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How to Remain Compliant When Hiring Contract Employees and Contingent Workers

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Contingent workers and contract employees are an integral part of the US workforce. In 2017, for instance, there were 6 million documented contingent workers in the USA.

Of course, when hiring these types of workers, you’ll need to follow the right regulations.

Otherwise, you could open yourself up to legal scrutiny and (potentially) some hefty fines. Which, frankly, isn’t ideal.

Fortunately, today’s your lucky day. We’ve done some of the legal diggings for you.

Contract Employees VS Contingent Workers

Before we dive into the legalities, let’s first define what we mean by contract employees and contingent workers. (Trust us, understanding the difference is important.)

Contract employees

Contract employees, as the name suggests, hold a contract with the employer. As such, they fall under their direct supervision. This means their employer is liable for handling workers’ compensation and employee benefits. Any other benefits are determined by the job contract.

Contingent workers

A contingent worker is often an independent contractor, freelancer, outsourced consultant or temporary worker. Companies typically bring them in to fill capacity or skill needs. Unlike contract employees, businesses do not recognize them as employees.

6 Regulations To Keep Top of Mind

American hiring and employment laws are an absolute minefield. One foot out of line and boom.

That’s why it’s important to research the appropriate regulations.

Here are a few to get you going:

  1. Fair Labor Standards Act (FLSA). The FSLA dictates that employers must pay the federally-established minimum wage, as well as calculated overtime pay. This only applies to employees. Many businesses exploit this regulation and hire contingent workers to avoid paying a liveable wage.
  2. Tax forms. Whereas contract employees must complete W-4 and W-2 forms, employers must request a W-9 form from independent contractors (contingent workers).
  3. The EOCC and anti-discrimination. When it comes to many anti-discrimination laws, such as the Age Discrimination in Employment Act (ADA), you’ll have to closely assess your workers’ status. For contingent workers, the issue of who manages anti-discrimination claims differs. So, we suggest running through the 15 factors provided in the EEOC’s Guidance.
  4. Internal Revenue Code. Yes, we’re back on tax. Tax obligations sit with either the employer or the worker, dependent on their employment status. Please note, however, that some independent contractors count as employees under the Code. (We know, it’s painfully confusing.) Some examples include certain delivery truck drivers and full-time travelling salespeople. You can find out more about this here.
  5. Occupational Safety and Health Act (OSHA). For temporary workers, both the employer and the relevant staffing agency play a role in maintaining a safe work environment.
  6. Family and Medical Leave Act (FMLA). There are a few numbers and rules for this one. But, long story short, if a temporary worker falls under the threshold outlaid in the Act, they’re eligible for family and medical leave.

‘Okay,’ we hear you say, ‘and what happens if I fail to achieve compliance?’

Well. Let’s dig into that.

The Penalties of Noncompliance

The biggest compliance issue surrounding contingent workers is misclassification.

If an employer misclassifies a worker for tax reasons or because of a misinformed judgment, they could face legal backlash.

This is something Uber (UK) faced in 2021.

After a grueling legal battle, courts determined Uber drivers were in fact employees, not independent contractors. This, of course, would entitle them to minimum wage pay, holiday pay, and rest breaks.

Uber must now calculate compensation for the 25 drivers who came forward. Unlucky.

Get Researching

Who knew employment regulations could be so hideously confusing?

We hope our overview has offered you some clarity into the laws surrounding contract employees and contingent workers. But, please bear in mind that we’ve only skimmed the surface.

There’s a whole world of regulation fine print to read out there. And, really, the best way to ensure complete compliance is to seek the appropriate legal consultation.

We wish you well on your quest!

Try JazzHR to streamline your hiring.

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