Contractor Compliance: What’s the Risk Profile of Your Business?

Is contractor compliance an integral part of your temporary workforce program? If it’s not, then you need to read on.

But firstly, what is ‘contractor compliance’?

In short, contractor compliance is a risk mitigation undertaking. It’s the process of ensuring all your non-employee workers are operating within the boundaries of all statutory, tax and other legal workplace requirements. These are typically at both the state and federal level.

Today, I’ve provided a brief round-up of three key factors to consider in your temporary workforce strategy, so your business can achieve suitable contractor compliance. This means, you’ll stay on the right side of workplace legislation.

Contractor Compliance: Worker Misclassification

This is the most common type of breach, of contractor compliance.

In a nutshell, misclassification of a contract worker typically occurs when the worker has been with an organisation for an extended period, and they’re operating just like the company’s employees. In this scenario, they could be deemed to be an employee. Misclassifying a worker as a contractor can see the organisation face harsh penalties.

Remember, the choice as to how the worker is classified, isn’t arbitrary. So make sure you get it right.

We have a helpful tool for real-time insight on the classification status of your contract workforce. You can find it here.

Contractor Compliance

Co-Employment: Major Risk Alert!

Co-employment is an inherent risk amidst the contractor compliance paradigm. Co-employment occurs when two companies seemingly have rights to an individual contract worker.

MBO Partners said it best:

…co-employment is an arrangement where two companies both have rights and obligations as an employer—the business maintains responsibilities for the worker’s job duties and day-to-day functions while the co-employer manages personnel-related functions such as payroll. In this way, the worker is technically employed both by the business and the co-employer.

In the world of independent contracting, co-employment commonly occurs when staffing agencies engage independent contractors for their clients. While the staffing company is primarily responsible for HR functions such as recruiting, hiring, and payroll, the company handles the work agreement. In this situation, because the staffing agency and the client have obligations to the contractor, they can both be viewed as an employer.

To mitigate the risk of co-employment, you must:

  • Properly classify your non-employee workers
  • Ensure these workers are engaged and managed not as employees, but as contract workers
  • Engage industry experts to manage this process (such as CXC)

compliant contractor management

Avoid Rogue Hiring 😒

What is rogue hiring? It’s the practice of non-approved managers or other employees in an organisation, hiring contractors outside of the regulated company channels (such as via HR or Procurement). Rogue hiring is a major issue, especially in larger organisations,

The risks around rogue hiring are many, including:

  • Potentially the use of staffing suppliers, not on the company’s agency roster. So, they’re suppliers that are untested, unapproved and possibly not up to the company’s hiring and talent standards
  • The quality of contractor can be significantly lower than that set by the company. This has the potential to negatively impact productivity, culture and output
  • The cost of the contractor may be off market. If the contractor was sought in haste, there’s a high chance that they were over-priced, and will be a negative impact on the bottom line
  • Rogue hiring can lead to misclassified contract workers – as we’ve noted here, the leading contractor compliance issue

As always, we recommend that, in addition to our insights, you seek the advice of a specialist workplace lawyer, so you’re compliant with both state and federal workplace laws. These laws can change from time to time. So, staying on top of these changes via a legal expert, is a great idea.

And of course, if you’d like to discuss contractor compliance of workforce, you can reach me here.

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