CWS 3.0: August 7, 2013

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Independents: An Essential Talent

By Patricia Griffin

It’s been a few years since the Great Recession, and while we may still be hesitant to utter the words “economic recovery,” most of us are looking ahead, investing in and staffing our businesses with cautious optimism for growth.

However, we can’t avoid the challenges inherent with growth, among them the severe lack of available skilled talent in our workforce. Here’s the paradox: The unemployment rate in the U.S. is reported to be 7.5 percent (which contradicts that statement), yet ask any high tech recruiter to find a mobile or cloud developer in the heart of the Silicon Valley where Apple, Facebook, Google, Salesforce, Linked In and Twitter hypercompete for limited talent and unemployment actualized becomes a negative number.

Competing and winning the talent acquisition game is on the top of the strategic plan of every growing company. And much of the top talent will be found in the world of the independent contractor (IC), aka the freelancer, sole proprietor or consultant. They are essential. It is within their ranks that you will find the most uniquely skilled and therefore the most highly compensated of the contingent workforce. They are the most committed to the chosen lifestyle they enjoy, and equally illusive to find within your organization, although they are there. Unlike temps, they typically enter the workforce one at a time through a direct engagement, leaving no aggregate reporting on headcount, evidence of background/security screening or data on actual spend, let alone return on investment.

These talented and innovative independents thrive on their status, and cling to the autonomy, rewards and success of that lifestyle, so it’s not surprising that the growth of the independent contractor workforce has outpaced temporary staffing three to one, according to our company’s most recent polls. What all this means is if you are not using ICs in your workforce, you are sacrificing a significant competitive advantage in talent acquisition, innovation and productivity. According to Aberdeen research conducted in March and April 2013, 26 percent of an average organization’s total contingent workforce is expected to be comprised of ICs by 2014.

Proper Classification. Of course, those companies that are increasingly competing for independents need to be aware of the inherent and potentially devastating risk of ignoring the ever-expanding IRS and state regulations regarding workforce classification. As the nature of employment continues to evolve from the traditional to fractionated categories, so does the government’s broadening definition of compliance. Smart businesses are taking proactive steps to ensure their resilience to rising risks, growing regulatory complexities, adherence to changing policies, focus on enforcement and increased penalties through more comprehensive compliance programs. VMS, MSP and compliance have become the three- legged stool that balance the efficiency and risk of a flexible, nonemployee workforce.

Three key drivers have made contractor classification and management a priority: 1) the critical business need for spend control and productivity tracking, 2) increased legislation and scrutiny and 3) limitations on a company’s access to the best talent with frenzied competition compressing the supply and driving up demand.

Legislation and Regulation. Although a number of bills aimed at tightening the noose on misclassification have been defeated in past Congressional sessions, agencies on all levels of federal, state and local governments have been given more authority and the mandate to enforce existing classification regulations. In fact, 44 percent of the $12.9 billion allocated to the IRS in the Obama administration’s 2014 budget is earmarked for compliance enforcement —which is expected to yield $32.7 billion in net revenue.

Adding insult to injury, the latest and pending legislation and initiatives are adding to the pressure. Two examples of this are the Department of Labor’s “Right to Know” initiative and the polarizing debate over healthcare reform. The “Right to Know” initiative requires, among other things, the notification of workers’ status as employees vs. other (such as independent contractors), and whether that worker is entitled to the protections of the Fair Labor Standards Act.

While a recent survey noted that the majority of independent contractors is independent by choice — not circumstances — the employer mandate portion of the ACA could result in thousands of independents seeking reclassification. With the submission of an SS-8 form, any IC can request an IRS investigation, and if they are found to be an “employee” by government guidelines, they may then be entitled to the benefits under the Affordable Care Act, adding to companies’ risk already looming for back taxes and penalties associated with reclassification. While the employer mandate was delayed by a year to January 2015, companies should be evaluating their IC engagements to ensure each is classified properly.

Independents: An Essential Talent 

Although this article focuses on the U.S., most thriving business are already deeply entrenched in other countries. With the melding of cultures and best practices, the regulatory impact is becoming more and more visible. The G20 countries already possess their own version of independent business compliance regulations with their own unique and varying regulatory risk factors (think ministries of labor). Companies venturing into the global network should seek the advice of subject matter experts, because resilience to risk starts with education and preparation. 

 

Patricia Griffin is founder and CEO of ICon Professional Services. She can be reached at pgriffin@gotoicon.com.

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ICon Professional Services

Izumi Barker 13/08/2013 6:12 pm

Government agencies are not trying to limit the use of independent contractors; the “crackdown” is about misclassifying workers. According to the Department of Labor, upwards of 30% of businesses misclassify their employees —leading to tax gaps, loss of worker protections and benefits, and unfair burdens to companies that do follow the law. ICs who meet all the state and Federal guidelines are without risk regardless of what agency would audit for compliance.
Independent Contractors do possess unique skills that are in high demand, and it is best practice to supplement the workforce with the innovations they can bring. A true independent contractor relationship provides benefits for both the engaging company and the talent—scalability, flexibility, access, cost vs. value to name just a few. You may be surprised to hear that 60% to 70% of contractors we review can be qualified as Independent Contractors, saving the company 20% in payroll mark-up for the same person. With the continued global push, technology advances, generational working styles and preferences, and hyper-specialization of skill sets, it’s very unlikely that ICs will be a thing of the past.


Bill 07/08/2013 1:15 pm

Very contradictory article. On the one hand the author is saying how companies must utilize ICs to remain competitive and then she says that the ACA and other government regulations are going to crack down on those using ICs. With the convergence of the IRS, DOL, states hungry for money and the ACA, ICs are going to be a thing of the past soon unless they live off fixed bid projects.


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