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As staffing professionals, it is vitally important to understand the many potential pitfalls of not following the correct procedures when appointing Independent Contractors. Aside from the correct contractual obligations required whilst onboarding new contractors, the legal rules and regulations surrounding appointments of this nature bring with them a myriad of potential legal minefields.

The main areas of legal compliance can be split into two key areas, those concerning the IRS and those related to Department of Labor Regulations. Let’s look at the IRS first.

The IRS requires that workers be properly classified as either employees or independent contractors. It sets up factors for auditors to review when considering the status of a worker: behavioral controls, financial controls, and the nature of the relationship. The IRS assumes that a worker is an employee unless it can be proven that the worker is an independent contractor. The IRS allows either the worker or the hiring company to apply for a determination on the status of a worker or workers as independent contractor or employee. This is where the form filling starts. In order to determine this status, you would use Form SS-8 for this request. Then we get on to income taxes, employers are required to send contractors (those who are paid $600 or more in the course of a year) a 1099-MISC form showing total earnings for the year (It doesn’t get any easier for the contractor either, they must furnish a valid taxpayer ID number (Social Security Number, Employer ID Number, or other) to the hiring company and because independent contractors are business owners, they must pay self-employment taxes on their earnings from self-employment.

Compliance is a lengthy and time consuming process. Outsource it to a trusted ORS Partner like IMS People Possible

Then we move on to the Department of Labor Regulations. The Department of Labor, Wage and Hour Division, calls the relationship between independent workers/business owners and their hiring companies as “merely contractual” and not an employment. So, it is wise to have a good understanding of the Fair Labor Standards Act (FLSA) regulations.

It certainly is no small undertaking to ensure that all the ‘i’s are dotted and the ‘t’s crossed. It is the reputation of the company that is at stake if shortfalls in compliance occur. Worry for businesses of all sizes because compliance is, after all, a complicated business that requires specialist government credentialing. Therefore, it is no wonder that more and more companies are looking towards the expert assistance of an Offshore Recruitment Services partners (ORS) like IMS People Possible to ensure full compliance and adherence to the latest legislation without having to commit internal resources. The partner approach, using an ORS provider is proven to be less time consuming and expensive for the business and ensures senior management are not being detracted from the day to day running of their organisations.

IMS People Possible offers a comprehensive range of cost-effective and flexible solutions that are designed to ensure your business meets all areas of contractual and legal compliance associated with Independent Contractors. Working with an offshore recruitment services partner like IMS People Possible can be invaluable in ensuring compliance across the board.
To discover how an offshore recruitment services partner can support your recruitment business.

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