Frank Enriquez at Staffing Industry Analysts recently published a great article titled Buyers Versus ICs: Who Will Win? In it, he accurately describes a tug of war between two opposing trends: an increasing number of workers who want to be independent contractors (ICs), and an increasing reluctance among some employers to engage ICs. Frank believes ICs will ultimately win this game, though I would suggest there can be a win-win outcome for ICs and employers.
The Fear of Misclassification
Engaging ICs rather than employees offer several benefits to employers. Topping the list: reduced labor expenses and the flexibility of an agile workforce. So why do some employers hesitate to engage contractors?
Every company has its reasons for preferring employees to ICs in certain roles. The biggest one is typically a concern about legal and regulatory compliance — specifically, that the company could be investigated for worker misclassification, and that an adverse finding could result in a range of penalties. In extreme cases, misclassification could result in the dismantling of a company’s entire business model. Imagine the impact on ride-sharing or food delivery services if all of their drivers were suddenly reclassified as employees.
Mitigating Reclassification Risk
The risk of reclassification is real, and there is no surefire way to mitigate it completely. The list of potential triggers for a misclassification suit is long, and can be nuanced. For instance, in another article, Frank wrote about the risks of misclassifying workers as “statement of work” instead of “staff augmentation.”
As I’ve written about previously, however, a common trigger for a misclassification case is when an uninsured contractor suffers a work-related injury and then seeks reclassification to cover his or her medical expenses and lost wages. This can escalate into investigations by the IRS or Department of Labor, potentially leading to costly penalties.
The easiest way for a contracting entity to avoid this specific trigger is to ensure that all of their contractors in applicable roles have adequate workers’ compensation coverage. 1099Policy enables this by requiring contractors to purchase coverage when accepting an assignment through online labor platforms. By doing so, we help contracting entities minimize the risk of an injury triggering a misclassification case. We also help companies simplify their compliance processes.
Implementing the safeguard of ensuring compliance with insurance requirements enables a win-win solution to the tug of war game that Frank identified: ICs can enjoy the flexible work situations they desire and can rest assured that they’re financially protected in case of injury, while contracting entities can benefit from the agility of a contingent workforce.