Reconsidering the Risks of Independent Contractors
Sep 21, 2020
The pandemic has caused massive changes to how companies utilize talent. With talent being key to organizational success and independent contractors being critical to the talent portfolio, now is the time to identify prominent emerging trends and consider how they impact the risks of utilizing ICs.
The new social backlash. Many people believe that organizations are cheating entire groups of workers out of the protections such as unemployment compensation, workers’ compensation, paid time off, and protection against employment discrimination, and social media facilitates the identification and punishment of alleged perpetrators. The consequences could be severe for those accused of exploiting workers through IC schemes.
Governments need revenue. State governments face massive, unsustainable budget deficits. In this climate, there won’t be much opposition to a crack-down on “tax-dodging” IC arrangements. A single, egregious circumstance could open the door to a broad inquiry.
Maybe it’s not about independence. Some professionals become ICs only as a temporary status until the right job offer comes along, and others are ICs so they can work from home. Now that employers are discovering they might get along just fine without the overhead of a brick-and-mortar office, working from home is more available to the traditional employee, and the talent you depend on might leave you for a “real” job, especially once more employers resume hiring.
Compliance: new regional complexity. State and local politicians who are unhappy with certain national laws (or the lack thereof) are taking things into their own hands. This trend is morphing into wage-hour law and IC regulation, with California’s Assembly Bill 5 being a prominent example. Companies with multiple locations need to monitor an increasingly complex palette of state and local rules governing ICs.
A third way is coming. It’s unlikely that the either/or world of employee vs. IC will persist. Technology is prompting hybrid talent solutions with attributes of each, yet the social safety net implications remain sharply different. The recent expansion of federal unemployment benefits widened this chasm and escalated the call for protection of the vulnerable freelancer.
We already see evidence of where this could end up: a third classification, reminiscent of Canada’s “dependent contractor” status, whereby certain conditions trigger entitlement to a suite of employment-like benefits for qualifying ICs.
The pace and particulars remain to be seen, but two things seem certain: a hodgepodge of state and local rules will precede any national standard, and the “employer” will ultimately bear the cost.
Sick people. When people face a choice between working while sick or not being paid, some choose the former. Although ICs are ostensibly paid for results, the reality is that days spent sick in bed often translate into days without income. In the era of Covid-19, your sick IC might trigger a major exposure event.
Risk up, control down? If an IC commits some error while working for you, the public face is likely to be that the error is yours. The social media megaphone amplifies this risk. Nobody will be interested in technicalities, nor will there be patience for attempts to pass the buck.
Hidden administration costs. Contracts, insurance evidence, verification of separate existence and payment processes are among the necessary aspects of administering ICs. As compliance scrutiny increases, the resources needed to address these functions may increase as well. Has your company factored this into its analysis?
Can you scale up your solution? Independent contractors are better suited for one-off or lower-headcount situations. It’s no coincidence that one standard used to evaluate an IC characterization is whether the worker is performing a core function for the hiring organization. It can be difficult and risky to scale up ICs into higher-volume situations.
The risks of utilizing ICs continue to change. It behooves HR leadership to consider this evolving landscape as they review their organizational talent strategy. At the end of the day, staffing firms make it safer, easier and more cost-effective for businesses to get their work done and achieve business goals. But if they aren’t anticipating these risks and meeting them head-on through safety monitoring, incident management, claims submission and more, then they face higher costs in the long run. On one hand, businesses need to do their homework when engaging with a staffing firm, and on the other, staffing firms need to stay on top of regulations and guidelines to ensure they are making the best talent available that creates minimal risk for both parties.
As published in The Staffing Stream