Independent Contractor Management

Independent contractor management is more crucial for American business owners than ever before in the history of the country. As remote employment work opportunities continue to grow, the misclassification of independent contractors cannot be ignored. Employers must follow worker classification federal and state guidelines policies while avoiding compliance issues and regulatory fines.

Difference between Independent Contractor and Employee

Independent contractors typically work on specific projects or tasks with control over their work schedule and methods. Employees are hired for ongoing work, subject to the employer's direction and control, receive regular wages or salaries with taxes withheld by the employer, and are eligible for benefits and additional protections under employment laws.

In January, 2024 the U.S. Department of Labor published the “final rule” to provide guidance on analyzing who is an employee and who is an independent contractor under the Fair Labor Standard Act (FLSA). 

Here are the six factors to consider:

(1) Opportunity for profit or loss depending on managerial skill;

(2)  Investments by the worker and the potential employer;

(3) Degree of permanence of the work relationship;

(4) Nature and degree of control;

(5) Extent to which the work performed is an integral part of the potential employer’s business;

(6) Skill and initiative.

The final ruling provides guidance, but employers still need to be aware and understand all the laws surrounding proper classification. Not only federal laws but each state and locality may have their own standards for employee or independent contractor classification. 

To assist with properly classifying Independent Contractors, more that 20 states have adopted what is known as the ABC test. 

(A) The work is done without the direction and control of the employer.
(B) The work is performed outside the usual course of the employer’s business.
(C) The work is done by someone who has their own, independent business or trade
doing that kind of work.

The burden of proof that a worker is a contractor is on your company. You need to
demonstrate that an individual is truly an independent contractor. Prior to relevant
legislation, the burden of proof was on the worker.

Independent Contractor Management

Independent contractor management is complex and ever-changing. As an Employer of Record (EOR), we offer a solution; your company may contract with SCS to employ the Independent Contractor and we assign them back to your company.  This can be done on a temporary, seasonal, per project or long-term assignment basis and optimizes your options gaining access to the specific talent you need.

As an EOR, we are responsible for the following:

• Evaluation of Employment Classification
• Properly employing the Independent Contractor
• Document Collection and Management
• Contractor Agreements, including Statements of Work
• Ongoing Independent Contractor Relations

The Challenge of Independent Contractor Management

When it comes to hiring an independent contractor, the HR and staffing experts at SCS can alleviate your company’s risk level, potential tax liabilities, and possible penalties because we offer the solution of employing the contractor and properly staffing. If there is any risk whatsoever, we let you know, advise you on a course of action, and let you make the decision. 

Since the use of independent contractors is expected to grow by nearly 180% in the next ten years, the IRS is cracking down on worker misclassification. Failure to provide W-2 forms for an employee misclassified as an independent contractor can lead to financial liability for missed employment taxes for both the IRS and state departments along with penalties and fees. Such a financial blow can be very damaging to most small to mid-sized businesses.

Even worse, did you know that misclassifying workers can trigger both IRS and state tax audits? Also, it can result in costly investigations by the United States Department of Labor. Such investigations invariably lead to lawsuits, hefty fines, penalties, and potential business interruptions for your company.

How Can an EOR  Help with Independent Contractor Management?

Independent Contractor Management at SCS

SCS guides you in the process of classifying employees correctly.

We take on much of the liability and the risk as an EOR, ensuring that your company is safe and secure.

If you're interested in our services use our Get Started Today page to arrange a consultation.