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Forget about ghosts and goblins. When it comes to running your own in-house contract staffing back-office, there are very real risks that can keep any recruiter up at night.

Here are just some of the scary details to fear:

  1. Worker misclassification — Government agencies have been increasing enforcement against worker misclassification every year with no end in sight.  The IRS, Department of Labor, and several state agencies have even agreed to share information, so it’s more important than ever to make sure you are not incorrectly classifying W-2 employees as 1099 independent contractors.
  2. Workers’ Compensation coverage (or cancellation)—Getting affordable Workers’ Comp coverage is hard enough, especially for small-to-medium-sized firms. But what happens if your carrier decides to cancel your coverage because of too many claims that were totally out of your control?
  3. Exposure and liability — In our increasingly litigious society, one little mistake or oversight could put you out of business. We’re talking about mistakes made by either your contractors or your in-house staff. Staying in compliance is no easy task, either,  as you have to navigate an ever-growing, complicated myriad of federal, state, and even local employment laws. Failure to comply can result in audits, lawsuits, penalties, etc. And don’t forget to have legal counsel review and negotiate contracts on your behalf.
  4. Certificate of Insurance — Do you have enough insurance to protect you from those legal risks? Can you afford continuous premium increases? Can you afford the additional coverage potential clients may require in their contracts?
  5. Funding payroll — You must pay contractors on a regular (weekly or bi-weekly) basis. Payroll has to be processed before most clients ever pay their invoice on man-hours worked. What if a client suddenly stops paying invoices or is a slow pay?
  6. Missing payroll — Missing a payroll for ANY reason is one of the quickest ways to completely destroy your reputation… and it only takes once. Think how you would feel if you worked 40 or 80 hours and someone couldn’t pay you!
  7. Obamacare – If you have 50 or more full-time employees (counting in-house AND contractors on your payroll), you will eventually be required to provide them with healthcare insurance under the employer mandate of the Affordable Care Act (ACA or Obamacare) OR face hefty fines. Even if you don’t have to provide coverage, the ACA has provisions that touch nearly every employer.

So does all this mean you should run screaming in the opposite direction from contract staffing? No, of course not! You can still reap all of the benefits of contract staffing without having to handle the scary details by outsourcing  those tasks to a contract staffing back-office. As the Employer of Record for the contractors you place, the back-office assumes all the employment responsibilities and risks.  You have nothing to fear – except missing out on great opportunities if you don’t offer contract staffing to your clients.

This general summary of law should not be used to solve individual problems since changes in fact situation may require a material variance as to the applicable law.  This article is for information purposes only and should not be construed as legal advice.

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