The Dangers of Housing Independent Contractors (ICs) in Your HRIS
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We have many temporary employees who are payrolled through a staffing firm. They are working for us on a multiyear project. Are we able to control their day-to-day work, discuss goals, performance, etc.? I guess I’m asking, how much control can we have over those types of workers, or should we treat them like ICs?
The only time employers should exert control over the day-to-day work of any worker is if the employer is issuing a W-2 and classifying the worker as an employee. If an employer has a significant number of temporary workers and has not reviewed their classification status with counsel, that course of action is recommended for a thorough review.
Is it a bad idea to give an independent contractor a company email address so that if they engage with a client it looks like they are working on behalf of the organization?
There are many other factors to consider, however there can indeed be concerns with assigning an organizationally controlled email address. Discuss with your employment lawyer if there is a feasible workaround. In some cases, it might be a viable option to use such emails.
Should you follow the law in the state in which your company is based or the state in which the IC is based?
You will need to follow the state laws in the state where the independent contractor is providing service to prevent challenges from local state authorities. The IRS or federal agencies can challenge the model as well from the federal level. If you are a multi-state organization, you may need to be aware of variations in the laws across all applicable states.
The classification is contractor versus employee. “Internal contractor” does not have a specific legal connotation; and the question really depends on the relationship between the worker and the employer.
We supply all tools and equipment for the contractor as well as instruction on what and how to perform the task, is he independent?
First, it’s important to know the applicable test in your jurisdiction. If in a state where a strict ABC test applies, supplying tools, equipment, and instruction are all factors that weigh in favor of employee classification. Review the totality of the facts with an employment lawyer to determine if you are correctly classifying the workers.
How does the ABC test work in the construction industry where subcontracting companies are often hired for particular jobs?
If you are a hiring entity that has hired a contractor making use of a subcontractor, in a strict ABC test jurisdiction you may be liable as a hirer if the subcontractors are being misclassified. It’s important to clearly review your contract with the contractor to secure indemnification in such an event.
The law is aimed at protecting workers from being taken advantage of. Independent contractors enjoy freedom and flexibility when running their own business, while employees enjoy benefits and other legal protections. The original aim of the distinction is to maximize the benefit to both categories of workers.
What if you are in FL and have ICs that work for you 1-3 days at a time only one to two times a year to complete a specific training project and perform the work in another state. We pay them through our payroll system and house their information in our HRIS, so can we set up direct deposit?
The classification rests on the totality of the facts at hand. If they maintain an independent business, you do not control the means by which they conduct their work, and they are paid on a per project basis, they are most likely going to be classified as an independent contractor. Consult with an employment lawyer familiar with Florida and federal classification laws.
We’ve just partnered with a staffing agency in Chicago. They have assured us they have done background screens and that each IC has workers’ comp and liability insurance. The staffing agency has a third party to pay ICs and prepare 1099s. We want to use this to cover peak production periods but now we are worried because we have employees, temporary labor staffing, and ICs all working similar positions. Sales staff at the staffing agency was convincing, but now we are not certain we’re on solid ground for classification. What should we do?
This is a rather complex legal question because it involves multiple parties. However, it is important to note that if the worker is rendering services to an employer—then all hiring/contracting duties, responsibilities and classification decisions are generally the responsibility of that employer. An outsourced staffing provider’s actions and interactions may have a bearing on classification findings related to that employer. It is likely best to consult with an employment lawyer familiar with applicable state and federal classification laws to make a quick review of the processes utilized both internally and by the staffing agency.
Does an ICIS portal actually go through the IC criteria and make a determination as to whether they are approved or not?
ICIS solution providers such as Openforce work with contracting companies and their counsel/advisors to design the workflows and processes that best suit business needs and mitigate misclassification risks. Once those optimum processes and workflows are established, ICIS solution providers such as Openforce then utilize their technology to enforce the designed processes and workflows for all onboarding 1099 workers—while maintaining a key system of record for all related 1099 worker data, qualifications, documents and settlement histories. If the workflow requirements are not met by the onboarding contractor—the portal indicates this to allow the company to make appropriate remediation or non-contracting decisions.
This question is best answered by an insurance attorney in the state that your business operates in. Though generally, these are different types of insurance coverages.
There is no current requirement for workers classified as independent contractors to maintain a Social Security Number. Other laws and regulations apply across the various jurisdictions about reporting this information. Hiring entities utilizing ICs should also be aware of the “B Notice” process and its effects. ICIS systems such as Openforce provide a “TIN check” against an applicable EIN or SSN at the time of onboarding to prevent later B notice problems.
Typically, independent contractors are issued 1099s by the hiring business. ICIS providers such as Openforce offer multiple options for 1099 issuance.
This is a rapidly developing area of the law. An ICIS can help support an inference that workers are correctly classified as independent contractors by separating out all elements of their treatment by the hiring entity, by enforcing pre-defined onboarding and settlement workflows, and by preserving data and audit trails related to onboarding. In addition, depending on the plan selected with an ICIS such as Openforce, defense costs for agency-level claims is sometimes included.
This is delicate and should be handled carefully. It is not impossible. In addition to ensuring that the contract is clear, how they are treated moving forward must be changed. For example, if they were subject to management of their work previously, they should now be evaluated on a project by project basis to continue the contractual relationship.
What is the best way to handle newly established ICs—specifically, those that are not yet doing work for other companies?
As for independent contractor onboarding, make sure that any briefing does not resemble training. Clearly define the terms of the contract for the project they’ve been hired to complete. Specific questions should be directed to an employment lawyer.
Some of our ICs need access to our internal systems and to be part of internal email groups for ease of communication, etc. In order to set them up with emails we have to enter them into our HRIS but they are labeled or coded clearly as Contractors. Is that ok?
This may be ok, but the specifics should be discussed with an employment lawyer. It is advisable that they should not be on the same payroll list as employees or receive similar communication as employees.
Yes, it applies at all points in the timeline.
Openforce provides reporting at multiple levels within the system—enabling contracting companies and ICs to maintain critical business information at their fingertips. Contracting companies are able to view, sort, filter and get reports on virtually any segment of their IC workforce, from enrollment through settlement. ICs are able to view and download 1099s, settlement history, profile information, etc.