Millions of Americans today work as independent contractors. As this group of workers become more centered in the economy, they are forming important connections to both large and small companies. Independent contractors help enterprises achieve business objectives by remaining agile, increasing productivity, and bringing in-demand skills to the table.
As enterprises incorporate this valuable talent pool into their workforces, it is important to consider the nuances of independent contractor engagement. Not all independent contractor engagement practices are created equal. Often, independent contractor compliance initiatives alienate key talent and increase the risk of worker misclassification.
In order to improve adoption, visibility, and talent retention while mitigating misclassification risk, organizations must pursue the right engagement solutions. Below, we explore how companies can safely and effectively build a workforce that includes independent talent.
1. Properly Classify Workers
Whether you already have a process for engaging independent workers, or you are looking to create an entirely new program, it is first important to put steps in place to ensure all independent workers will be properly classified. If employment status is not clearly defined, your company may be vulnerable to an IRS audit. That’s why it is essential to have a clearly defined process in place for worker classification. If you already have a base of contract workers, conduct an internal audit to vet existing workers and make sure they meet classification criteria.
Understanding the difference between independent contractors and employees
Having a general understanding of how independent contractors differ from employees is a good place to start when it comes to worker classification. While a legal advisor or third-party company may dig into the nuances of classification when it comes to offering a worker a contract, learning these differences at a high level can help companies design an engagement program or perform initial vetting of candidates.
Because independent contractors operate as their own business, they cannot be treated like traditional employees. One of the biggest differences here is that independent contractors have control over when, where, and how they work. For example, while an employee might rely on their manager for instruction on a project and direct oversight, an independent contractor can complete the work outlined in their contract in any way they see fit. They set their own hours and many work remotely (unless otherwise specified in their contract).
Independent contractors are also responsible for paying their own taxes, managing their own benefits, and marketing their services to find work. Independents may perform work for multiple clients at once and they provide their own tools and equipment needed to work. They are, in essence, a skilled, one-person band.
Problems can arise if a company violates these rights. If a worker is classified as an independent contractor when they are being treated as an employee—or vice versa—a company runs the risk of worker misclassification, which can lead to fines, penalties, lawsuits, and brand damage.
Worker classification is a complex and ever-changing web of federal, state, and local laws. Working with an established independent contractor engagement firm like MBO Partners can help give you peace of mind when it comes to contractor compliance tests and misclassification risk.
Learn more: Independent Contractor vs Employee: 10 Key Differences
2. Offer a Variety of Engagement Options
Independent contractors have different levels of self-employability, as well as individual needs and requirements. By providing flexible and varying engagement options, it is easier for enterprises to attract and retain top talent while remaining compliant.
Learn what level of compliance you need
While all enterprises need to comply with federal and state classification laws, not all companies need to have a multifaceted compliance program. Consider what level of compliance you need based on the type of work independent contractors are performing.
On the light end of the spectrum, consider independent contractors performing non-specialized commodity services that can be purchased through a platform or app. These are low-dollar value, short-term engagements that require a relatively light level of compliance betting.
Next is online marketplaces, where businesses procure individuals and their skillsets. These are typically short project contracts perhaps for accounting, writing, or marketing. In these cases, it’s important for companies to establish a clear client-contractor relationship and ensure the individual they are working with is properly classified.
Last, and most common for enterprises today, is the category of professional services. Professional services contracts are larger and longer, often requiring a high level of expertise. In these cases, an extensive level of compliance is needed to ensure compliance.
Because of the many nuances, complexities, and regulations surrounding classification, most organizations will benefit from working with a third party or a vendor to manage engagement. For instance, if an independent contractor’s status is borderline, a third party can work with the contractor to help them become qualified. In many cases, it’s simply a matter of helping the contractor implement minor changes to their business. MBO, for example, provides engagement solutions that are specifically designed to meet the different needs and requirements of independent contractors.
Up next: Compliant, Talent-Focused Engagement Solutions Built for Enterprise Scale
3. Build an End-to-end Engagement Program
At the end of the day, the most effective solution to minimize the risk of misclassification, reduce enterprise manager time spent on hiring, and streamline processes and procures, is to build a comprehensive engagement program for independent talent. A centralized engagement program encompasses the entire independent contractor lifecycle from finding sourcing, and engagement, to payment, management, and re-engagement.
A successful engagement program will first need executive buy-in followed by leadership from internal staff. These programs are typically supported by technology like a marketplace platform where managers can directly source talent for available projects. Technology can also help simplify time entry and payments, facilitate invoicing, streamline reporting and reviews, and more.
Focus on efficient, thorough onboarding
A robust onboarding program will help to build the foundation for a strong and lasting relationship between your company and your independent workforce. The onboarding process can often make or break the engagement experience for independent workers. Companies must find the right balance between creating a positive experience for new workers while also getting projects up and running quickly.
Independent contractors value freedom, control, and flexibility in their work. An onboarding process that automates tasks such as payment, engagement documentation, and background checks create that positive experience and positions your company as a Client of Choice—independent talent’s preferred destination for work.
As competition for independent talent continues to rise, companies must structure policies, procedures, and engagement practices to prioritize the needs of these workers in order to remain compliant and competitive.
Check out our guide: Independent Contractor Engagement Best Practices for comprehensive advice on how to best engage independent talent.
