MBO Partners proves terrific guidance on how to mitigate the risks of working with independent contractors:
1. Clearly Define the Status of All Workers
Clearly defining worker status is an important first step in ensuring compliance. Without a clearly defined employment status, your company may be vulnerable to an IRS audit. With W-2 employees, for example, employers are responsible for payroll taxes—half of FICA (Social Security and Medicare) as well as half of unemployment tax. They are not responsible for paying these taxes on earned income for independent contractors. Therefore, if an independent contractor tries to claim unemployment insurance, it can trigger a cascade of audits on the local, state, and federal level. Your company may be able to fight the claim, but damage may already be done.
Having a clear program in place for engaging and managing independent contractors is a very important part of remaining compliant with laws. Ensure practices are up-to-date and that enterprise managers follow these practices when finding and engaging independent talent.
2. Know the Rules and Follow Them
There are many different standards and rules for determining whether an individual is an employee or an independent contractor. Federal agencies including the Department of Labor (DOL) and Internal Revenue Service (IRS) as well as individual states each have particular laws and guidance documents regarding this topic.
As you begin to engage independent talent, become familiar with these agencies and their rules to make the best compliance judgments. If you are unsure of how to navigate these legal nuances, consider working with a firm that specializes in independent contractor engagement to help you properly assess your existing methods for engaging independent talent.
Read the full story at 3 Ways to Mitigate the Risk of Non-Compliance with Independent Contractors | MBO Partners