The Risks of Hiring Independent Contractors

In today’s world a rare company can imagine their operations without using the help of contractors. There are many benefits to hiring freelancers. Independent workers are a valuable source of expertise and knowledge in their field. Moreover, they provide a lot of flexibility for your business. However, there are certain things to bear in mind before reaching out to an independent contractor (IC). That is why we have created the list of red flags to watch out for when employing freelancers.

Hard to manage

The first thing you should bear in mind is that you have less control over contractors. While you can closely monitor your permanent employees, independent workers have a certain autonomy to decide how best to do the task for which you hired them. Unfortunately, if you try to interfere too much in an IC’s work, you risk making the freelancer look like an employee. In this case additional charges and taxes may apply.

Misclassification

Every country’s authorities have their own definition of employee – employer relationship; and they may vary considerably. Therefore, in some cases your IC might get an employee status despite of the steps taken to create separation.
There are payroll compliance requirements and tax liabilities for employees. So, if a company misclassifies a freelancer, big fines and legal charges may follow. For this reason, it is important to be fully aware of local employment and tax legislation.
Although, there is no standard test to determine whether a worker should be employed as an independent contractor or as an employee, there is a way to protect your business and stay 100% compliant. Many companies choose to pay their independent workers through local payroll provider.

Co-employment.

Co-employment may occur when two companies have the rights and obligations as an employer. This often happens when staffing agencies engage independent contractors for their clients. In this situation, because both the staffing agency and client have obligations to the contractor – the staffing agency may provide payment, and the client may determine the assignment – they can both be viewed as an employer. Co-employment can increase the risk of litigation if a contractor thinks they should be treated as an employee, if your company is audited and found to have treated contractors as employees, or vice versa.

Liability and Insurance

It is important to know that whenever you utilise the services of an independent contractor, they are not covered by your company’s workers compensation policy. As a result, you may be liable if they suffer any injuries at work. In order to avoid this, you need to build all the necessary insurance requirements into their work contract.

Even though there are some difficulties involved when dealing with independent contractors, it should not prevent you from using their expertise. IC are a valuable asset to your business.

Contractor Management Services can help you centralise all independent contractors, ensure full compliance, as well as limit risks and liabilities. Reach out now to find out how they can benefit your business.