Re-Balancing IC Compliance for the New Normal
  • 6 min read

Re-Balancing IC Compliance for the New Normal

There’s never been a better time to transition your workforce to a more fluid blend of full-time workers and independent contractors.  In this article we examine how artificial intelligence has found its home performing what is on the surface a very simple task–exposing misclassified independent contractors.

When COVID-19 struck it created the ‘next normal’

Most industry commentators agree; the world of work has changed to the next normal, and it’s not likely to return to the good old days any time soon.  Talent leaders are returning to new-look offices fashioned to support social distancing (a term nobody had heard of until 2020) and they know the way their workforce is designed must change.

For one thing, many exec teams have worked out that workers perform admirably well remotely.  This has motivated firms like Google, Facebook and Twitter to tell their people to continue to work from home until at least the end of the year.  Another weird experience for many hiring managers is the act of hiring a person they’ve never met before.  These behaviors that would’ve been considered laughable in 2019 by many leadership teams.

Talent leaders who’ve been bucketing the water out of the boat in the last few weeks, have seen a new normal take shape.  Now they’re refocusing their attention towards the immediate talent gaps.  And, when they’ve time to look up and stare into the distance, they’re thinking about how to re-draw their workforce design for an unpredictable future.

An adaptive organizational workforce is the new black

COVID-19 has evidenced the power of organizational agility as today’s ultimate competitive weapon.  Pharmaceuticals companies like Astra Zeneca and GSK have pounced on the opportunity to deliver potential treatments and vaccines for COVID-19, working in partnership with Universities.  Amazon has partnered with pharmaceuticals retailers to underpin the medical logistics needed to facilitate thousands of tests.  Meanwhile, the Mercedes Formula One team, Lotus Cars and Dyson are just some of the unfamiliar names moving into the medical equipment market by leaning on their R&D skills.  When the UK government requested help to supply PPE, they were inundated with 150 applications from domestic companies offering to produce it; many of which hadn’t existed 3-months’ prior.

Companies serious about surviving the next five years, know they’ve to adapt faster if they are to compete.  As this new reality dawns, a logical conclusion is that the design of the workforce needs to be the focal-point for innovation.

At one time, employing the majority of your workforce was seen as a badge of honor.  Companies would boast about how many people they employed as eagerly as they would show newcomers to their corporate offices and the impressive fountains on view from reception.  But now, a large FTE count looks remarkably similar to a shackle and chain.

These aren’t normal times.  This is not the time to wait for next year’s bi-annual re-org, even if it were affordable.

Creating a fluid workforce

Transitioning your business direction in weeks, not months demands a more fluid workforce That means employing more independent contractors. A flexible workforce has to become the new normal.  Those organizations that don’t make that change, will surely die.

‘There are 53 million freelancers in America today. By 2020, 50% of the U.S. workforce will be freelancers.’ Brian Rashid on Forbes.com. The article was titled The Rise Of The Freelancer Economy.

But there’s a problem with re-tooling your workforce by contracting more freelancers, and it’s not that there isn’t enough talent to go around, or that they don’t do as good a job as full-time employees (in fact many contractors today are the FTEs of yesterday that elected to find a smarter work-life balance for themselves, or worked out they could make more money on the other side of the firewall).

For many, the problem with hiring a flexible workforce–the open manhole cover that causes many organizations to stop and think–is the risk attached to Independent Contractor Compliance.

In India alone there were 175 deaths from people falling into open manholes in 2019.  The risk to organizations running at pace to transition their workforce design to a new agile model is no less great.

Walking the tight-rope

Independent Contractor risks such as misclassification and missing insurance cover have become a much bigger problem in 2020 for a number of reasons:

  1. More U.S. States are getting organized around fines for misclassification because of the huge lost tax opportunity it represents.  In the last 10 years, IC classification laws have been introduced in 30 states, including California and NYs “Freelancers Aren’t Free” Act, 2017. GAO estimates federal & state agencies lose up to $57 billion due to workers being paid as contractors instead of employees.
  2. Many organizations aren’t used to dealing with misclassification issues because before COVID-19 the number of flexible workers they hire has been relatively low.
  3. Tax regulations are in a state of flux and organizations are at risk of falling foul of legal changes. California’s new gig worker law went live Jan 1, 2020 and makes contract workers de facto employees.  NY, NJ, IL have all announced similar initiatives.

The consequences of non-compliance are not without their teeth.  They include back-taxes, fines, interest, claims for benefits, backdated salary claims, class-action lawsuits, criminal penalties, and loss of brand reputation.  Class actions and large settlements are common.  Examples include: FedEx, Oracle, Uber, Microsoft, Google, Instacart, etc.  And it’s not only large companies that face fines.  The net of prosecutions is large because it’s becoming increasingly simpler for authorities to impose simple checks on workers to ensure employers aren’t shirking their legal responsibilities.

How modern vendor management systems equipped with Artificial Intelligence-powered self-service forms address IC-Compliance

Organizations that adopt a Vendor Management System (VMS) can overcome risks of IC-Compliance and open the door to sourcing and managing a flexible workforce by removing the risks.

Technologies like Simplify VMS offer a simple means for organizations to overcome the risk of non-compliance with issues like mis-classification and insurance cover.  They include self-service forms powered by Artificial Intelligence (AI) to ensure that the right questions are asked of vendors and contractors, at the right time.  Topics covered by automated processes include: IC evaluations, exempt status, claims and complaints.

Being fully integrated into the VMS means businesses don’t need to buy two or more systems, or ask their people to log-in to multiple systems at the same time to perform common onboarding tasks such as background checks and IC Compliance.

Scripted questions used for IC Compliance have been designed in conjunction with leading labor law and tax experts resulting in robust contracts designed to protect organizations.

The end-to-end process, underwritten by legal experts, meets IRS, DoL, EDD guidelines and can be tailored to the precise needs of organizations.  The thoughtfully crafted workflow makes it simpler for individuals to complete the information.  Generally, performing all of the checks takes just a few minutes.