We all recognize the value independent contractors (ICs) bring to an organization. We also recognize that using these critical resources comes with the responsibility to make sure there is a process in place to ensure they are properly classified. Development of a compliance program is not a one or two step initiative, and securing stakeholder sponsorship prior to implementing any type of compliance program is critical. The level of sponsorship depends on the degree to which a company uses ICs. Companies with a large contingent workforce program or expansive use of ICs including freelancers should have a very high level of sponsorship due to the potential risk of exposure to the business and the need to drive strict controls.
The key elements to ensuring stakeholder sponsorship include:
Doing your research. Internal research will help you to understand how and when your company utilizes ICs. Understand the risks of misclassification and some of the key questions associated with it:
- Is there specific direction and control in managing your ICs?
- Are your ICs doing the same type of work as full time employees?
- Does an IC have a W-2 and a 1099 for the same year with your company?
Getting key answers from your internal experts. We know there are issues, but what are the ramifications? Your stakeholders need to be educated on both the “why’s” and “what’s” involved with misclassifying workers. If any person or department understands the consequences of employee misclassification, it’s your company’s legal team. There is a mountain of information available to companies regarding federal, state and local efforts to eliminate misclassification practices and legal experts should be fully aware of the damage an audit can cause. Knowing that, they should support and even help drive the process of implementing a compliance program within your company.
Building your business case. As with any new initiative, the support you gain is based only the information you provide. Show them you’ve done your homework. Outline the risks, IRS “red flags” and the impact it may have on your organization. Highlight where your current process may be lacking, what you are currently doing to manage ICs and what needs be done going forward to ensure risk mitigation. Start with a realistic, manageable solution — if you have a large IC population, don’t expect to tackle every contractor from the start.
Presenting your findings to an influencer and/or decision maker. Once you get all your research, program information and legal support together, it’s time to share your conclusions and suggestions with someone who can help escalate the program to an executive level to keep the process moving forward. Be direct in your communication about the consequences of having misclassified workers and offer a clear, proven solution that will show how a compliance program will mitigate your company’s risk while saving time, resources and money.