SI Review: August 2013

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Expert’s Corner

Teach Them Well

Why staffing firms need to educate their clients on engaging contractors

By Patricia Griffin

Although our national outlook is steadily improving, we can’t avoid the challenges inherent with growth. One such challenge is the severe lack of available skilled talent in our workforce. Competing and winning the talent acquisition game tops the strategic plan of every growing company. Much of the top talent will be found in the world of the independent contractor (IC). 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.

Reality check: If your staffing firm is not looking to ICs to source your job orders, you are sacrificing a significant competitive advantage in talent acquisition. According to research conducted by Aberdeen in March and April 2013, 26 percent of the average organization’s total contingent workforce is expected to be comprised of ICs by next year. Staffing firms need to figure out how to incorporate them in their recruiting efforts to serve their clients better.

Of course, the use of ICs comes with potentially devastating risk to you and your client if you ignore 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.

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 hyper-competition compressing the supply and driving up demand. Staffing firms can help their clients in their compliance efforts by staying abreast on the legislation and regulations and ensuring the ICs they assign are properly classified.

Legislation & Regulation

Although a number of bills aimed at tightening the noose on misclassification have been defeated in past sessions, agencies at all levels of federal, state and local governments have been given more authority to enforce existing classification regulations. Forty-four percent of the $12.9 billion allocated to the IRS in Obama’s 2014 budget is earmarked for compliance enforcement, from which the administration expects to bring in $32.7 billion in net revenue. The IRS Strategic Plan also will focus on offshore tax evasion, using new information reporting requirements to reduce underreporting and the tax gap, and expanding pursuit of noncompliant corporate and high-income taxpayers.

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, employers to notify workers of their status as employees versus other (such as independent contractors), and whether that worker is entitled to the protections of the Fair Labor Standards Act.

Some provisions of the Affordable Care Act (ACA) will go into effect in January 2015. Although a recent survey noted that the majority of independent contractors are independent by choice not circumstances, benefits available under the ACA could change those “circumstances.” ICon’s compliance and legal department predicts this will result in thousands of independents seeking reclassification via an IRS investigation. If they are found to be an “employee” by government guidelines, they would then be entitled to the benefits under the healthcare plan — adding to the risk already looming for back taxes and penalties associated with reclassification.

Although this article focuses on the U.S., most thriving businesses 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, each with unique and varying regulatory risk factors. As companies venture forward into the global network, they will need staffing firms to be subject-matter experts because risk resilience starts with education and preparation.

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

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