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Engaging independent contractors in North America is a complex business. Staying on top of the rules and regulations is crucial to safeguard your business — but those rules are different in every state and country, and they’re constantly evolving.
Not to mention the sheer amount of work that goes into compliantly managing, engaging and paying large numbers of independent contractors, which can easily overwhelm your internal team.
Thankfully, there is a solution: using an agent of record, or AoR.
What is an agent of record (AoR)?
An agent of record (AoR) is a company that handles the administrative and compliance side of engaging independent contractors on behalf of other organisations. Typically, AoRs deal with things like:
- Compliance assurance
- Contracts and legal agreements
- Vetting and background checks
- Onboarding assistance
- Invoicing and payments
When you partner with an AoR to engage independent contractors, they become the middleman between you and those workers. This lightens the administrative load on your internal team and reduces legal risks related to regulatory compliance.
Agent of record vs. Employer of record
Like an agent of record, an employer of record (EoR) is a company that helps other businesses to compliantly hire workers. The main distinction between the two lies in the legal responsibility that each type of company takes on.
When you work with an EoR, they take on full legal responsibility for the workers they engage on your behalf by becoming their legal employer. AoRs, on the other hand, specialise in the compliant engagement of independent contractors who are not employees.
EoRs typically also provide a broader range of HR services, including benefits administration, payroll, onboarding and training. While AoRs may offer some similar services, these are usually limited to the compliant engagement of contractors. For example, they might draw up legal contracts and assist in onboarding, but they typically don’t get involved with more hands-on HR tasks.
You can learn more about the differences between AoRs and EoRs (and decide which is the best solution for your business) by reading our complete guide.
The importance of AoR for companies in North America
The regulations concerning independent contractors in North America vary between states and countries, and fines and penalties for getting it wrong can be steep. Working with an AoR to engage independent contractors helps reduce liability and ensure federal and state legislation compliance.
Working with an AoR also significantly reduces the administrative burden on your internal team. That means you’ll have more time and energy to focus on achieving your business’s core strategy and objectives.
Plus, engaging and managing independent contractors is very different from hiring permanent employees, and your team may not necessarily have the know-how to deal with it effectively. Using an AoR gives you peace of mind that everything is compliant and correct, as well as providing a smooth and positive experience for the contractors you work with.
Employing independent contractors in North America: 5 key challenges
Here are some of the key challenges you might encounter as a company hiring independent contractors in North America — and how an AoR can help you to overcome them.
- Regulatory complexity
North America is a region made up of more than 20 countries, each with its own regulations governing independent contractors and the companies that engage them. Even within the United States, each state has its own rules.
Suppose you want to hire independent contractors in North America. In that case, you need to be aware of the specific legislation in the states or territories that you have workers in — or you could face legal trouble. But, to make things even harder, the rules change frequently, and keeping up with them is a lot of work.
By using an AoR to manage your independent contractor engagements, you can ensure that you’re operating in accordance with local and federal regulations, even as they evolve.
- Employee misclassification
Employee misclassification is when a business classifies a worker as an independent contractor when they are an employee. This means the worker misses out on essential rights and benefits that are entitled to by law. It also means that local and national tax authorities don’t collect taxes that would have been due to them if the worker was correctly classified.
For these reasons, authorities in North America take employee misclassification seriously — and the fines and penalties for non-compliance can be severe. However, classifying workers isn’t a simple business because each state has its own guidelines for what defines a true independent contractor. That means it’s possible to unintentionally misclassify workers, even if you’re acting in good faith.
Working with an AoR helps you ensure that every worker you engage is classified correctly, avoiding fines, legal penalties and damage to your reputation.
You can read more about worker misclassification in North America in our complete guide.
- Tax administration
Employers of independent contractors in North America typically don’t have to withhold taxes like they do for traditional employees — but there are still certain formalities you need to be aware of.
For example, in the US, you need to file Form 1099 – NEC to report non-employee compensation to the IRS for any contractor that you have paid at least $600 over the year. As you can imagine, this can quickly add up to a lot of work for your internal team, especially if you have a lot of independent contractors on your books.
An agent of record can reduce your team’s administrative load by filing these forms on your behalf — so you can focus on running your business.
- Independent contractor payroll
Paying independent contractors for their work is different to paying your permanent employees. For example, it’s common for independent contractors to issue monthly invoices to their clients for payment of their fees. Companies might set their own payment terms or negotiate them with each contractor. Again, this can add up to a lot of admin for companies that hire large numbers of independent contractors.
When you engage an AoR, they’ll handle contractor payments for you and issue one global invoice for all fees. Not only does this lessen the administrative load on your team, but it also ensures contractors get paid accurately and on time — giving them a more favourable view of your organisation.
- Competition for talent
In North America, competition for the best contractor talent is fierce — especially for highly sought-after roles like developers and engineers. A lot of independent contractors have plenty of opportunities to choose from, which means you need to convince them to work for your organisation.
While your pay, benefits and organisational culture have a significant role to play here, you also need to ensure a smooth and positive experience for your workers—and working with an AoR can help.
Over time, working with a good AoR provider can help solidify your reputation as an employer of choice for independent contractors. This makes it easier to attract the best talent and retain them for longer.
Is an AoR solution right for you?
Using an agent of record is just one workforce management solution, and it might not be the right one for your business. It’s important to carefully assess your needs to determine whether an AoR would be beneficial to your organisation or whether you might be better suited to an EoR or PEO solution (for example).
To help you get started, here are a few situations where working with an AoR might be a good idea:
- You work across multiple states, countries or regions: Each country and state has its own rules and regulations when it comes to engaging independent contractors. If you hire across numerous state or national borders, keeping up with the rapidly changing legislation might be difficult for your team — and working with an AoR is an excellent solution.
- You engage large numbers of independent contractors: Engaging, managing and paying large numbers of contractors may simply be too much for your internal team to handle — especially if you’re a small or medium business. Using an AoR allows you to offload some of that administrative burden so you can focus on your core strategy.
- Your internal team is unclear on regulations relating to independent contractors: The laws surrounding independent contractors aren’t always easy to understand — but getting it wrong isn’t a risk you want to take. Misclassifying an employee as an independent contractor, for example, can have severe financial and legal consequences for your business. Working with an AoR puts your mind at ease by ensuring every worker is engaged and compliant.
Choosing the right AoR for your business
There are many different AoR providers out there, and not all of them will be well-suited to your organisation. If you’re looking to engage an AoR, you need to make sure they have the right geographical coverage, compliance knowledge and industry experience to meet your needs properly.
At CXC, we have 30+ years of experience helping businesses like yours to compliantly engage and pay independent contractors across North America and beyond.
Thanks to our team’s in-depth compliance knowledge, our AoR solution can protect your business from legal and reputational risk. Our seamless global payroll systems ensure that your contractors will be paid accurately and on time, every time — without adding to your administrative load.
Want to learn more? Speak to our team today to get started.
