1099 Risk Blog

New Study Underscores Risk of Using Independent Contractors

With the nation facing the toughest economic times since The Great Depression, enterprises are being forced to reevaluate their current labor needs and implement alternative workforce strategies to effectively drive performance without sacrificing time, cost, or quality. A new study released by Aberdeen offers the latest benchmarks and numbers surrounding the use of contract labor, and in particular the risks and challenges for managing the growing sector of independent contractors.  Contract talent, also known as contingent labor, is a multi-faceted category that includes independent contractors and known for its complexity and risks. In 2009, enterprises will do their best to face a demanding economic environment and succeed in their respective contingent labor programs by driving performance from outside experts (managed service providers), automation (vendor management systems), and superior management of independent contractors via Independent Contractor Compliance and Engagement Specialists (ICES) like MBO Partners.

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The Forgotten Third

Today’s employment marketplace consists of a diverse composition of labor and talent from a wide variety of sources. Among them is a group that is collectively known as contracted talent or the contingent workforce. This group includes contractors, consultants, freelancers, temporary help, interim executives and others who are not part of an organization’s full-time or part-time workforce.

Contingent work has continually evolved since its inception. The 1950s temp who filled in for emergencies and maternity leave has given way to today’s skilled professional who may lead projects, serve in a critical technical capacity on a team, or even act as an interim CEO. Indeed . . .

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Research: Contract Talent and the Role of HR

New research published jointly by HCI and MBO Partners, The State of Contract Talent and the Role of HR, points out that contract talent, including independent contractors, is the fastest growing segment of the workforce, and a major strategic component of enterprise talent management. Despite this, however, HR is often not involved in the sourcing and engagement of contract talent, which is generally handled by procurement. The research report concludes that human resources and procurement are going to need to find new ways of collaborating in order to better handle the strategic management of the contract workforce, including consultants, freelancers, retirees, small services vendors, and independent contractors.

Check out this executive briefing slideshow that summarizes the research:

http://thetalenteconomy.com/ebriefings/stateofcontractmbo012109/

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Contractor Classification Tip #4

Here's the next independent contractor classification tip in our series. Tip #4:

Focus on real protections, and forget term limits. 

Many traditional practices, such as setting term or tenure limits, are virtually meaningless in the face of an IRS audit. In the real world, you can have co-employment risk if a misclassified worker is on the job for just six minutes! Case law precedent clearly demonstrates that practices like setting term limits or having workers sign independent contractor agreements are the kind of surface formalities that carry little weight in an audit or lawsuit, where substance trumps form. Make sure your program is founded on understanding the real risk factors, and presents real IC risk mitigation and compliance solutions. For example, if your compliance program relies on term limits or flimsy contractor agreements to imply that otherwise non-compliant contractors are “compliant,” you have risk.

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