Engaging with ICs? Three Things to Consider

466162733Engaging with ICs is a very productive and cost effective way to work smart in your business.  As more companies implement contingent worker programs as part of their overall business strategy, it’s important to make sure that you as a company are protected from issues beyond the proper individual independent contractor (IC) classification of your contractor talent.  Many articles have been written about IC compliance, and the aim of these less obvious recommendations will help ensure your contractor talent program is successful and fully compliant.

1. Understand the importance around proper IC classification and the Affordable Care Act (ACA). As a company, it’s essential to have a clear IC compliance process in place to provide protection from possible issues regarding health coverage and other benefits responsibilities.
     a. Valid ICs should not receive health insurance from your company.  In fact, the IC agreement should include specific exclusion language that outlines the relationship and their independence.If the IC is determined to be misclassified by a state or federal agency, your company could then become liable for not offering proper insurance options to one of its employees, opening your company to fines and penalties associated with IC misclassification.
     b. The ACA requires that individuals carry insurance, which can be obtained through the health insurance exchange or through a private insurance broker, among other resources. In order to avoid the ACA’s individual mandate, an IC themselves could make a claim that they have been misclassified in an effort to receive health benefits from your organization.  In this case, the company must be able to qualify why they have classified the worker as independent.

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2. Intellectual Property (IP) belongs to the IC unless specifically assigned to the company. Many companies do not realize that unless there is very specific language within an IC agreement regarding ownership and assignment of “work product” and that the agreement is executed by both parties before a project has begun, any work completed before that time may belong to the IC and not the Company.  To avoid costly confusion, it is important to agree on work product ownership in advance of the project and that assignment of all created work product is detailed in a signed agreement.

Protection and security of your company’s IP should be top consideration when engaging with ICs, and having the proper agreements in place at the start of an engagement will ensure your business is safeguarded.

3. Determine how an IC is contracted by your company.  Direction and control of an IC is one of the key determining factors during the vetting phase of any IC compliance process.  If you engage with ICs as part of your company’s contract worker population, confirmation on how those IC engagements are managed is critical.Equally important is incorporating ongoing revalidation throughout the project to ensure that direction and control behaviors do not surface.Is an IC being told how to conduct their involvement in a project?  Are they being managed in a similar fashion as that of a full time employee in your company throughout their assignment?  Are they essentially being told how to perform their work as they engage with your company during their contract?If an IC is receiving any level of direction and control from you or anyone else in your company, they should not be classified as an IC and must be categorized as a W-2 worker.  For those who qualify as an IC, the contract should clearly outline the relationship between the worker and your organization.

Considering the dynamic legislative and regulatory environment, establishing and managing an IC compliance program can be a considerable undertaking.  Because of this, more companies are choosing to work with a compliance solutions partner to mitigate the risk of IC misclassification as well as having the knowledge that their processes remain consistent and the program is successful.

MORE: The price of misclassifying ICs

Mark Young

Mark Young
Mark Young is the senior vice president of the Human Capital Practice for Synergy Services. He is certified as a Senior Professional of Human Resources (SPHR) and is an accredited Certified Contingent Workforce Professional (CCWP).

Mark Young

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