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February 17, 2021 | HR Compliance | Posted by Ascentis Thought Leadership

Contingent Workers Laws & HR Compliance Analysis

Contingent workers and independent contractors represent an ever-growing segment of the American workforce. Going into 2020, roughly 43% of workers were classified as contingent employees, a number that likely only rose as employers adjusted their scheduling and hiring practices during the pandemic. Looking at factors like the rise of the so-called gig economy, the push for greater work-life balance by Millennial and Gen Z employees, and the flexibility necessitated by COVID-related safety measures, it seems evident that most businesses need to include contingent workers in their future plans.

One of the biggest hurdles for employers expanding their base of contingent labor is the extra layer of compliance considerations that come with it. The diversification of the modern workforce has created a complicated web of legal requirements that can be a challenge for employers accustomed to dealing with a mostly full-time workforce. Keeping track of the reporting, tax considerations, and employment law requirements for a workforce that includes full-time employees, contingent workers, independent contractors, freelancers, and other types of workers requires an organized strategy and the right technology for the job.

Why hire contingent labor?

A more contingent-based workforce offers a number of advantages for employers. Short-term contracts allow a business to more easily expand the workforce during times of peak need and reduce it during slower periods. Contingent workers generally do not receive benefits packages from the businesses to whom they are contracted, which creates substantial cost-cutting opportunities for employers. Contracting firms can be a reliable source of employees for one-time projects that require skill sets missing from their full-time workforce.

Who is a contingent worker?

Generally speaking, a contingent worker is categorized as an employee hired for a specific length of time via a staffing company or leasing agency. Opinions vary on whether or not employees such as independent contractors, freelance workers, part-time temp workers, and direct hires should be counted as contingent employees, especially since there are often different tax filing requirements for each of those segments. For the purposes of this post, we will consider any worker not classified as a full-time employee (FTE) under existing employment law to be a contingent worker.

What are the biggest contingent labor compliance concerns?

Proper classification is probably the most visible compliance concern for employers hiring contingent workers. Understanding who is and is not a contingent worker is vital for your human resources department and management team. Federal, state, and local employment laws include strict penalties for misclassifying full-time workers as contingent labor or independent contractors. That makes sense, since improper classification can impact both the employee (via loss of protections related to overtime pay, FMLA accommodations, health care access, and other benefits) and the government (via decreased tax revenue and lower contributions to unemployment and workers’ compensations funds).

The complexity of contingent labor is especially challenging because even a well-meaning organization can easily make honest mistakes that prove costly in the long run. That confusion is only escalated by the fact that specific responsibilities often hinge on the source of the hire. For direct hires, for example, the employer is responsible for providing benefits and protections. If contingent workers are hired through a staffing agency or consulting company, on the other hand, they are the responsibility of the sourcing organization. Responsibilities for independent contractors and freelance workers, meanwhile, vary from state to state.

(One notable constant: providing workplace health and safety protections is always the responsibility of the employer, an especially important consideration in the era of COVID-19 concerns.)

Adding another layer of complexity, contingent workers are sometimes classified differently under different regulations. The Affordable Care Act, for instance, gives certain part-time and contingent employees the same classification as full-time employees. State and local laws may also mandate different handling of contingent workers based on the size of the company. All of this means that it is very possible for the same employee to be considered a contingent laborer under one law and a FTE under another.

Clearly, staying compliant with employment laws focused on contingent labor takes a great deal of effort, knowledge, and coordination. Automating your human resources functions can go a long way toward mitigating risk related to scheduling, classification, and other key compliance issues. Compared to the financial and reputational risks that come with improper handling of contingent workers, a compliance-friendly HR software solution is a sound investment.

Learn more about the ways Ascentis HRIS software can help you better manage your contingent workforce and reduce the risk of noncompliance.

With more than 35 years of experience in providing Software as a Service (SaaS) solutions, Ascentis thought leaders have become a respected source for insights, tips, and innovations in the Human Capital Management (HCM) space.