From Forbes, Gene Zaino discusses reasons why you should care about compliance. Gene writes:
Here are three reasons compliance should be top of mind for all organizations that engage independent professionals.
Compliance Aids In Proper ClassificationClassification of independent contractors is not a clear-cut process. Federal, state and local government agencies use a variety of tests to determine whether or not a worker is a true independent contractor.
Just because independent contractors call themselves an independent contractor doesn’t mean they are one in the eyes of the law. Independents come from various backgrounds and experience levels and have different levels of self-employability. When engaging independent talent, it’s up to organizations to make a final determination of classification, but because tests vary from agency to agency and because regulations are constantly changing, these decisions can be complex.
It is therefore critical that businesses establish and maintain a consistent engagement process to ensure independent workers are properly classified. This process may include using a written contract that clearly defines a client-contractor relationship or keeping documents on file that prove self-employment.
Compliance Minimizes Exposure To Misclassification Liability
The difficulty of proper classification often leads to misclassification—one of the biggest risks of engaging independent contractors. Whether purposeful or not, misclassification truly affects everyone: Workers miss out on benefits, business owners incur fines and penalties, and the government misses out on tax revenue.
Every year, an estimated 3.4 million employees are misclassified as independent contractors, and the U.S. Government Accountability Office estimated that employer misclassification cost the federal government $2.72 billion back in 2006. (Because misclassification is self-reported and there is no single government agency responsible for regulating independents, there is a lack of recent data on these topics.)
In an effort to counter misclassification, states are passing new initiatives and laws, such as New York’s Freelance Isn’t Free Act, to protect independent contractors and crack down on employers.A compliance program will help to create structured guidelines for engaging independent contractors. By educating HR and hiring managers about risks and correct practices, organizations can significantly reduce misclassification risk.
Read the full story at Why You Should Care About Compliance