Independent Contractor Compliance: How to Maximize Value and Manage Risk

May 30, 2019 Leah Hoffmann

independent contractor compliance - checklist

If your company works with independent contractors—from developers and graphic designers to consultants and subject-matter experts—you probably know that it’s important to comply with certain state and federal regulations. You might have read about big payouts that companies like Uber and FedEx have made to workers they classified as independent contractors in the face of challenges brought against the companies. You might even be familiar with a few of the compliance tests that can help you determine whether workers should be classified as contractors or employees.

Yet chances are, you still have questions about independent contractor compliance. Has your company kept up with every nuance of the law, or is it one of the 10% to 20% that studies estimate have misclassified at least one worker? If you engage an independent consultant to help you build a commercial center of excellence or lead a major business transformation, are you putting your business at risk?

Protecting the enterprise

By now, it’s clear that the on-demand talent marketplace can deliver enormous value on complex, strategic issues. That’s why it’s even more crucial to get the framework right.

At Business Talent Group (BTG), we’ve developed a robust compliance program to ensure that the independent consultants we place on client projects are properly vetted, classified, and deployed. Our standard compliance and confidentiality framework—designed by an in-house team of experts and the guidance of specialized outside counsel—was purpose-built for delivering highly-sensitive and often confidential project-based work at F1000 companies.

Here are the few of the best practices we’ve learned about independent contractor compliance:

1. Know your workers

There’s no single standard for defining an independent professional. That’s why it’s important to get to know your independent talent—and how they structure their business—before you deploy them on projects. How many years have they been practicing as an independent? How do they advertise and promote themselves? Do they run their business as an LLC or other legal entity? What kinds of other clients do they serve?

Better yet, create a streamlined way to document this information, along with records of other items that could help you verify their self-employment. These might be informal (hold on to a business card; bookmark their professional website or LinkedIn page) or formal (photocopy any business or professional licenses or corporate entity records). At BTG, we document the professional status of the independent talent we place using a detailed questionnaire that’s signed by each consultant and analyzed by legal counsel. Then, we review and update it before every new engagement to make sure the information is up-to-date and complies with current laws.

2. Define your expectations

Outlining your expectations isn’t just good for compliance—it also helps ensure a successful business outcome. Standard agreements should reflect the consultants’ classification and include necessary clauses for confidentiality, intellectual property, tax withholdings, and other protections. They should also reflect a clear Scope of Work (SOW) that sets forth all timelines, milestones, and deliverables, along with policies for managing changes.

At BTG, we handle this work, as a matter of course, for each engagement. We also often go a step further by creating Master Services Agreements (MSAs) with our clients that lay out standard legal criteria that are applied to each project we deliver—and streamline new engagements with a customized SOW template.

3. Start a program

By now, the most forward-thinking users of independent talent have created formal on-demand talent programs to streamline the way they source, contract, and coordinate independent resources. These programs are customized to each organization and built around specific needs and goals—from reducing consulting spend to boosting organizational agility. They also represent the gold standard in terms of legal protection.

However, they can also be challenging to implement. BTG has extensive experience creating enterprise-wide on-demand talent solutions and can help your company customize a program that delivers.

4. Pick your partners

As the on-demand marketplace has grown, so too have companies like ours that help executives make the most of it—quickly, reliably, and with best-in-class confidentiality, compliance, and contracting processes.

Yet it’s important to note that not all on-demand talent companies offer the same level of protection for the enterprise. That’s why you should request—and review—detailed confidentiality and compliance documentation from every on-demand talent vendor you work with.

The bottom line

It can feel overwhelming to confront the complexities that surround worker classification. But it doesn’t have to be hard to design processes that work for your company—and find vendors who can meet your structural requirements as well as your business needs.

Have more questions about independent contractor compliance? We’re here to help.


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About the Author

Leah Hoffmann

Leah Hoffmann is a former journalist who has worked for and The Economist. She is passionate about clear thinking, sharp writing, and strong points of view.

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