctuations, independent contractors give them a way to fill part-time or occasional workforce needs without the expense of hiring a regular employee.
Many people are choosing to leave the regular workforce and work for themselves as an independent contractor. The trend of self-employment is increasing with expectations of 42 million people working as self-employed independent contractors by 2020 as compared to 126 million regularly-employed workers. That means 1/3 of the workforce will be classified as independent contractors in the next year or two.
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Cautions:
- Do not misclassify true “employees” as “independent contractors” - Various federal and state agencies (including the IRS and DOL) have different standards and “tests” for independent contractors. A few areas of consideration to demonstrate the true “independence” of a contractor include (list not all-inclusive):
- Does the person control his / her work hours, methods, tools, etc.?
- Can the person work independently without oversight or supervision from company management?
- Can the person work for other companies / clients doing similar work?
- Is the person given expectations and can meet them however they wish or does the company dictate every procedure?
- Is the person expected to follow employment policies such as attendance and progressive discipline?
- Can the person gain a profit or suffer a loss from the work arrangement?
- Do not be surprised by an audit of the relationship - Utilizing independent contractors can create increased exposure to federal and state government audits. These agencies focus on companies with independent contractors to make sure they are not misclassifying workers in order to avoid paying taxes, minimum wage, and overtime, as well as not providing required benefits such as health and workers’ comp insurance.
Regardless of the makeup of your workforce, it is important to remember there are regulations to follow for all types of workers, and the penalties for employee misclassification or failing to follow those regulations can be very costly. Of course, if you have any questions, don’t hesitate to contact us at Affinity HR Group – your HR partner and resource.
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The Monday HR Minute, brought to you by Affinity HR Group, is designed to provide you with practical, applicable human resources and management advice and information in a format that will take you 60 seconds or less to read. We believe that by dedicating just one minute a week to thinking about people management practices, business owners and managers can make enormous strides in improving workplace performance. |
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Affinity HR Group is a full service human resources consulting firm that specializes in advising small and medium-sized enterprises. Our services include recruiting and selection, HR policies and compliance, ad hoc HR support, compensation and performance management, and training and development. We are an endorsed HR partner of a number of leading national trade associations and offer free initial consultations and discounted services to their member companies.
Email us at contact@affinityhrgroup.com or call 877-660-6400.
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