Demand for independent contractors, freelancers, and other flexible jobs has never been higher. In 2018, 20% of all American workers were contract workers, according to NPR. That’s roughly 65.4 Americans!
Businesses are utilizing these more flexible and agile workers to complete tasks and even start new divisions. However, there is one issue. They might be mislabeling these workers and could risk high fines if caught.
While many could mislabel their contractors on purpose in order to save money in their business, most don’t. In fact, most errors that are made are made by accident because the laws regarding independent contractors are confusing. This is why understanding IC compliance is so important.
What is IC Compliance?
IC Compliance stands for Independent Contractor Compliance. There are laws and regulations that govern who can be classified as an IC and who cannot. For example, how much freedom that person has in determining how they work. This can vary by state, including CA, which just passed the law AB5, which makes it harder to classify workers as ICs.
What makes this subject so confusing is the lack of a clear definition. Each region has a “shade” or “balance” system that will determine how much of a contractor or how much of an employee your worker is. This can be both a good or bad thing depending on your situation.
What Determines Contractor or Employee Classification?
Determining what your placements or workers can be classified as is no simple task – and it varies by state! Some states have stricter rules than others. However, there are a few rules of thumb that can determine what option you should or can go with.
How to Classify Your Independent Contractors
If you’re looking to make sure you don’t place people in the wrong roles (or maybe to make sure you have your people in the right roles), then use this guide to get started. Remember, things change based on state and location, so you might need to look up more information.
Who Calls the Shots?
Most laws that talk about IC compliance require employers to give up control of a position. For example, if you hire an employee to run your social media, you can tell them when, where, and how to work. However, if you hire a contractor, you have to give up some of that control – more often than not, all of it. In other words, it becomes more of a client – expert relationship, with your company being the client.
Is the Contractor Independent?
Any real contractor or freelancer is a business by themselves, or at least they should be. This means they cover their costs, pay for their health insurance, and invest in their own supplies. An employee, temporary worker, and remote worker will have at least some of their equipment, health insurance, and taxes paid for by the business.
Other Signals of an Independent Contractor:
There are many things that may indicate that a worker is more of a contractor than a W2 Employee. For example, if the business provides guidance and specifications on what the employee does in their role, such as a job description, this may indicate they are a W2 rather than a contractor. On the other hand, if they don’t have regular meetings or a designated supervisor who reviews their performance, then the person may be more of a contractor.
How Staffing Fits Into This System
If someone wants a contract worker but needs to control a bit of the work, then your staffing firm is the solution. With FoxHire, you’ll be able to place your contract workers anywhere they’re needed. FoxHire will take on your contractors as their legal employer (Employer of Record.) That means we handle bills like AB5 in California. That said, we are limited to certain professions due to insurance reasons. If you want to see how FoxHire could help you, contact us today!
