What Makes Independent Contractor Compliance Essential
The gig economy has changed the way a lot of companies do business. Even for the most established professionals, working with independent contractors has been seen as a method to help cut down on costs and potential legal liabilities. However, this method opens up a new liability of its own, namely, worker misclassification. Not correctly identifying worker status leaves a major compliance risk, and potential loss of intellectual property. Here’s what you need to know.
Independent Contractors Vs. Employees: The Landscape
The main reason that workers’ status is so important is that you have government agencies at the federal, state, and local levels looking for things to make sure the appropriate taxes are collected. This is especially important for international businesses, as tax agencies will audit them to make sure all taxes are covered, and that independent contractors aren’t crossing over into employee’s duties. If not, fines will be imposed.
If you’re looking to go abroad and avoid employee misclassification risks, solutions like Acumen’s Independent Contractor Compliance (ICC) or a Global Employer of Record service are key so you can follow classification/tax regulations both in your base country and where you are doing business internationally. In essence, global businesses hiring globally dispersed teams have twice the classification risk.
One of the major differences between the two categories is that an independent contractor and employee are entitled to different items, like healthcare, benefits, time off, etc. As workers in the gig economy are beginning to lobby for more and more employee status, the risk grows. Not only do non-compliant companies find themselves at risk for fines, but there’s also a brand hit and potential criminal charges. In many cases, contractors may lead the charge, reporting to the government if they feel misclassified.
One final note here is that because of the rise of the gig economy, employees and contractors are becoming more blurred. This means that, technically, you may not misclassify someone, but still end up getting fined because the demarcation isn’t as clear.
Avoiding Employee Misclassification Risks Through A Global PEO Solution
So, you want to go global, but also protect your company. A global PEO solution is the ideal step to take here. In essence, by working with a PEO company, you are hiring full-time employees, but a third party helps you with regard to the responsibilities you have, like payroll, global corporate tax, legal and HR matters, employee benefits provision, for example. Yes, this costs more upfront than working with an independent contractor. However, this is not just a cost—but an investment in your security and freedom from financial and other losses.
In general, investing in your employees when managing globally distributed teams is a good trait to follow. Not only does moving from independent contractors to full-time employees give your team more trust in you, it also avoids the constant turnover that happens in a lot of work environments. It’s also best for the long-term. You don’t have to worry about penalties for noncompliance, or paying more down the line to convert your contractors to full-time employees later if needed. In addition, being on your team formally means you don’t have to worry about employees taking IP with them if they leave. In addition, employee loyalty grows as they feel as part of your global team.
When you choose Acumen as your global PEO provider, you’re getting more than a partner to help you avoid workers misclassification. We combine PEO with a variety of other services, like an online payroll calculator to help you find the cost of employing a specialist (both local and expat) in 190 countries.