According to a recent USA Today article, the government’s crackdown on the misclassification of W-2 Employees as Independent Contractors is threatening to slow the growth of contractors and freelancers in the workforce.
Many employers, reluctant to hire full-time workers while the economy is still uncertain, have recently hired contractors to deal with increased workloads rather than committing to full-time employees. However, as we have reported numerous times on this blog, the federal government, as well as individual states, have cracked down on employers who misclassify W-2 Employees as Independent Contractors to dodge employment costs such as payroll taxes, benefits, unemployment, and workers’ compensation.
According to the article, the Department of Labor has collected $6.5 million in back wages for 5,261 workers. The DOL only collected $2.6 million last year. In addition, 20 states have passed laws in the past two years to fight misclassification, and class-action lawsuits have risen 50 percent. Meanwhile, 62 percent of employers surveyed by Staffing Industry Analysts (SIA) admit that at least some of their employees are misclassified.
The article predicts that the increased enforcement against misclassification could end the steady increase contract staffing has enjoyed over the past year or so. But it doesn’t have to because there is a legal way for companies to use contingent workers without the risk of government audits and lawsuits. They can hire contractors through a recruiter, such as yourself, and outsource the employment of those workers to a contracting back-office, such as FoxHire. That way, the employee is still technically a W-2 employee, but of the back-office, not the company. The back-office takes on the expenses and administrative burden that comes with employing those individuals while the company just enjoys the extra help.
If you have clients that are interested in hiring contractors, you can educate them on the proper way to do so by working with a contracting back-office. And if you have clients that are currently treating workers who should be W-2 Employees as 1099 Independent Contractors, you can help them get back on track by converting them to W-2 Employees working on contract through a contracting back-office.