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Building an Independent Contractor Compliance Program

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The face of the world’s workforce is changing. As Baby Boomers retire, many seek to put their extensive knowledge and skills to work as freelancers or independent contractors (ICs). At the same time, Millennials and Post-Millennials are seeking different rewards than those associated with full-time careers. There is no question that in order to thrive, companies must embrace this new reality by exploiting the talent available and the cost benefits these contingent workers offer. There is no way organizations can flourish for long without using a significant number of 1099 workers to augment their full-time staff.

Nor should they want to.

External workers provide access to hard-to-find skills that may not be available as in-house resources. They also offer a cost-effective way to deal with business cycles and fluctuating demand. Including contingent workers in the labor mix gives companies another option for responding quickly and nimbly to market dynamics, new competitive threats, and changes in consumer preferences.

But along with these opportunities come considerable hazards. As regulators redouble their focus on worker rights and governments look for ways to replace payroll tax revenues lost as a result of full-timers leaving the employment rolls, firms must take considerable care to ensure their use of freelancers and statement of work (SOW) consultants complies with taxation and labor laws. Misclassification of talent can result in hefty fines, lost productivity, and forfeiture of competitive positioning.

Why Establish an IC Compliance Program?

A comprehensive independent contractor compliance program can keep organizations on the right side of federal regulations and make the most of their workforce management strategies. Multiple jurisdictions, conflicting regulations, and frequently changing reporting and compensation requirements cause compliance headaches for many companies. A well-designed process, committed management, and enterprise-wide buy-in are required to navigate the many potential compliance pitfalls. IC compliance programs ensure firms reap all the fruits their endeavors merit when engaging non-employee talent. Creating a workflow and establishing oversight makes the contingent workforce management effort more integrated, reducing administrative and transaction costs while improving productivity and quality. There are several other compliance-related benefits:

  • Risk Mitigation – ICs and other 1099 workers must be treated differently than W-2 employees. A standardized procedure for recruiting, hiring, supervising, and paying ICs ensures they maintain their independence and are not subjected to work schedules, employed in substantially the same tasks as full-timers, or otherwise treated like regular staff. An IC compliance program that includes methodical recordkeeping creates a paper trail that serves as a powerful defense against misclassification charges.
  • Transparency and Insight – IC programs provide guidelines for complying not only with labor and tax laws, but also with corporate diversity policies, contracts, and project management standards. Establishing a clearinghouse for reconciling SOW and other external workers keeps the talent pipeline flowing and brings business-dealing sensibility to people-skills applications, giving organizations the best of both HR and Procurement. Treating contingent worker acquisition as a supply-chain function offers additional compliance safeguards. Matching workers to costs and performance helps identify resources the company may wish to engage on similar future projects or perhaps even offer full-time employment.
  • Spend Management – Centralizing IC compliance – either by streamlining the functional HR and Procurement goals under a cross-functional team or outsourcing contingent workforce management to a managed service provider – builds vendor relationships that strengthen oversight, compliance, and continuous improvement. These additional, outside resources help control labor tail spend, bringing a greater percentage under direct management in order to mandate reporting  and demonstrate discipline in contingent management.
  • Scalability – The more mature a company’s use of the contingent workforce, the more complicated compliance becomes. As consultants, freelancers, ICs, seasonal, and other part-time workers all become part of an organization’s talent network, the number and variety of regulations increases exponentially. Building a full-featured mechanism for dealing with all worker classes helps ensure compliance. As complexity grows, the process can be layered to include additional components such more sophisticated software platforms, third-party data enrichment, online marketplaces, and the use of headhunters, diversity experts, and sector specialists.

Getting Started

Whether you partner with an MSP to build your IC compliance program or you invest in the technologies, expertise, and infrastructure to do it yourself, you should lay the groundwork with an internal audit. Companies embarking on an IC management venture need to take inventory of their current practices. An internal audit will spotlight activities that contribute to non-compliance. It also can show the types of projects, departments, and tasks that make the most – though often inefficient – use of external talent. Take a representative sample of IC engagements, then track the entire process from needs identification through scope of work, vendor fulfillment, hiring, classification, and payment, noting any gaps in service or recordkeeping. This will inform project managers as to the structure the compliance plan should take and what risks the firm is especially susceptible to.

Assign a dedicated team or department to oversee the program. Whether you entrust contingent workforce management to HR, Procurement, or an MSP, all use of external workers should flow through a centralized gatekeeper. A single authority with a unified workflow, checklist, and performance metrics encourages compliance consistency. All users of contingent workers will understand what is expected of them, but more importantly they will understand why they need to follow procedures, have the opportunity to have their concerns addressed, and provide input that can improve fulfillment.

Metasys Stands Ready

With IC compliance, the devil is in the details, and many organizations prefer to let outside experts handle their needs. Metasys offers a full line of contracting, engagement, classification, documentation, and oversight services to keep you in compliance. Banking on years of industry experience, we have designed a rigorous platform for evaluating the client IC function and recommending systematic control methodologies. We assume the risks associated with misclassification, giving you peace of mind and giving you extra time to plan strategy and evaluate opportunities. Find out how Metasys leverages industry experts and a proprietary framework to provide a total solution for all your independent contractor compliance needs. Contact us today.



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