Why You Should Care About Compliance

JUL 27, 2017 @ 08:00 AM

As the on-demand economy grows, independent professionals are becoming a larger and more essential part of the workforce. The number of self-employed Americans rose to nearly 41 million in 2017 and is predicted to rise to 47.6 million in just five years. This shift away from traditional employment allows independents to work on their own terms while organizations that engage them fill skills shortage gaps, gain staffing flexibility, and realize lower costs.

Coupled with this growth, however, we’ve seen an increase in federal and state government efforts to combat employees being misclassified as independent contractors. In June, the Department of Labor (DOL) removed the Obama-era guidance about joint employment and independent contractors. While it has been widely reported that this withdrawal does not change the legal responsibilities of employers under the Fair Labor Standards Act (FLSA), it may indicate that the current administration is taking a more traditional view of employment relationships, as opposed to past interpretation of these documents that assumed most workers were employees.

We’ve seen the results of these actions in the increase in class-action lawsuits, such as Citigroup’s $325,000 settlement for misclassification of technology workers, Zenefits’ $3.4 million payment to misclassified employees for unpaid overtime, and FedEx’s $228 million settlement for misclassification of delivery drivers.
Lawsuits like these are just one of many very real consequences of misclassification, but avoiding a misclassification suit isn’t the only reason to care about how one should engage independent talent.

Here are three reasons compliance should be top of mind for all organizations that engage independent professionals.

Compliance Aids In Proper Classification

Classification of independent contractors is not a clear-cut process. Federal, state and local government agencies use a variety of tests to determine whether or not a worker is a true independent contractor.

Just because independent contractors call themselves an independent contractor doesn’t mean they are one in the eyes of the law. Independents come from various backgrounds and experience levels and have different levels of self-employability. When engaging independent talent, it’s up to organizations to make a final determination of classification, but because tests vary from agency to agency and because regulations are constantly changing, these decisions can be complex.

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