As organizations are navigating the retention tension of the Great Resignation, many are looking for more creative staffing solutions than simply hiring full-time employees to fill all open positions—no easy task in the best of times.
If you’re considering hiring independent contractors to help your organization bridge the productivity gap, it’s important to stay compliant. Here’s how.
An independent contractor is a self-employed individual or organization that provides services to another individual or organizations under terms laid out in a contract. By definition, contractors are not employees. They are sometimes referred to as “gig workers.”
An organization might pay an employee and an independent contractor for the same or similar work. But according to the IRS, if an organization has the “legal right to control the details of how the services are performed,” then an employer-employee relationship exists.
Independent contractors typically have the flexibility to make their own schedules and to work for multiple organizations simultaneously. However, they are not protected by employment and labor laws, such as the Fair Labor Standards Act (FLSA). Gig workers are also ineligible for most of the benefits and perks offered to full-time employees.
Whereas employers are required to withhold payroll taxes from employee paychecks, independent contractors are responsible for withholding and paying their own self-employment taxes—including Social Security and Medicare.
Many employers use independent contractors for special projects, greater convenience, and the lower costs associated with the contracted relationship. Contractors can also help employers stay productive and profitable when it’s difficult to fill key positions.
Since independent contractors are not protected by employment law and are ineligible for benefits, employers are at risk of noncompliance when they misclassify employees as gig workers, whether deliberately or not.
However, the distinction between independent contractors and employees is not always clear. In fact, according to the US Department of Labor (DOL),
The U.S. Supreme Court has on a number of occasions indicated that there is no single rule or test for determining whether an individual is an independent contractor or an employee for purposes of the FLSA. The Court has held that it is the total activity or situation which controls.
Still, the DOL highlights the following factors, which the Supreme Court has considered to be significant in determining worker classification:
During the final days of the Trump administration, the DOL issued a ruling that was designed to implement an “economic reality” test to determine the independent contractor status of a worker. After a change in presidential administrations, though, the clarification was permanently withdrawn in May 2021.
SHRM notes that—even though “no bright-line test exists” to determine worker classification—“a wealth of information is readily available to help organizations make the necessary case-by-case determinations.” Check out SHRM’s Independent Contractor Resource Center for a deep dive into proper classification.
With this in mind, if your organization currently hires gig workers—or plans to hire them in the future—you should have an independent contractor policy in place to stay compliant and consistent.
Your organization’s independent contractor policy should be added to your Culture Guide or employee handbook and include the following:
Hiring independent contractors can help your organization solve temporary staffing issues and may even become a long-term approach to meeting productivity needs. But it’s important to make sure that noncompliance doesn’t lead to more hassle—or worse, penalties.
You can stay informed, educated, and up-to-date with important HR topics using BerniePortal’s comprehensive resources: