Tag Archives: Independent Contractor

Top 4 self-marketing tips for independent contractors

Promoting your business as an independent contractor (IC) can be a challenge. While hanging out a shingle online with a new website is a solid start, it is only the beginning of your self-marketing journey. For professionals like couriers, truck drivers, home health providers, and others who rely on contracting relationships and word of mouth, getting your name out there for clients and businesses to find may require starting with a few essential steps.

1. Get established as a business

Establishing yourself as a business can help you avoid problems with “gig worker” legislation like California’s Assembly Bill 5 (AB5), which is affecting ICs across California and the nation (as other states and the federal government seek to follow suit). That’s because AB5 outlines 12 criteria, called the business-to-business exemption, that can clarify your independent relationship with contracting companies.

As a business, you can significantly increase your opportunities as you look instantly more attractive to companies that prioritize contracting with independent contractors who have an established business entity (which becoming more and more common). For drivers, setting up your LLC can move you one step closer to appropriate licensing and operating authority requirements as well.

If you contract through Openforce, we can help create your business by filing the documents and getting you licensed through our Managed Business Setup program.

2. Obtain professional materials like business cards and fliers

Every professional needs materials that represent your business, whether that’s business cards or fliers, so that people you meet remember your services. The more you hand out, the better. Along with your business card, you also need to be ready to provide a very brief elevator pitch about why you’re the one they should contract with.

Discounts for professional business cards are available through your Openforce Member Benefits portal. We provide a number of business services for member ICs, but you can start shopping now by visiting the Openforce members custom print center.

3. Build a social media presence

Successful online marketing for ICs must also include social media. New social media sites pop up frequently, so find out which site is most likely to attract your potential clients and use it. After you have designed your personal branding for your business cards, use it to create a social media page; Facebook is an excellent place to start.

One of the most powerful things you can do to increase interest in your services is to post testimonials on social media, turning your current customers into ambassadors for your brand. Once you master the basics, try branching out into online video and social listening tools to further your efforts.

4. Set up a website

Another important step is setting up a professional website. Openforce members can access professional services for building a business website, such as getting a .com now from $4.99/year, 30% off all new products, or email marketing services with GoDaddy.

Remember, if you’re an IC through Openforce, we can also help you promote your business with many advanced tools and services. We have been helping ICs for almost 20 years, providing full business solutions through our technology platform. And we want to enable you to accomplish even more, from getting fully set up for business to simplifying many of your daily business processes and promotions.

If you’re an active IC and want to look into your other benefits, log into your Openforce portal, then click on Perks>Benefits in the upper right-hand corner. This will take you to your Member Benefits portal, where you can start exploring your options today.

Top 3 reasons to outsource payments for your independent contractor workforce

Independent contractor (IC) numbers are growing, but that doesn’t mean working with ICs is easier than traditional employees. Even seasoned administrators get bogged down in negotiating rates, processing tax documents, and handling misclassification compliance. That’s because managing IC settlements in-house takes a ton of admin time and does little to solidify an arm’s-length relationship, which can cost you money—and create legal concerns—if you make even a small misstep.

Any business that partners with ICs can benefit from also partnering with a third-party settlement processor, which can reduce or even remove the time, cost and uncertainty related to such responsibilities.

1. Empower administrators by reducing challenges

Working with a settlement processor removes the guesswork. A specialized third-party payment processor, especially one designed specifically for independent workforces, delivers a variety of advantages that you won’t get from a general payments platform, including:

  • Settlement-deducted insurance premiums. By automatically deducting premiums for contractually required coverages like occupational accident or cargo, the IC’s policy is always active, and lapses due to cancellations or missed payments are avoided.
  • Line-item work details. Enable ICs to securely access digital settlement information and line-item work details (e.g., routes completed). This is especially helpful for master–subcontractor relationships as it seamlessly allows the master to see the work each subcontractor has completed.
  • Third-party deductions and garnishments. Openforce can deduct wage garnishments, reserve account withholdings or third-party vendor payments directly from settlements. ICs can also authorize us to pay vendors for things like cash advances or fuel cards.
  • Rate negotiations and invoicing. Being able to demonstrate rate negotiation and allow ICs to submit invoices provides an additional way to reduce risk by clearly demonstrating the contractor’s independence.
  • 1099 processing and storage. Tax season can be less stressful for everyone when preparing 1099s no longer falls on your shoulders. Plus, a prime payment solution will also enable ICs to access those 1099s whenever they need them.
  • Built-in checks to avoid issues like “B” notices. When a mismatch occurs between IRS records and IC tax information, the costs can be unexpected, but built-in ID verifications can stop these problems before they start.
  • SOC-II compliance for ultimate data security. Strong data encryption protocols protect not only the contracting company but also the data collected to maintain a trusted IC partnership. Allowing ICs to engage with a secure, easy-to-use platform also instills trust that their personal information and payment data are safe.

The biggest advantage of leveraging a third-party settlement processer, however, is that you get a partner that can reduce a heap of administrative and compliance pitfalls, while also providing increased support, transparency and separation between you and each contractor.

2. Solving payments can solve other problems too

Partnering with ICs is beneficial for both productivity and bottom lines, but processing their settlements can become time-consuming and complicated. Fortunately, some software solutions geared toward managing independent workforces tackle all of the complex settlement tasks for you, which also helps create separation between you and the IC to support a business-to-business relationship. Openforce, for example, employs experts in compliance and can set up automatic ongoing compliance safeguards to ensure your workforce is always running optimally.

These clearly drawn lines between companies and ICs allow both parties to focus on boosting revenue while maintaining a professional, organized payment structure. Having a trusted process can strengthen your model against potential compliance issues such as misclassification claims. Using a third party’s platform can also accelerate onboarding and demonstrate the IC’s independent status by capturing all relevant documentation, from qualification checks to the independent contractor agreement.

The other benefits of such a partnership include:

  • Fewer manual tasks. Although partnering with ICs allows companies to create a more flexible workforce, the administrative tasks that accompany this model can also create real-time difficulties for administrators who are charged with scheduling and paying ICs properly.
  • Automated IC verifications and qualifications. Accurate IC verification and qualification is essential in highly regulated industries (like logistics or home health care). But they also come with a lot of processes and room for error. A third party’s software can automate these processes without eating into valuable admin time.
  • A complete audit trail. Compliance paperwork is critical, but ensuring each IC is properly qualified, documented and paid can mean extensive, time-consuming manual processes—during which things can easily fall through the cracks. A good independent workforce management solution can provide a complete audit trail not just of payments but of qualification processes and compliance documents.

3. Get compliant while maintaining audit trails

The IRS has lengthy guidelines for classifying and compensating ICs. Like most government statutes and requirements, they are, in a word, confusing. The more types of ICs a company has, the more complex compliance and payments become.

One example is that the IRS requires all tax filers—both businesses and individuals—to include their Tax Identification Number (TIN) on all tax-related documents. This and other requirements often necessitate a complex organizational structure for companies that contract with ICs as they work to maintain positive legal positioning and tax conformity. With intelligent payment processing services, however, ICs are quickly and accurately onboarded and paid with full transparency and no manual errors.

But removing the guesswork from IC settlements does more than let administrators focus on the bottom line of the agreement—it solidifies the partnership by keeping ICs happy. Thus, your third-party partner provides you peace of mind: Since IC invoices are taken care of, ICs are more likely to complete work without interruption or dispute, ensuring that the terms of the agreement are upheld.

Even better, a good partner works with you to understand the specific requirements for your business and industry.

Exclusive solutions for unique business requirements

While working with ICs has become commonplace, each company and its IC requirements differ, especially when it comes to settlements. Working with a third-party payment processor may be one of the best ways to maintain an arm’s-length relationship and reduce the risk of misclassification claims.

But compliance isn’t the only part that matters. Your business type, structure, licensing requirements, industry regulations and contractual terms will all dictate your IC requirements. At Openforce, we work with you to learn your specific needs before tailoring our software solutions to serve your workforce.

Ready to start outsourcing payments? Get in touch below or reach out to sales@oforce.com.

How Xcel Delivery Services used flexible occupational accident insurance to expand its workforce

Companies that utilize independent contractors (ICs) know the benefits usually outweigh the costs. But challenges do exist, whether you’re trying to track contracts and qualifications or preparing for the threat of a misclassification claim. Sometimes, you just need help.

For Tim Cocchia, chief operating officer at Xcel Delivery Services—a final-mile delivery company servicing Arizona with offices in Tucson and Phoenix—that help comes from a few reliable sources: good legal counsel, a solid workforce model, and Openforce.

“As a delivery business, we tell our customers to focus on their business and let us handle their deliveries,” Cocchia said. “I think we had to take our own advice and allow a company like Openforce to manage our ICs. We’re not experts in independent contractors, we don’t keep up with the laws related to independent contractors, so we’d be foolish to think we could do it by ourselves.”

Xcel partnered with Openforce in 2008—long enough ago that Cocchia doesn’t know how they ever managed without a tech-based platform for IC onboarding, settlements, insurance and more. As a delivery company contracting around 70 drivers, Xcel uses Openforce to implement key best practices based on internal legal expertise, resulting in zero independent contractor challenges since Cocchia started there three years ago. But, despite these obvious advantages, a few difficulties persisted.

“We used to get complaints from ICs about the flat-rate fee for occupational accident insurance,” Cocchia said. “When a new person only does a few jobs and gets a flat fee taken out of their check, it kind of forces them to do as much work for us as possible … but, with our model, we don’t offer what most would call a full-time job because we’re not asking them to work only for us.”

Flexibility is a necessity for many ICs, but occupational accident insurance is essential as well, reducing the risk of workers’ compensation claims for injuries ICs sustain while providing services. It achieves this by offering them another avenue for relief.

To increase the flexibility of its occupational accident program, Openforce recently added Crum & Forster’s occupational accident coverage to its insurance lineup. In addition to a flat-rate offering, the new option allows premiums to be calculated as a percentage of the IC’s settlement, meaning it is always proportional to the amount of work performed. This reduces the cost for ICs who provide part-time services to multiple businesses. Premiums are also deducted directly from IC settlements to ensure coverage is always active.

“At first our ICs were leery of it, because everyone is leery of change, but it just makes sense,” Cocchia said. “It gives our drivers the flexibility to work as little or as much as they want … so that when they make more, they pay a little more, and when they make less, they pay a little less. When money’s coming in hand over fist, nobody really minds paying a few extra bucks.”

As a result, Xcel has been able to continue expanding their IC model by appealing to new groups of drivers: those looking for the flexible work previously disincentivized by a flat premium.

“Now we can go after the part-time people who might do one job or 20 jobs in a week, and there’s no more worry about the fee scaring them away,” Cocchia said. “I think it gives us a real advantage in contracting with gig economy workers.”

Xcel is dedicated to this model—encouraging workers to act as their own businesses and provide services to multiple clients—because there is growing evidence that such a model may help reduce the risk of misclassification. By allowing Xcel to court these new workers, percentage-based occupational accident coverage gives them a leg up in the current contracting climate, making their recruiting efforts faster and more efficient.

But what about Xcel’s existing contracted drivers—the ones who felt leery about change? Openforce helped with that too, providing clear communication with ICs and making sure the transition itself was seamless. Now that the change has been made, Cocchia says they’re happier than ever.

“Once it got rolled out, Openforce took care of everything, and I was never contacted after the fact by an IC with concerns. If anything, I heard from a few ICs that, with COVID-19 going on, they appreciated that they were having to pay a little less because they were making a little less. It ebbs and flows with the economy and makes everything much, much simpler.”

Looking to reevaluate your own insurance model? Fill out the form below or contact sales@oforce.com.

Openforce adds Crum & Forster partnership to provide flexible occupational accident coverage for independent contractors

PHOENIX, AZ – May 18, 2020: Openforce, the leading provider of technology-driven solutions offering onboarding, settlement, compliance and risk mitigation for companies with independent contractor workforces, through its subsidiary insurance agency, ICM Insurance Services, LLC, has added a partnership with the Crum & Forster companies (Crum & Forster) to bring their longstanding occupational accident coverage to the Openforce platform.

Occupational accident insurance covers independent contractors for injuries sustained while providing services to a contracting company, but such coverage may be costly for independent contractors to acquire, and contracting companies may not have visibility into its status. A lack of appropriate coverage could increase the likelihood that an injured contractor will file a workers’ compensation claim, which has the potential to trigger a worker misclassification investigation into the contracting company.

Moreover, traditional occupational accident plans may include flat-rate-only premiums, exclusions for common pre-existing or occupational conditions, and age-related limitations. Flat-rate premiums, in particular, have the potential to lead to less transparency, as master contractors may be disincentivized to disclose all subcontractors to the contracting company, creating additional problems downstream if a subcontractor lacks proper qualifications or is injured while performing work.

To fill these gaps, Openforce and Crum & Forster have created a unique package that combines robust occupational accident, workers’ compensation, and contingent liability insurance with a complete contractor onboarding, settlement, and risk mitigation solution. For both contracting companies and independent contractors, these new plans provide a host of unprecedented benefits.

“The world of insurtech is constantly changing,” said Matthew Bagley, AVP, Crum & Forster A&H Division. “We are excited to partner with technology provider Openforce to address challenges and facilitate solutions across the insurance spectrum.”

In addition to addressing the aforementioned restrictions, the new Openforce platform program ensures a contractor’s coverage is always active and maintained by deducting the insurance premiums directly from their settlements and reducing the risk of a workers’ compensation claim. This also means contractors will avoid needlessly paying premiums during weeks they have not performed services, and because Openforce offers coverage in arrears, contractors will have full coverage even before their first pay settlement cycle.

With both flat rate and percent-of-settlement premium plans available and coverage options suited to logistics, healthcare, the gig economy and beyond, the addition of Crum & Forster plans to the Openforce platform fosters a new level of flexibility, transparency and peace of mind for both contracting companies and independent contractors.

“We’re incredibly excited about this partnership,” said Ryan Kelly, Openforce CEO. “Crum & Forster has been in business for almost 200 years, with thousands of employees worldwide, and it shows in the breadth and depth of their policies. They care about people, as we do, and our joining forces means that everyone has the simple, affordable coverage they need.”

Although Openforce maintains a platform to promote multiple insurance companies and their offerings, the partnership between Openforce and Crum & Forster marks a major step forward for industries that rely on independent contractors. Together, the two firms bring contractor qualifications, settlements, and insurance into a single, comprehensive platform. Not only does it help preserve the business-to-business nature of the independent contractor–contracting company relationship, it also means both parties can rest easy, knowing that required occupational accident coverages are in place.

About Openforce
Openforce® is the leader in technology-driven services that reduce operating costs and mitigate compliance risk for companies using independent contractors. Openforce frees contracting companies from the burden of onboarding, contracting, and settlement processing while helping contractors build their business. Our cloud-based applications help businesses achieve more sustainable, profitable growth by removing financial, operational and compliance barriers to getting business done. Openforce is a portfolio company of Boston-based private equity firm Riverside Partners. Learn more at www.oforce.com.

About Crum & Forster Accident & Health
Crum & Forster® is a national commercial property and casualty group of insurance companies wholly owned by Fairfax Financial Holdings Limited. The Fairfax Group, through its subsidiaries, is engaged in property and casualty insurance and reinsurance globally and the associated investment management, with $15.4 Billion in gross premiums at year-end 2018. Crum & Forster has an A (Excellent) rating from A.M. Best (2018). Since 2000, Crum & Forster’s Accident & Health division has been offering a unique variety of specialty insurance and reinsurance products nationwide through our admitted and surplus lines insurance companies, including Employer Stop Loss, Provider Excess, HMO Reinsurance, Medical Excess Reinsurance, Group Accident and AD&D, Fixed Indemnity, Blanket Student Accident, K-12/K-12 Cat, Travel, International Travel Medical, Occupational Accident, Short Term Medical, Bloodstock, and Pet Insurance. In addition to its robust domestic portfolio, Crum & Forster Accident and Health offers a wide variety of niche accident and health products on a global basis, providing partners with even broader flexibility in underwriting solutions. The qualities and capabilities of Crum & Forster Accident and Health demonstrate our philosophy of building meaningful, long-term partnerships and our dedication to providing alternative solutions in an ever-changing accident and health insurance market.

For further information regarding Crum & Forster Accident & Health, contact:
James Obregon, Vice President of Business Development
Email:  james.obregon@cfins.com
Phone:  904-654-3550

The hidden cost of an IRS “B” Notice: More expensive than you think

Getting a notice from the IRS is rarely a pleasant experience. Whether it’s a warning that a balance is overdue or that an audit is coming up, such letters can trigger a variety of emotions, from indignation and anger to uncertainty and fear. For businesses that rely on an independent contractor (IC) workforce, however, one of the most frustrating, costly and time-consuming notices is without a doubt the IRS “B” notice.

“B” notices result from a mismatch between IRS records and the tax identification number (TIN) on a non-employee worker’s 1099 Form. The IRS calls them “B” notices because a failure to respond initiates a mandatory backup withholding of 28% on future payments to the workers in question. These notices come in two parts:

  1. The first notice (CP2100) is sent by the IRS to the payer, who has 15 days to send the associated “B” notice to the contractor along with a copy of Form W-9 to be completed correctly.
  2. The second notice tells the payee to contact the IRS directly to obtain the correct combination of name and TIN and should not be forwarded with a W-9.

TIN errors can happen for a variety of reasons. The first and perhaps most obvious is the typo; maybe the TIN—which could be an IC’s own Social Security number (SSN) or Employer Identification Number (EIN)—was simply typed incorrectly, as can sometimes happen when filling out reems of paperwork. But it could also be the result of administrative errors or even falsified information from a contractor who is not the person they claim to be.

You might be thinking that “B” notices sound trivial; after all, how much could it possibly cost to correct a typo? Indeed, some companies write off “B” notices as the cost of doing business, planning their margins around such roadblocks as if they’re inevitable. It is important to remember, though, that these inevitabilities can cost you more than you might think.

Why you should worry about “B” notices

On the surface, dismissing “B” notices as just another business expense seems like a reasonable reaction, considering a single notice only results in an initial penalty of $100 to $260 per incorrect TIN—a small price to pay for many businesses. But, when evaluating your strategy for dealing with IRS notices, you should keep a few factors in mind:

  1. Penalties stack per TIN. For businesses that work with dozens or even hundreds of ICs (such as those in logistics and delivery), administrative errors across multiple 1099s can result in accumulated fines in the thousands of dollars.
  2. You might not know who you’re contracting. During contracting, an IC could fill out a W-9 using business info and an EIN, but what if the EIN matches the individual while the business is a DBA? Or what if the IC submits an incorrect SSN but you don’t have a verification system in place? A lack of clarity here could create exposure in the event of a future misclassification claim.
  3. It’s just the tip of the iceberg. Fixing a notice is often easier said than done and may lead to larger potential complications for your business.

In short, when thinking about “B” notices, you need to consider the hidden costs. Be sure to ask yourself, what impact will this have beyond the penalty?

Identifying the hidden costs

There is an administrative burden associated with correcting information required by the IRS. Depending on how many out-of-compliance individuals are listed on a report, this can require scouring your records, TIN checking all independent workers, issuing and tracking all “B” notice notifications, performing follow-ups, and enforcing new withholding requirements if necessary. For some businesses, it can take up to two weeks to address all the items outlined in a single “B” notice and then follow through to ensure they are corrected.

The second hidden cost is the impact on the ICs you work with. As mentioned, if a “B” notice goes uncorrected, the IRS sets a default backup withholding rate of 28% for future payments to affected workers. It should come as no surprise that withholding nearly a third of their settlement could dissuade ICs from working with you in the future.

Finally, sending incorrect data to the IRS may cause them to evaluate whether other concerns exist within your independent workforce model—errors the government could interpret as signs of possible misclassification of workers. Even if the workforce model is proven to be 100% compliant, nobody wants to deal with a costly and distracting audit.

These examples explain why you should beware the “B” notice, but what should you do if one arrives on your doorstep? Better yet, how can you avoid receiving one in the first place?

Avoiding “B” notices with a more consistent model

To pinpoint why “B” notices happen—and break down how to avoid them—let’s take a deeper dive into the two places where mistakes are most often introduced: during the collection of data from ICs and during the reporting of that data to the IRS.

Whenever an IC submits a Form W-9, there is a chance, however slim, that it may contain errors or false information. If you are dealing with many ICs, this onboarding data could also be stored incorrectly or misplaced altogether. When it comes time to submit the data to the IRS, other errors could be introduced. The more times information changes hands, the more likely it is that something could go wrong.

Naturally, the first step toward mitigating the introduction of errors is to find a system that specializes in reducing them without requiring additional administrative work. Openforce’s independent contractor management platform provides a worry-free experience from onboarding to settlement, integrating a comprehensive suite of checks, validations and tools that eliminate errors while also reducing compliance risk. Here’s how it works in three steps:

  1. You decide to contract with an IC.
  2. The contractor begins enrollment via Openforce, entering all required information into our secure portal, including their TIN.
  3. Our system verifies with IRS databases that every piece of information is accurate; if an error exists, the system stops onboarding and alerts all involved.

Preventive practices are, hands down, the best way to avoid not only an IRS “B” notice but also many of the stumbling blocks that can set your business back during dealings with ICs.

Ready to build best practices into every stage of your contracting process? Contact Openforce today using the form below or by emailing sales@oforce.com.

COVID-19: Your contingent workforce may be changing forever

As COVID-19 spreads across the U.S., its impacts become more obvious and dire every day. From the strain placed on healthcare resources to the physical and mental toll of quarantine measures, we’re all experiencing this outbreak firsthand. But, despite the tragedy and uncertainty of the present, most of us also can’t help looking forward. How is COVID-19 going to change our world? What will society look like after?

These questions have troubling answers, especially for the economy. The stock market continues to fluctuate as governments scramble to provide relief. Entire workforces have transitioned from the office to the home; consumer demand for certain goods has either skyrocketed or plummeted; and unemployment numbers have reached all-time highs.

What this means for your business depends on numerous factors, including the product or service you’re selling and the workforce model that keeps it all running. Only one thing is certain: During times of economic instability, some companies will fail, and others will thrive.

The key difference between the two is adaptability. That’s why business models designed to enable flexibility—such as those using independent contractor workforces—may be uniquely positioned to emerge from this crisis stronger than before.

How crisis creates opportunity

Every emergency produces creative responses to rising demand. This shift toward agile and responsive business practices will have the biggest impacts on the biggest industries, but it will have a significant impact on gig work as well.

In logistics and delivery, for example, there is huge potential for change. Big-ticket delivery items like appliances may suffer as customers shun showrooms and in-home installations. Other transportation services, however, are experiencing a surge. Many bars and restaurants in the U.S. temporarily closed, forcing establishments to expand their takeout and delivery options. In some cases, states are allowing pickup and drop-off of alcoholic beverages—a service previously prohibited by law. In addition, more people are shopping online for products traditionally purchased in stores, such as medical supplies and prescriptions, groceries and meal kits, and more.

Demand exists, and these modern business models are meeting it. High-tech shopping and delivery options are already flourishing, and once a door opens on a more convenient way of doing things, consumers will usually pay to keep that door from closing. As a result, companies that can adapt quickly—by, say, empowering delivery service providers to serve multiple businesses—will not only be poised to address demand related to COVID-19 but also gain a strong foothold in a changing economic landscape.

Can’t we just go back to the way things were?

It is best to accept this now: The world will never go back to the way it was before. Take the last major global crisis, 2008’s “Great Recession,” which had huge, lasting impacts on banking and real estate, corporate employment structures, and international spending habits.

Now, hundreds of thousands are suddenly working from home (or in the field under strict quarantine conditions), and the resulting domino effect will be felt throughout the economy as office space, fuel consumption and other related expenses decline. For industries affected by these fundamental shifts, adaptability in the face of economic stressors will be a key indicator of survival.

Transportation, for example, is an industry uniquely situated to weather this storm. Not only because it comprises many services deemed “essential”—goods need to keep moving, after all—but also thanks to one key advantage: It already relies on the flexibility of a largely independent workforce.

The value of a model based on independence

Independent contractors have played a significant role in the U.S. economy for years. But, until now, they were seldom afforded the benefits or protections enjoyed by traditional employees. As discussed above, however, crisis causes change.

With the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Families First Coronavirus Response Act (FFCRA), the U.S. government has extended many new programs to self-employed individuals like independent contractors. These include paid sick leave tax credits, small business loans, and even federally funded unemployment benefits without the need to name an “employer”—programs that previously excluded this group of workers.

Since reversing significant change is easier said than done, let’s assume our society continues to offer support to the self-employed after COVID-19. This could be a boon for the gig economy, allowing this dynamic workforce model to grow within industries where its utilization was previously thought impossible. Providing more financial security for these types of workers means drawing more skilled individuals to these types of roles, which could ultimately lead to new designations for workers and redefine the ways we think about misclassification.

But there is a major hurdle when using independent workforces, one that often results in a misalignment between the number of workers and the amount of work available. This issue, which we must overcome before we can enact positive change, is a lack of portable qualifications among independent workers.

Portability and the future of gig

Gig work allows for greater flexibility than any other employment model, which benefits workers and businesses alike. Companies can issue contracts as needed, and workers can nurture multiple sources of income.

Unfortunately, cumbersome restrictions surround current contracting processes in industries that require independent contractors to meet a variety of qualifications. Even basic requirements like background screening and drug testing can significantly delay the contracting process and compromise the efficiency of the model. In the logistics and delivery industries, onboarding new drivers can take up to 20 days as companies perform the requisite background screens, drug tests, MVR checks and a host of more specialized qualification checks.

Combine the slow qualifications times with the ever-present problem of driver shortages, or scenarios where one company has too many drivers but not enough work, and you start to uncover longstanding problems only exacerbated by COVID-19. Suddenly, this business model with potential for extreme flexibility slows down as companies struggle to keep drivers active during periods of fluctuating demand. And afterward, when the economy starts to recover, lengthy screening times will make it difficult to respond with qualified workers.

But what if we could eliminate this part of the process? Companies should never forego checks designed to ensure safety and reduce risk, of course—but imagine a future where every driver can function as their own portable business, carrying their qualifications with them. Imagine if, in six months to a year from now, companies could pull from a pool of vetted contractors as needed. Only with this kind of contractor portability can we hope to achieve true flexibility. And only with that flexibility can we respond to the next crisis quickly and decisively.

COVID-19 is reshaping our political, social and business landscapes, but the outbreak will eventually come to an end. When it does, you’ll face a decision: Which path forward will you take? Will you continue to struggle with overlong processes or embrace a more portable model for service providers?

As the crisis goes on, Openforce will continue to develop solutions to help businesses traverse this shifting landscape. We’re keeping our eyes on the horizon, and we advise you to do the same.

Fill out the form below or contact sales@oforce.com to schedule your free risk assessment.

New Jersey’s “Misclassification Package” reshapes relations with independent contractors

In January 2020, NJ Governor Phil Murphy signed into law a set of new legislation, giving businesses and independent contractors more cause for alarm in the wake of California’s Assembly Bill 5 (AB5) and other pending legislation around the nation.

This legislation, referred to as New Jersey’s “Misclassification Package,” exposes companies to new misclassification risks and makes it harder to work with independent contractors. Here’s everything you need to know about these complicated new laws.

The possible goals behind the misclassification package

Legislators ostensibly designed the new legislative package to reform the “gig economy” by forcing contracting companies to classify independent contractors as employees and provide benefits for them.

But rising misclassification claims could also mean more tax revenue as companies are forced to pay increased employment and disability contributions. Indeed, in a 2018 audit, the New Jersey Department of Labor reported that supposed misclassification resulted in a claimed income tax revenue loss of $462 million.

The real problem is that this legislation presupposes that workers are being misclassified and places unnecessary burdens on employers whose independent contractor (IC) relationships are legitimate. This hurts businesses and ICs alike, as opting for freelance over traditional work enables both parties to be more flexible and adaptive.

The legislative push

Although both your business and independent contractors have mutually benefited from these working relationships, new laws are placing tighter restrictions on your existing business methods and models. In New Jersey, these laws come in the form of several assembly bills aimed at worker taxation and classification:

  • AB 5838 allows New Jersey to issue a stop-work order against any employer in violation of a state wage, benefit or tax law. This law would mandate the complete cessation of business where the violation(s) occurred. Penalties include $5,000 each day (or $1,825,000 per year) for continued violations of the stop-work order, and employers only have 72 hours to appeal the order. In short, businesses that continue operating while awaiting an injunction or administrative hearing could still be fined.
  • AB 5839 penalizes employers for administrative misclassification with fines ranging from $250 (for the first violation) to $1,000 per employee (for subsequent violations). The company must also pay up to 5% of the misclassified contractor’s gross earnings to the contractor. These are in addition to penalties administered under the other statutes on this list. The most concerning part, however, is that the law does not clearly define the term “violation,” leaving much of its interpretation up in the air.
  • AB 5840 holds employers and staffing agencies jointly and severally liable for violation of wage and hour and employer tax laws (in addition to laws like AB 5843, which prohibit employers from discriminating against workers for reasons related to misclassification). It also creates individual liability for any person acting on behalf of either the employer or contractor, holding them personally liable for their role in misclassifying workers.
  • AB 5843 requires employers to post notifications related to worker misclassification, but it also prohibits the discharge of or discrimination against employees or contractors who ask or complain about misclassification. Violations may result in minor criminal penalties, mandatory correction of discriminatory action, and repayment of wages and benefits lost (plus possible punitive damages) as a result of said action. Along the same lines, Senate Bill (SB) 4226 allows the state to publish the names of those found in violation of wage, benefit or tax law.
  • AB 4228 allows the Department of Labor to acquire confidential tax information, audit files, and other investigative reports for the purposes of investigating possible violations related to misclassifications. Combined with other laws on this list, this could result in immense power for the Department of Labor in targeting specific industries for investigation.

These laws are designed to work together to discourage misclassification, but they could be interpreted in ways that make doing business much more difficult. For example, the Department of Labor could decide to investigate a company based on its own unspecified definition of a violation. AB 4228 enables them to acquire detailed investigative reports, which they may deem sufficient to issue a stop work order under AB 5838. Before the business can receive the results of an appeal or injunction, fines begin to accrue, compounded further by the additional penalties outlined in AB 5839. AB 5840 even allows individuals at the company to be held responsible.

This is just one example of how these laws might work together. The scariest part, however, is that even more stringent legislation may be on the horizon.

The specter of SB 4204

Another law introduced by New Jersey Senate President Stephen Sweeney in November 2019 was SB 4204. Based on California’s AB5, this law faced significant opposition from gig-economy workers and contractors, who argued that codifying the ABC test into law would make it difficult for employers to work with contractors.

Due to the heavy opposition, SB 4204 was withdrawn and delayed, a temporary victory for contractors and employers. However, Sweeney intends to reintroduce the bill and build support for it in the new legislative session, with possible amendments and exemptions to the ABC test.

Along with the potential passage of SB 4204 and various state laws, contractors and businesses fear the passage of the PRO Act, a bill that would create a federal version of California’s AB5 and further constrict the ability of companies to utilize independent contractors. Although it is unlikely the bill will pass the Senate or White House, this type of legislation has a habit of coming back.

The future of the misclassification package

If these state and federal legislative efforts are successful, misclassification claims will become more common. Contracting companies could be subject to stricter guidelines, frequent audits and harsher penalties, making it more challenging to manage business relations with contractors.

But converting contractors to employees is complicated, costly and challenging, especially for a business operating on tight margins. To reduce your risk of being subjected to a misclassification claim or audit, now more than ever, it’s important to work with your legal counsel to establish a comprehensive set of independent contractor best practices for your business. These may include limiting your business to working only with contractors who are established as their own businesses or using a third-party software provider to manage onboarding, settlement processing, insurance and more.

In short, it’s more important than ever to ensure an arm’s-length relationship with independent contractors. Openforce’s built-in compliance measures are designed to help your business more easily implement the practices that support that relationship. From onboarding to payments to insurance, our comprehensive IC management platform provides the tools that help businesses and independent contractors work together—with less risk and administrative hassle.

In summary, restrictive new laws are imminent all around the country. Do you know where your business stands?

Fill out the form below or contact sales@oforce.com to schedule your free risk assessment.

The Nuances of Mergers and Acquisitions with a 1099 Workforce

The advantages of working with independent contractors, also known as 1099 workers, cannot be overstated.

Specifically, if you’re running an operation relying on 1099 workers, you aren’t required to pay the employer portion of Social Security or Medicare for them. Additionally, you don’t typically need to provide traditional employee benefits, such as health insurance or workers’ compensation insurance.

Put simply: the savings can be massive. Nonetheless, having a 1099 workforce model creates its own set of challenges, especially when it comes time to sell your business; it can add a layer of complication to the deal.

While right now may be too early to sell your business, it’s never too early to put in a robust compliance framework to ensure that your business is following the right growth model ahead of its sale. This is especially true given that deals involving businesses relying on the 1099 model can be burdensome and tough to navigate.

One of the first steps toward making the decision about whether or not your company is ready to be sold is understanding where your company is in the business lifecycle: seed and development, startup, young growth, high growth, or decline mode.

“You’re never too early in the cycle, but you can get too late in the cycle,” explains Mike Fiorito, an Openforce board member, in a webinar diving into what you need to know about 1099 workers. This is especially true if you’re in last-mile logistics.

Joining Fiorito in the webinar — teasing out the nuances of how to increase the valuation of your company, establishing a narrative, dealing with changes to a 1099 model, and a myriad of other factors with regards to mergers and acquisitions — are G2 Capital Advisors COO Ben Wright and Newhouse & Faino LLP Partner Ben Faino.

Here are some of the most important takeaways:

Get Started Early

Once you’re beyond the seed and development point of your business’s lifecycle, you can only benefit from establishing a strong compliance framework, while taking into account the current point of the economic cycle and the specific economic movement in your market.

The goal is to align this compliance framework with your long-term growth strategy early on.

There’s No Better Time Than Now

As has been true for the last three to four years, there’s been no better time than now to sell your business, especially if you’ve carved out a defensible niche in the last-mile logistics market.

The question a lot of owners are asking themselves is: Do I really want to wade through another recession?

Weighing on either side of that question are the benefits of several more years of organic growth versus the monetization opportunities of selling the business or merging the business now.

The current availability of capital in the marketplace, as well as the strong amount of dry powder and appetite to consummate deals, continues to push a lot of owners toward cashing in and selling their business.

Overall, it’s a cash-flush moment in the economy with regards to investors looking to drive growth through mergers and acquisitions. This creates a highly competitive market for mergers and acquisitions — which is great for sellers.

Not Ready to Go to Market

Even if the economic conditions are ripe, not every company is ready to go to market.

During a readiness assessment, there are certain red flags that might mean your company isn’t ready to go up for sale. The most obvious factor is your underlying performance.

Some 1099 worker reliant companies dealing with last-mile logistics have struggled to compete in a marketplace turned upside down by Amazon.

If that’s the case for your company, it’s important to bring experts on board to help shore up margins, fix revenue growth issues, and help you establish a strong narrative that can be presented to buyers.

Buyers will also be looking at how robust your third-party administrator infrastructure is, how well you’re leveraging outside legal help, and ensuring that your business practices reinforce your independent contractor model — rather than undermine it.

Changes to a 1099 model

If it’s necessary to make changes to your 1099 model as part of revamping your compliance program, the sooner you’re able to firm up your company, the better off you’ll be.

This is why it’s recommended that company owners look to bring on capital advisors and a legal team 12-18 months before putting their business on the market.

The bottom line is that if you end up making a number of changes to your 1099 workers model, a buyer is going to want to see a track record under those changes where the growth rates and business processes are not showing any signs of erosion (or other negative impacts).

Potential buyers will be looking at a number of key metrics following those changes, including earnings before interest, gross margins, EBITDA margins, pre-cash flow conversion, and revenue growth rates.

Educating Employees

One of the most important aspects of the merger and acquisition of a company reliant on 1099 workers is educating employees.

For last-mile logistics companies, these employees are the ones who are dealing with 1099 carriers on a daily basis. It’s important that your employees fully understand the goals of the change and how to implement them.

Along these same lines, it’s necessary to create clear lines of communication between your company and your independent contractors. By ensuring that everyone has a complete understanding of expectations, it is less likely that issues will pop up when moving forward with this type of model.

Final Thoughts: The Nuances of Mergers and Acquisitions with 1099 Workers

The entrepreneurial and growth opportunities presented by the establishment of a large 1099 workforce has caught the eye of many strategic and financial investors. This is especially true for those interested in last-mile logistics, where white-glove, assembly, lab, and big-and-bulk shipping companies have managed to carve out lucrative, niche markets for themselves.

However, understanding how to build the necessary narrative to sell such businesses, as well as the due diligence and infrastructure needed, gets complicated. Bringing on a good technology solution or managed service provider to manage 1099 workers early on can close compliance gaps and move the deal along much easier.

Watch the nearly 50-minute webinar to get the full picture of a typical merger or acquisition involving 1099 workers. Fiorito, Wright, and Faino breakdown everything else you need to know about the 1099 workforce.


Watch the 50-minute webinar
 

Misclassification in 2019: 4 Key Developments

The very words worker misclassification can strike fear in the heart of any business that relies on an independent contractor workforce. To be sure, the negative effects of misclassification can be staggering. One worker claim can trigger an audit of your entire workforce by any number of state and federal agencies. These agencies have the right to issue heavy penalties and interest on taxes and wages, liens, and even injunctions. Not to mention that businesses can still be subject to crippling class-action suits with multi-million dollar consequences.

Recent trends make it painfully obvious that misclassification can affect any company that uses ICs, no matter the size or industry. Meanwhile, the complexity of the misclassification landscape, the number of agencies involved, and a constant stream of evolving guidelines and new court decisions make it difficult to navigate. But there are several critical developments proactive companies should be aware of as this year takes shape.

DEVELOPMENTS SHAPING MISCLASSIFICATION ENFORCEMENT TODAY

1. Trump administration signals shift away from prioritizing classification enforcement

Recent changes in the Department of Labor’s (DOL) suggested interpretation of classification guidelines and a new proposed rule for determining joint-employer status under the Fair Labor Standards Act (FLSA) both indicate that under the Trump administration federal agencies will pull back a little when it comes to pursuing classification enforcement.

However, this shift does not mean that businesses should breathe easy when it comes to misclassification. While administrative priorities seem to be shifting away from worker classification rules, it will take some time for this high-level change in agenda to filter down. Moreover, courts are not bound to follow federal agencies’ interpretative guidance so businesses will remain vulnerable to unfavorable rulings in private lawsuits.

2. State taskforces double-down on industries with large IC workforces

Even if enforcement at the federal level is less vigorously pursued, enforcement at the state and local levels are more aggressive than ever.  In general, state rules used to determine worker status have become less favorable to IC classification (for instance, the notorious ABC Test). But some states, like New York and New Jersey, have also begun forming taskforces by executive order to investigate worker misclassification and target the companies and industries that rely heavily on ICs.

3. Growth of gig economy and changing expectations about work

The explosive growth of the gig economy over the past several years is a familiar headline staple, but accompanying this has been a sizable segment of workers actively embracing on-demand work. Anecdotal evidence of this popped up last year when all of a Sacramento barber shops’ IC barbers quit en masse rather than be reclassified as employees under a new court ruling. This indicates a growing tension between workers’ expectations to be able to work on demand and state agencies’ increasingly forceful pursuit of misclassification.

4. New case law favoring IC classification

Three recent decisions have been favorable for classifying workers as ICs. The National Labor Relations Board reversed a stringent test for IC status and replaced it with a more IC-friendly standard. The U.S. Court of Appeals for the Sixth Circuit ruled in favor of insurance agents as ICs in a major case. And in an unemployment claim, the Indiana Supreme Court found a referral company met the state’s ABC test for IC classification.

However, these decisions are part of a larger mixed-bag of rulings that often still favor classifying workers as employees. Combine these with several recent costly class action settlements and the message is clear: stay vigilant about your IC classification practices.

WHAT TO EXPECT GOING FORWARD 

These developments demonstrate the fundamental messiness of the misclassification landscape. While some signs are encouraging for IC classification, the contradictions in the rules used by federal, state and local agencies and the tendency—on the whole—to favor employee classification leaves businesses highly vulnerable to expensive misclassification audits. In the coming year, businesses can expect:

  • More states to target specific IC-heavy industries through misclassification taskforces
  • Continued use of the ABC Test and other tests that favor classification as an employee
  • Increased likelihood that one worker claim will trigger a full-blown workforce audit

Having solid best practices in place that support your workers’ independent contractor status is your absolute best bet for avoiding claims in the first place and combating them if they arise.

Get in touch to learn how Openforce can help reduce your risks and get a complementary compliance assessment.

 

 

Driver Shortage: You Can’t Recruit Your Way Out

Are you using the same tactics to keep up with driver turnover and expecting different results? Costly recruiting methods and increasing pay just don’t compare to having a sustainable, holistic strategy to keep drivers contracted.

Today’s need for drivers is at an unprecedented level with the turnover rate reaching its highest point in five years. According to the latest data from the American Trucking Associations’ (ATA) Trucking Activity Report, the annualized turnover rate increased 4 percentage points to 98 percent in the second quarter.

Just when you think things can’t get worse, the ATA estimates the industry is now short 51,000 drivers on a base of about 500,000 drivers. If nothing changes, the industry will be short 160,000 drivers by 2026.
 

BETTER WAYS TO REMEDY DRIVER SHORTAGE

As every driver is unique, when it comes to finding and keeping qualified drivers in this competitive landscape—there is no one quick fix. However, new tactics and retention strategies made possible by a 1099 management platform can simplify processes, improve communication and provide additional value to drivers, while keeping an arm’s length distance to support the independent contractor (IC) model.

Here are some proven driver management strategies that help Openforce clients get out of the driver administration business and retain high-performing independent contractors.
 

1. Reduce contractor drop offs with automated enrollments

According to a CareerBuilder survey, companies that automate their onboarding process experience significant benefits.

93 percent report they saved time and money. 69 percent saw reduced errors. 67 percent said they saved money.

Traditional onboarding methods require owner operators to print out applications, sign, scan or fax documents, which creates friction and increases the risk of drop off. A streamlined and automated enrollment eliminates human error and the arduous task of ensuring that all contractual information has been properly captured. Openforce’s platform additionally verifies the owner operator’s information in near real-time by accessing public records from the IRS, USPS, DMV and LexisNexis. And it’s easier for drivers who are out on the road and doing everything on their phone or mobile device. Openforce’s mobile-first process dramatically simplifies enrollments with friendly screens, uploads, e-signature and fast response times, all designed to speed enrollments.
 

2. Leverage compliance tools that improve communication, set expectations and empower drivers

Compliance is, and will continue to be, the primary focus for any company that chooses to work with independent contractors. The risks associated with noncompliance are rising, and organizations must ensure that all owner operators remain compliant with state and federally mandated regulations. To minimize risk, companies are leveraging automated compliance tools that help initiate and establish proper business agreements. A clear communication path through a back-and-forth negotiation process and transparent agreement signed off by both parties, work to protect both companies and independent contractors against any potential issues that may arise. What’s more, drivers feel greater respect through this processes—are ultimately more satisfied being treated as an empowered independent business owner—which results in lower turnover.
 

3. Accurate, reliable pay that also provides early access to settlements

The accurate and on-time delivery of settlements are extremely important to the livelihood of contractors and their subcontractors. That’s where a secure payment platform designed specifically for independent contractors makes all the difference. Not only does this help create a seamless and expedited settlement process, it also removes administrative burdens that often result in unintended errors. Companies can put settlement processing and 1099 filings on autopilot, while independent contractors are supported by live customer service agents. Additionally, as part of Openforce’s settlement platform, contractors have the ability to receive early settlement transfers for a low, flat fee. Designed to help contractors improve access to cash, when they need it, Openforce helps independent contractors stay contracted by managing their cash flow challenges.
 

4. Draw on qualified drivers while helping owner operators maximize capacity

Even with a full staff of talented HR professionals, aggressive recruiters and social media ads—it’s tough to find qualified drivers to fill your immediate needs. Before spending additional time and money to find new drivers, with Openforce’s 1099 management platform, clients can complement traditional recruiting methods by first reaching out to existing drivers. Target contractors by specifying your need and location, and the system does the rest. When drivers log into their contractor portal, they’ll immediately receive an alert with these details. It’s a true win-win for both the contracting company and owner operator.
 

Splash alerts are a convenient and effective way to notify your carriers of travel team opportunities. We are exploring ways to use them for other business needs.

– Steve Whalen, General Manager

5. Keep contractors happy and reduce their financial stress through specialized benefits

Some of the perks that help attract and retain independent contractors are surprisingly simple. Contractors are looking for more than good pay. They’re looking for much needed benefits, discounts and resources to build their business. But without an employer to provide these benefits, it can be difficult and stressful to find, particularly ones that are geared for independent contractors. To help fill this gap for both contracting companies and independent contractors, Openforce offers an array of resources such as discounted insurance programs, truck leasing programs, cash advance services, and more. Whether it’s establishing a business entity, filing taxes, specialized training or taking advantage of deep retail discounts, Openforce’s built-in member benefits can provide the valuable support that companies are unable to offer.
 

Openforce clients experience a 30% decrease in contractor turnover when compared with the industry average in transportation.

Considering the thousands of dollars it costs to find and recruit just a single driver, it pays to have an established independent contractor management (ICM) platform to keep your driver turnover rates to a minimum.

Openforce is well-versed on the challenges and leading 1099 technologies and services for reducing independent contractor turnover. Screening and onboarding the right drivers for your fleet, offering valuable business tools and benefits, and setting clear expectations right from the start are just a few ways to improve the turnover rate and retain highly qualified contractors.
 

Contact us to learn more