Alternative work arrangements have increased across the nation. The Bureau of Labor Statistics estimates that approximately 40.4% of the nation’s workers will be contingent workers by 2017. A recent CareerBuilder survey reported that 47% of employers planned to hire contingent workers in 2016. Of that group, 58% planned to later transition them into full time employees under a variety of employment models. It’s clear that alternative work arrangements are slowly becoming the norm. The rise in these alternative work arrangements has grown largely in part to a lingering skills gap and a shift in workers’ desires for autonomy. This has caused many organizations to pivot, reimagining their Talent Acquisition strategies. The benefits that many of them have obtained by using contingent workers has also exposed many organizations to uncertainty and risk.

As contingent labor programs grow, new skills are required to effectively manage these programs. One of the most important is risk management. Many organizations have traditionally defaulted to classifying their contingent workers, freelancers, and consultants as 1099 workers. However, they may be gambling with the health of their business unnecessarily if they continue to do so. The standards for worker classification can be complex. Recent regulatory changes have made this a veritable minefield for employers. Not only do the standards set forth guidelines regarding non-employee status, but there are standards that apply to control of the individual’s work and more. It’s clear the risk for misclassification of contingent workers remains great.

Recently, the Department of Labor released new guidelines to assist employers in classifying workers. These guidelines are important because while complex, they establish a standard by which multiple organizations may audit an organization. This includes not only the Department of Labor, but the IRS, and more. Industries such as healthcare may further face complex issues surrounding healthcare compliance that may jeopardize their accreditation and ability to render patient care. There is additional risk that workers may further file class action lawsuits, and fines and penalties may challenge an organization’s ability to remain in business. How does an employer mitigate the risk of contingent worker misclassification?

Mitigate Contingent Worker Misclassification with Intelligent Workforce Solutions

The risk of contingent worker misclassification can be great, whether an employer has 10 or 1,000 contingent workers. The cost of paying back taxes, fines, penalties, legal costs, lost productivity, and loss of reputation if workers are misclassified can be great. The best defense is always a strong offense, as the sports analogy says. An organization’s best move is to therefore mitigate this risk with intelligent workforce solutions that seek to proactively avoid misclassification of contingent workers. Consider the following solutions your organization can implement:

  • Partner with a vendor neutral managed service provider. Many employers that use contingent workers have decentralized engagement processes. This means the engagement of contingent workers is often managed by departments or hiring managers. A hiring manager cannot be expected to be an expert in risk mitigation and complex employee classification regulations. These complex areas of law are generally outside of the purview of most hiring managers. This is why more employers are outsourcing the management of these programs to the experts. A vendor neutral managed service provider (MSP) contains teams of experts that are highly skilled in not only the management of contingent labor programs, but risk mitigation and employee and non-employee classification. RightSourcing, a leading vendor neutral MSP, offers customers multiple ways to manage this risk. Their onsite program experts and the expertise and support of a Business Validation Team offer customers superior risk mitigation. The Business Validation Team is composed of former IRS agents and auditors with proven processes for successfully identifying potential misclassifications. Employers seeking to outsource this function to the experts should consider the benefits that a vendor neutral MSP partner can provide.
  • Establish a clearly defined working arrangement. Lawsuits brought about by contingent workers may arise from confusion in the nature of the working arrangement. When working alongside employees, this confusion is understandable. It’s up to the employer to clearly define the working arrangement to minimize risk. Is the contingent worker aware of their employer of record? Do they and their managers know the length of their engagement? Do they have badges or other visual cues to signify any difference from employees? Do contingent workers believe they are entitled to the same benefits that an employee has? These are all questions that may arise when employers establish a clearly defined working arrangement. By establishing a clearly defined working arrangement, organizations can mitigate risk associated with perceived misclassifications.
  • Establish processes for contingent worker classification. If an organization is using contingent workers, consultants, statement of work (SOW) workers, and freelancers, they may not all be classified the same. They may all fall under the umbrella of contingent labor, but each may have a separate classification. Depending on the nature of their work arrangement and the work performed, each could be classified differently. Employers should have documented processes in place to ensure proper classification of these workers in order to mitigate risk. When this process is documented and narrowly defined, it can mitigate the risk associated with intervention on behalf of hiring managers or other stakeholders who are not experts in contingent worker classification.
  • Obtain HR subject matter specialists in worker classification. The nature of human resources has evolved greatly over the years. They’re no longer the department primarily involved with ensuring everyone just gets along. Today’s human resources departments are incredibly specialized in fields such as compliance, worker classification, benefits, and more. Small and mid- sized businesses engaging contingent workers should seek to obtain an HR person with specialization in this area, particularly if their use of contingent labor is small. This can be an important step towards mitigating the risk of contingent worker misclassification.

In order to mitigate the risk associated with contingent worker misclassification, employers should turn to intelligent workforce solutions to mitigate this risk. Otherwise, organizations may expose themselves to undue risk that could result in fines, penalties, lawsuits, or the closing of their business.