Know The Risks of Engaging Contract Workers

Of all the risks associated with engaging contract workers, the majority will typically fit into one of the five categories below.

1. Employee Misclassification Risk

Contingent workers who are on 1099 but are working in a full-time role with a client are at risk of IRS or DOL Employee Misclassification. This carries huge potential tax implications and the government assessed penalties to all parties involved, including the client, agency, and contractor.  

2. Employer Practices Liability and Employer Compliance

Recent studies show that contingent workers are up to five times more likely than permanent workers to file harassment, discrimination, and other workplace-related complaints, thus exposing agencies, clients and their Partners/Directors to lawsuit risk.

As for compliance, thousands of contractors are not being paid in accordance with their given state’s requirements. Whether it be an issue of improper pay frequency, unpaid mandatory overtime premiums, or state-required mandatory sick leave, agencies and clients stand to incur big penalties if found to be out of compliance, which can happen as easily as a contractor filing a complaint with the Department of Labor.

3. Rising Unemployment Ratings

Contingent worker claims for unemployment insurance are on the rise and are being granted at the expense of the client or agency.  The more claims, the higher the rate you pay.  A single unemployment claim from a 1099 contractor could lead to a determination of misclassification, and result in damaging consequences for all parties (see risk No. 1).

4. Worker’s Compensation Exposure

Workers comp. markets are hardening to the contingent workforce sphere.  Providers are becoming extremely reluctant to issue these policies, and thus many agencies are illegally employing contractors without proper workers comp insurance in place, exposing themselves and the client to a variety of potential lawsuits.

5. General Liability Exposure  

Thousands of contractors are working without liability insurance, leaving their clients and agencies exposed to substantial risk in the case of a critical on-site error, or damage to intellectual or physical property at the workplace. Ready to crawl into a corner and go to sleep for about a year?  

Trust me, you’re not alone. We’re seeing people and companies fleeing the contingent/contractor structure altogether just to have some peace of mind, despite it being their primary mode of operation for many years and one that has profited them greatly.

I know I’m beginning to sound like a real downer here, but hey, honesty is the best policy, right? These are real risks, and there are real stories to go with them. No hypotheticals needed. Let’s be honest.  If you’re an individual or a company that engages heavily in the contingent/contractor “sphere”, chances are you’ve already come to the realization in reading this, that you’re currently exposed to at least one of the risks above, and need to come up with a solution to eliminating the exposure.

And if you’re really honest, unless your company specializes and holds expertise in the area of employer risk mitigation and/or HR compliance, you’ve probably also come to the realization that you don’t have the capability (or desire) to handle all of this in-house.

The ever-changing landscape of employer risk mitigation is simply too volatile to stay on top of.  That is, unless you want to engage and retain a costly attorney whose job it is to monitor this stuff on a daily basis.

You need a simple solution. A solution that transfers these and other risks completely off you and/or your company’s back, and puts them squarely on the that of a company that lives and breathes this stuff. After all, if you had a legal need, wouldn’t you engage an attorney? If you wanted to launch a nationwide advertising campaign that would be the key driver of the majority of your business over the next several years, wouldn’t you bring in a reputable Ad firm to set the course? Or would you try to wear that hat too?

Are compliance and your ability to actually be in business not just as important and critical as a legal issue or an area of business development? And if so, wouldn’t it be wise to engage an expert in that field as well? After all, your ability to remain in good standing with the various governmental bodies that regulate the labor industry is a key component, if not the key component to your company’s engine.

What if you could reallocate key resources in your company to focus solely on driving new business, improving customer service, or building and perfecting systems and processes that will take your company to the next level, rather than having them play “whack-a-mole” with unforeseeable issues that pop-up on a daily basis and detract them from contributing anything of a proactive nature to your business? I mean, as fun as “Whack-A-Mole” is, it’s probably best left at the county fair. 

Eliminating Risk

So where do we go from here, you may ask? At least, that’s what you should be asking. The good news is, despite the seemingly grim picture laid out above, there is hope! There are experts in the field of both employer risk mitigation and contingent workforce management who can provide an all-in-one solution that removes these risks and responsibilities from you/your company, and manages them for you.

Actually, let’s back up a step…There are a lot of companies that have the ability to remove these risks.  But from our experience, and that of our clients, only a few will build a customized solution with your company’s culture, structure, and core goals in mind, and ultimately be a key strategic partner in your company’s advancement, rather than just a 3rd-party service provider.

Not that there’s necessarily anything wrong with the latter, but when dealing with managing people, and most importantly, their money, you need to ensure that your CWM partner will listen, and ultimately, implement a solution that is aligned with the way you do business.

As simple as we make it sound to “mitigate risk”, there’s ultimately more to it than just that.  You will be trusting this strategic partner to manage a critical economic element of relationships that you have worked long and hard to establish, and thus, you’ll need to vet that partner thoroughly to ensure that they are trustworthy.

Disclaimer: All information written here is for general informational purposes only and is not intended to be a substitute for professional and/or legal services.