Staffing Industry Analysts posted an article that warns buyers about some of the risks of engaging with a worker through an online tool. While easy to use, many online tools don’t provide enough information to determine if the engagement involves an independent contractor relationship or an employer-employee relationship. The article states:
Through an online staffing tool, companies can engage contractors to perform a task on a work order, all in a simple, seamless, online manner. Companies can procure talent as easily as they would order a book, sometimes in far-away countries. Costs are minimized. In many cases, the independent contractor status of the worker is never challenged; nor should it be challenged — the worker has no more connection to the client company than a series of clicks, a transfer to the client of some work product, and a corresponding transfer to the contractor of a payment.
Many people involved in the industry rightly ask how can this possibly create an employment relationship? In many cases, the transaction would not create an employment relationship. But sometimes it does. For example, in recent cases, these models sometimes do not engage in any IC classification vetting. The worker clicking through to bid on the project might or might not really be an independent contractor. Whether the worker is an independent contractor, or not, is indiscernible to the buyer. The buyer may not be gathering enough data to make an IC classification determination. In some cases, the buyer is not gathering much data at all that would be useful in making this determination. In many cases, a buyer will contractually delegate worker classification to a vendor. This is normal and lawful; but it does not solve the problem if the vendor is not gathering much data, either.
An aggravating factor is a lack of a single rule or test for determining whether an individual is an independent contractor or employee. One of many tests employed by courts is the “economic realities” test, which considers factors such as:
- The extent to which the services rendered are an integral part of the principal’s business.
- The permanency of the relationship.
- The amount of the alleged contractor’s investment in facilities and equipment.
- The nature and degree of control by the principal.
- The alleged contractor’s opportunities for profit and loss.
- The amount of initiative, judgment or foresight in open market competition with others required for the success of the claimed independent contractor.
- The degree of independent business organization and operation.
When an independent contractor is engaged through an online tool, how does the vendor/contractor fare under the economic realities test? In many cases, the buyer cannot know. One of the benefits of the online engagement model is nobody (or virtually nobody) in the process is spending very much time (if any time at all) looking at/considering each engagement. The transaction time for each engagement is cut down to near-zero. This is an enormous efficiency benefit. But, this very benefit can prevent actual consideration of the factors that bear on IC status….
Read the full story at Online IC engagement: Tread carefully.