Pandora’s Box: Misclassification

The IRS looks for it. Employers dread and hate it. And regardless of the different sentiments it arouses, it is not going to go away: Worker misclassification. According to a recent report by MBO Partners there are some 16 million independent workers in the U.S. today, including independent contractors and temporary workers.

It comes down to competing forces, says Gene Zaino  president and CEO of MBO Partners. The government depends on the more traditional employment model in order to operate, he says, specifically because of taxation. The government suspects it loses billions annually in unpaid taxes from independent contractors. But if they were classified as employees, the taxes would be withheld by the company. However, more people want the autonomy of the IC life, Zaino explains.  “You have the individuals finding that they are at a point in life where they want to take more control.”

No matter what way you look at it, the Pandora’s Box of misclassification has been opened. So while more people are leaning toward the independent model, there is increased regulatory scrutiny – there are 14 bills pending right now to increase enforcement of independent contractor misclassifications.  And what do companies want? Zaino believes that companies want to be more agile without increasing headcount. The value of a temporary workforce is obvious. Staffing Industry Analysts’ own buyer survey revealed that contingent share of the labor force is increasing.

Zaino predicts the market will respond by becoming more educated on being compliant rather than avoiding the use of contingents. Already, there are numerous newsletters, legal updates and blogs focusing on the topic — our very own CWS 3.0 is a great example, covering the topic and related news frequently. People’s understanding of compliance — be it misclassification or other areas — will grow. In the process, companies will learn to deal with regulatory issues, and business tools will emerge in the marketplace to make our lives easier. Being compliant will be a business requirement and people will conform, he says.

My opinion if you don’t have the required compliance expertise in-house; outsource it to a third party. There are a host of options. Do your due diligence and take your pick, because the issue can’t be put back in the box.

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