Chances are your competition is at this moment reinventing and retooling to get ahead of you. It doesn’t matter what you do — make high tech equipment, operate in the health care industry, or sell financial products — your company must continually aspire for leadership.

Of course, your in-house staff knows how to do what you do today really well. However, when significant change is necessary you must find those with fresh ideas and new ways of doing things. In most cases, businesses look outside for sources of innovation and reinvention. External experts can help you develop a new product or service, or establish new processes. In short, they can help save your business.

However, really creative workers often don’t do well in an established business environment for the long term. They want to continually take on new challenges. They are not looking to be permanent employees. That is why most businesses know the best solution is to engage these experts for a specific project, have them provide the fresh expertise needed, and then let them move on when the project is completed.

It can be an ideal solution, if you go about things correctly. Problems typically arise when you don’t have in-house expertise to manage the contingent workers. Your system should:

• Cost effectively onboard contingent workers
• Properly classify them
• Properly manage them during the project
• Properly document the engagement as it progresses
• Properly let them go

Mistakes in any of these areas can create huge legal battles and unplanned liabilities; including civil lawsuits, tax audits and violations under the Fair Labor Standards Act. This is especially true today when the government is looking for additional revenue. The misclassified worker has been identified by federal and state agencies as a rich source of tax assessments, including penalties and interest.

Bottom Line: When bringing in consultants, be sure you are protected. Follow the advice of a qualified expert and do it right.

Disclaimer: Given the general nature and context of this article, the material presented should not be relied upon or construed as either tax or legal advice. For specific information on recent developments, the effects of particular factual situations or of a particular law in regards to your business, or before making decisions based upon this presentation, you should obtain the opinion of a qualified expert.

There are numerous incidents that can trigger an IC misclassification challenge at a later date. They include:

• Being audited by a tax agency

• A former consultant files for unemployment insurance

• A current worker files a worker’s compensation claim for an injury

• A current or former consultant files a lawsuit for overtime, fringe benefits, etc.

In each of these situations, and many others, you will need evidence to prove you did everything right and the consultant was truly in business for himself.

Here are a few of the business documents you should safeguard if you utilize ICs:

• The written contract

• The statement of work, or description of the deliverables

• Timetable for deliverables

• Milestones completed

• Circumstances of how the job ended (documentation showing successful completion of work, reasons for early termination, etc).

• Payment schedule (amounts paid, when paid, and what payments were based upon).

• Performance reviews: Were you satisfied with the work and would you re-engage this contractor?

Once this documentation is collected, it needs to be stored in a safe location for at least five years after the project ends and after the consultant is gone. We recommend this because challenges can come several years after an engagement concludes. By then, the individuals who had personal knowledge of the project may be no longer available, or their memories may fade. Also, the contractor may not be available. This makes reconstructing data at a later date costly, and it can also create questions about accuracy.

The best practice is to properly manage your consultant population and protect your business by gathering the necessary documentation when it is fresh and readily available.

Disclaimer: Given the general nature and context of this article, the material presented should not be relied upon or construed as either tax or legal advice. For specific information on recent developments, the effects of particular factual situations or of a particular law in regards to your business, or before making decisions based upon this presentation, you should obtain the opinion of a qualified expert.

Here are the three top responses:

• Lack of communication between staff and management

• Lack of recognition and praise

• Lack of training, development, and/or educational opportunities

The article went on to give advice on how to better communicate with, provide recognition to and train staff. As good as this advice may be for managing your employees, from an independent contractor (IC) compliance point of view, doing this with your ICs puts you at risk of converting them into misclassified workers. Here’s why:

• Communication: Insuring your ICs are in the “company’s communication loop” for such things as staying abreast of organizational information, changes in company policies, updates on the company’s financial performance, and new initiatives not related to their project or about other group projects not related to theirs tends to draw them deeper into your company family and into your control. This information is usually distributed in company-wide internal e-mails or during staff meetings. Treating contractors the same as your employees tends to make them look and feel more like your employees. This opens the path to misclassification.

Asking employee-staff: “Do you have the right resources to perform your work effectively?” is another good practice, especially if you then try to provide it. ICs, however, are ideally supposed to provide their own resources to accomplish the job. Providing ICs with resources (tools, supplies, equipment and workspace) tends to make them look like an employee.

• Lack of recognition and praise: The article recommended you take time to praise workers who go above and beyond, call attention to their successes and contributions during staff meetings or via company-wide e-mails, and be sure to copy relevant managers. Doing this for employees is an excellent method of motivating your best workers. However, doing this for you ICs is the path to misclassification. ICs need to receive timely payment for a completed job and possibly receive a good recommendation for their next potential client when the job is successfully completed. These should be praise enough for a true independent contractor.

• Training: The lack of training, development, and/or educational opportunities will definitely create an unhappy employee. It doesn’t take much management experience to know providing these opportunities for your staff will improve morale and increase productivity. However, providing these opportunities to your ICs is a major step towards misclassification.

The courts have viewed training as a method of instructing the worker how to perform the details of the work, which is viewed as evidence of the right of direction and control — the primary deciding factor in common law employment determinations.

The underlying tenet here is that employees and ICs are mutually exclusive sets. Almost without exception, you cannot have them doing similar work under the same environment and consider them to be different under common law. You just cannot treat your ICs the same way you treat your employees. It makes them look like your employees and usually ensures creating misclassified workers.

Disclaimer: Given the general nature and context of this article, the material presented should not be relied upon or construed as either tax or legal advice. For specific information on recent developments, the effects of particular factual situations or of a particular law in regards to your business, or before making decisions based upon this presentation, you should obtain the opinion of a qualified expert.

The article reported that one of the effects of this shortcoming is a “talent crisis” in vital high-end business functions such as finance, information technology and procurement. The report indicated that there are many highly skilled people looking for new projects, but HR departments don’t have the resources to find and screen them. This is especially true for short-term needs or special projects that are not part of the mainstream, permanent employee hiring process.

The study examined six areas of talent management, including recruiting and staffing. According to the report, poor HR support is causing many businesses to experience a hard time finding and retaining the right talent. “Companies aren’t satisfied with the support HR is providing,” says John Cooper, associate principal and HR Advisory Program leader at The Hackett Group. The primary reason given for this shortcoming? Limited budgets.

Does this sound familiar? You need top talent and your in-house HR department doesn’t have the resources to provide the recruiting and screening you need. One solution is to turn to a third party vendor that is set up to provide this special service efficiently, at a lower cost – a company that specializes in providing skilled project managers and teams of subject matter experts for important, temporary projects.

If you choose the correct business partner, you don’t need to worry about the following issues:

• Finding highly qualified candidates
• Checking their experience
• Vetting their suitability for the role
• Verifying technical qualifications
• Conducting background checks
• Ensuring delivery of results

Once the ideal candidate(s) is/are selected, the on-boarding process is fast and efficient. Also, it is very important to ensure that the proper classification is verified and you will be in compliance with all state and federal laws. Leveraging the top-tier of the contingent workforce is a good way to achieve the results you want from an important project.

Disclaimer: Given the general nature and context of this article, the material presented should not be relied upon or construed as either tax or legal advice. For specific information on recent developments, the effects of particular factual situations or of a particular law in regards to your business, or before making decisions based upon this presentation, you should obtain the opinion of a qualified expert.

To protect your company you need to put him/her on a payroll — either yours or with a company like Collabrus. Government enforcement is more aggressive than ever before and if a single consultant is found misclassified, an enforcement agency will assume other workers are also misclassified and investigate all consultants in your company for the full statutory period. The resulting tax assessments, fines and penalties can be very expensive. These issues can come up several years later from a variety of sources including unemployment claims, harassment complaints, routine tax audits, injuries on the job, and even civil lawsuits.

A misclassification finding by the IRS can also have negative consequences for the consultant. The pre-tax, self employed retirement plan could be disallowed, which may lead to an income tax audit of the consultant with additional taxes, penalties and interest assessed for prior years.

There are many clear advantages for the consultant being a W-2 over a 1099. This is especially true if there is a third-party vendor like Collabrus acting as the employer-of-record. For example, ICs injured on the job (car accident, slips in the break room, carpal tunnel, etc.) are on their own for medical treatment. Employee-consultants are covered for these issues.

A W-2 consultant can negotiate his/her own assignment parameters, pay rate, and work schedule; however, quality third-party vendors can help negotiate the legal terms and execute the contract. These vendors can also provide an efficient on-boarding process that shortens the start-to-work time and offers a full-range of employee benefit options to help attract and keep the best, senior-level consultants.

Among these benefits are the following:

• Regular pay schedules. The consultant can count on being paid timely by compensation plans that include: salaried, hourly, fixed project price, or deliverables-driven options

• The payments can be made in semi-monthly paychecks or direct deposits

• Proper employer payments and withholdings are made and requisite taxes paid, so on April 15th there are no surprise penalties for not depositing sufficient amounts during the year, a common predicament for many consultants

• Coverage for general liability; errors and omissions; employer professional liability; and worker’s compensation insurance

 • Medical, dental, and vision insurance, with the option to continue coverage through COBRA when the engagement ends

• Expense reimbursement with an “accountable plan” so consultants can continue to cover business expenses on a pre-tax basis

• A matching 401(k) plan

• A Section 125 pre-tax flexible spending plan

• A Section 132 commuter benefit plan

• Pre-tax dependent care plans

• Unemployment insurance coverage

• Disability insurance coverage (in California)

Employee-consultants, managed by a third-party provider, can also enjoy the continuity of a single year-end W-2 for all assignments, and are able to take their benefits plan with them to their next project.

Disclaimer: Given the general nature and context of this article, the material presented should not be relied upon or construed as either tax or legal advice. For specific information on recent developments, the effects of particular factual situations or of a particular law in regards to your business, or before making decisions based upon this presentation, you should obtain the opinion of a qualified expert.