March 24

One Size Does Not Fit All When It Comes To The Use Of Independent Contractors


Over the last 30 plus years, dealing with whether workers are properly classified as INDEPENDENT CONTRACTORS has taken on various shapes and forms. For one, the social and political climate has largely dictated peaks and valleys with government enforcement on the use of INDEPENDENT CONTRACTORS. Even when you think you have properly navigated through the maze to achieve compliance, you can never be certain that you achieved that “silver bullet”.

Years ago, there were fewer industries that considered the use of independent contractors but today nearly every industry uses independent contractors. The reason for this is that companies can save 40% to 50% to their bottom line. Some of the savings would include: Social Security Taxes, Federal and State Unemployment Insurance Taxes, Workers Compensation, employee benefit programs, and non-reimbursed expenses, just to name a few. Plus, companies need not comply with the wage and hour laws and other complicated laws that would be typical with employee models. In addition, utilizing independent contractors often leads to greater output versus using hourly employees as well as greater compensation to the independent contractor. Therefore, using independent contractors vs employees often leads to a WIN /WIN for both parties concerned. So, ask yourself the question: is the RISK worth the REWARD?

While there may be no certainty to the “silver bullet”, companies must figure out how they can MITIGATE the RISK and by so doing maximizing its REWARDS. They must first understand the laws that govern the use of independent contractors; not only Federal and State statutes but also case law which is constantly evolving.  One needs to understand the statutory provisions of the law and the out birth of these laws that have impacted published case law. And then and only then can one begin the process of compliance. Your independent contractor model can take on various shapes and forms which largely depends on your business vertical (s).

The goal when dealing with compliance as previously mentioned is mitigating risk and this involves both FORM and SUBSTANCE.  The FORM part has to do with written contracts and related documents. The SUBSTANCE part must closely resemble the FORM part. So, if you have an Independent Contractor Agreement it should closely match how the parties interact with one another. If the FORM lacks content or is ambiguous to support the SUBSTANCE and if your IC model is challenged, the FORM can easily lead to an adverse ruling even though in SUBSTANCE, the parties are interacting like an independent contractor relationship should interact. Consistency is one of the most important key factors in mitigating risk.

Because, as previously mentioned, many companies have transitioned from services that use to be performed by employees to that of independent contractors, many of these companies have to be very careful in replacing those employed to independent contractors. One such reason for being very careful is understanding The WARN ACT which is short for the “Worker Adjustment and Retraining Notification Act”.  Most companies with 100 or less employees need not worry about complying with this US Labor law, but those companies that do, must adhere to providing notification of at least 60 calendar days advance notification of their impending layoffs. Some states have their own version of the WARN ACT which have different threshold requirements.

In summary, in order to realize the REWARDS of using independent contractors, in house expertise and or outside experts in mitigating your risk should be consulted on the use of an Independent Contractor Model.

With almost 35 years’ experience, we have lived through various peaks and valleys of enforcement involving the various government agencies and use of independent contractors. We have also defended our clients before the various administrative agencies through powers of attorney filed with the applicable agencies.

Contact us today to help mitigate your risk and maximize your rewards through the use of your company’s independent contractor business model.


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