March 29, 2018

The Contingent Workforce – Part 2: The Risks of Engaging an Independent Consultant Directly

To take advantage of all the benefits of contingent labor, employers have two choices: to source, recruit, and hire independent consultants directly through their own networks or online, or to use a professional staffing agency.

By going it alone and hiring an independent consultant directly, employers open the door to significant and growing risks such as worker misclassification, security, and worker quality.

  1. Worker Misclassification. Employers must comply with all state and federal legislation regarding wages, taxation, immigration, and employment. When engaging independent consultants directly, employers may unknowingly and incorrectly classify them as such when they are operating as employees. If an employee is found to be misclassified as a consultant, employers are liable for unpaid wages as well as employment and disability insurance taxes. Legal action and fines may also ensue.
    Oftentimes, “the overwhelming number of businesses that misclassify employees as independent contractors have simply paid insufficient attention to the legal requirements or do not understand the laws in this area, either because they have mistaken conceptions of the laws or because they are confused by the array of different laws at the federal and state levels.”
  2. Compromised Security. Even as the world’s dangers mount and workplaces grow more vulnerable, employers often do not thoroughly verify independent consultants’ references or conduct background checks, nor are they required to confirm citizenship. Without ensuring these safeguards are in place, the employer increases security risks when engaging consultants directly.
  3. Inferior Worker Quality. The advance of technology has led to a shortage of skilled workers. In an effort to fill the skills gap, employers often turn first to job boards, social networks, and online employment sites. Online especially, potential employees may misrepresent themselves, underbidding talented professionals and delivering shoddy work. Hiring managers often can’t prescreen extensively enough to verify that every independent consultant actually possesses all of the skills they claim to. When a hire doesn’t work out, time and money are wasted. What’s more, project deadlines, product quality, customer service, and even business relationships may be seriously compromised.

These risks are real and rising. With the economy’s increased reliance on independent consultants comes intense focus on employment regulations by government and labor activists alike. Legal action—and the press that comes along with it—is also on the rise. In California, for example, Uber drivers made big news by filing a class action lawsuit seeking employee status. In a similar misclassification suit, Lyft paid its California drivers a $12.25 million settlement and drafted new terms of service for its workers nationwide. The possibility that both companies will have to reorganize their business models by recognizing drivers as employees is real and could exponentially increase their cost of doing business.

*Excerpted from The_Contingent_Workforce

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