Risk & Compliance
How Independent Is Your Independent Workforce?
Independent Contractor Classification You Can Trust
Worker Classification Best Practices
Accurate worker classification, in our world, is a must. With rapid growth of the independent workforce we’ve seen a dramatic increase in scrutiny by the IRS and state labor agencies to ensure workers are appropriately classified. Misclassifying workers as independent contractors presents a huge risk for any enterprise.
PayReel will help ensure that all your freelance contractors are properly classified by vetting the work, the worker’s role, evaluating the risk and making a classification decision.
Is Your Independent Contractor Really Independent?
This is a deceptively complex question that’s important to answer “yes”, because the risk of your company facing an IRS or DOL audit has never been greater.
Independent Contractors (ICs) are self-employed, hired to do a specific job and receive payment only for the work performed. Unlike a regular employee, they pick their jobs and regularly move from client to client, business to business. Also referred to as freelancers, consultants and “1099’s”, they report the payments received as business income and pay self-employment taxes.
Hiring an IC is attractive to those companies looking for outside creative resources, and who want to outsource work that is not central to their main line of business. The work is project-oriented and is typically completed in a short amount of time. And, you are better able to meet budget by paying your IC as a vendor, not as an employee.
But there’s a big catch.
The IRS has very strict guidelines that define true business-to-business relationships. These guidelines are meant to prevent firms from misclassifying would-be employees and thereby avoid, either knowingly or unknowingly, a bounty of state and federal taxes.
Key things to require when working with an IC
- Your contractor has an established business entity, with a business name and EIN to which invoice payment is made
- Your contractor provides services to other businesses outside your firm
- Your IC provides certificates of insurance, including at the least, coverage for general liability insurance and workers’ comp insurance
- You have a signed per project Agreement for Services between your company and the contractor
Compliance Best Practices
In the context of contingent workforce regulations, PayReel pays close attention to all employer obligations at the federal, state and local levels, including wage and hour rules, per diem, ACA tracking, and sick leave mandates.
It is imperative for PayReel to:
- Stay up to date with the Affordable Care Act (ACA) and closely manage all health benefits for its employees
- Track and keep accurate records of all employees’ hours accrued, time used and sick leave available in order to maintain compliance with legislation in locales where sick leave is mandatory
- Regularly monitor changing wage and hour laws, and stay ahead of the compliance curve related to minimum wage and overtime eligibility
- Remember that an independent contractor’s classification might change depending on his or her engagement or project, and monitor the ongoing work environment to maintain compliance with classification regulations
Security and Risk Mitigation Best Practices
Taking strong security and insurance measures helps mitigate risk. Vendors to large corporations must be held accountable to any client security program that helps to protect the company from threats. PayReel has installed, and pays close attention to, strict security measures and the demands of our client security environments.
PayReel maintains:
- Expanded insurance policy packages necessary to manage various risks involved in working with contingent workers
- HIPAA-based technology and operational security to protect your company’s and your workers’ information at the highest level
- The ability to adapt to client security requirements and processes
- Ongoing system testing to detect vulnerabilities, unauthorized access or malicious activity
- Closed network and storage that maintains and protects data integrity
- Employee management and awareness of employers’ physical goods such as laptops and key cards to limit unnecessary access to company information by contractors
Only best-in-class payroll providers create the coverage profile with policy levels necessary to meet the needs of large corporations. A payroll partner’s insurance structure is crucial to the success of a contingent workplace.
As Employer of Record, PayReel’s policies include:
- Workers’ Compensation
- EPL
- General Liability
- Professional Liability
- Cyber and Drone Insurance
- Auto, Foreign and more
Contact PayReel today to learn how you can avoid the risk of an IRS audit.
