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How to Avoid Key Risks When Engaging Independent Contractors

Posted on November 3rd, 2023 Read time: 3 minutes

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Picture this: Your in-house team lacks a specialized skill set that an upcoming project requires. You’re considering bringing an independent contractor into the mix to fill the void. It sounds like an obvious solution, right?

Hold on! The path to engaging an independent contractor is fraught with complexities that you might not have considered. If you find yourself on this trail, you’re not alone. Many businesses are now looking toward this flexible workforce solution.

Before engaging independent contractors, it’s essential to understand how they differ from employees, the benefits and risks associated with them, and the steps you can take to ensure that your work relationship with them is productive and compliant.


Independent Contractor vs. Employee: What’s the Difference?

Let’s start with what an independent contractor is not. For one, they’re not employees. Instead, they’re individuals or firms that companies engage to perform specialized services. These services fall outside the typical scope of the company’s operations. The federal government has clearly defined the independent contractor classification, which is further supported by each state’s legislation.

An independent contractor operates as an incorporated or individually owned business, taking on multiple clients and working on a project-to-project basis. They are responsible for their taxes, have no direct supervision from the company engaging them, and are not entitled to employee benefits or protections. If you’re engaging an independent contractor, you’re entering a business-to-business relationship.


The Benefits and Risks of Engaging Independent Contractors

There are two primary reasons why businesses engage independent contractors.

The first is the advantage of focusing on time management and bandwidth. In other words, you can allocate entire projects to independent contractors and let them manage them from start to finish. Imagine the time you’d save if you didn’t have to oversee every detail or schedule progress check-ins. Your in-house team could then concentrate on what it does best: driving value for your business.

The second reason is the immediate availability of expertise. For example, if you have a gap in your in-house team’s skill set, you can engage an expert independent contractor and hit the ground running. Rather than spending weeks training your team or recruiting a permanent employee, you get instant, qualified help.

While these benefits are impressive, it’s important to remember that working with independent contractors does come with challenges. For one, the risks of misclassifying independent contractors are numerous. If you confuse an independent contractor with an employee, you risk violating labor laws.

It’s also critical that you know what documents are needed for an independent contractor and what their purpose is. The contract you sign won’t override federal or state laws; it only creates additional protection. What’s more, you must ensure that your employees don’t already do the job you’re engaging an independent contractor for. This is a major red flag for misclassification.


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3 Ways to Avoid Risks When Engaging Independent Contractors

While it might seem daunting to navigate these obstacles, there are things you can do to mitigate or eliminate the risks associated with independent contractors. To that end, consider these three steps:


Take accountability for learning.

Ignorance is never a legal excuse for disregarding independent contractor labor laws. It’s critical that you always proactively understand independent contractor-related IRS guidelines and state legislation. By taking the time to educate yourself, you’ll not only protect your business, but also ensure a smoother working relationship with independent contractors.


Establish a strong vendor partnership.

Partnering with a reliable vendor that specializes in contingent workforce solutions can help you sidestep potential pitfalls. Lean on the vendor’s expertise for smoother navigation. A strong partnership can save time and reduce stress, allowing you to focus on your central business objectives.


Reflect on the decision-making process.

Before engaging independent contractors, it’s important to identify your motives. Are you basing your decision on federal requirements, or are you just trying to justify your business needs or interests? In every case, it’s necessary to follow the law, not just your needs or opinions. Keeping this in mind can save you from future complications and legal consequences.


How Innovative Employee Solutions Can Help

So long as you observe the relevant labor laws, engaging independent contractors can be a strategic solution to your business’s needs, offering flexibility and specialized skills that can significantly benefit your organization.

This is where Innovative Employee Solutions (IES) can help. We’re committed to making your independent contractor engagement successful. We believe companies can successfully integrate independent contractors into their workforce strategies with the right knowledge and strategic planning.


Contact us today for a complimentary strategic consultation!


Written by: Antonio Barraza, Senior Business Development Representative at IES

Antonio Barraza is a Senior Business Development Representative and contingent workforce expert of Innovative Employee Solutions (IES), a leading provider of remote and contingent workforce solutions, specializing in global Employer of Record, Agent of Record and Independent Contractor compliance services in 150+ countries. Founded in 1974, IES is a woman-owned business, certified by the WBENC and partners with companies to provide compliant employment solutions that empower people’s lives.

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