The rise of the gig economy and the increasing need for flexible staffing solutions have made contingent workers an integral part of modern businesses.
However, with the benefits of hiring contingent workers come a host of compliance requirements that companies must meet. Failure to comply with regulations can result in legal, financial, and even reputational consequences.
With 32 percent of organizations planning to replace core employees with contingent workers, it’s more important than ever before that businesses implement contingent workforce management programs that mitigate compliance risks.
In this blog, we will explore five critical things that businesses should know about contingent workforce compliance.
#1 - Hiring Contingent Workers is Different Than Employing Permanent Employees
Contingent workers are non-permanent workers who provide services to a company. They are engaged on a temporary or contract basis to perform specific tasks or projects. This workforce includes freelancers, independent contractors and temporary workers (temps).
They are different to permanent employees, and, as such, they should be managed differently. Since they represent a different category of worker, there are different laws that govern how they can be engaged and treated in a work environment.
There are specific federal, state and local laws that govern whether a worker is considered a contingent worker or an employee. Companies that engage in continent staffing must ensure that they are complying with the labor laws and regulations in the regions they are hiring contingent workers.
#2 - The Consequences of Misclassification or Co-Employment is Expensive
Correctly classifying workers as employees or independent contractors is crucial for contingent workforce compliance. Misclassification can lead to severe legal and financial consequences, such as back pay, fines, and penalties.
Businesses should familiarize themselves with the various tests and guidelines used by regulatory agencies, including the IRS's common law test, the Department of Labor's economic realities test, and applicable state-specific rules. Additionally, businesses should conduct regular audits of their classification processes and criteria to ensure compliance with evolving regulations.
#3 - An Effective Contingent Workforce Program is Critical to Successful Compliance
To ensure successful compliance with the complex regulatory landscape surrounding contingent workers, businesses must establish an effective contingent workforce program. This program should serve as the foundation for all aspects of contingent workforce management, from hiring and onboarding to ongoing support and compliance monitoring.
Businesses that don’t have the resources and contingent category expertise to do this in-house, should look for third-party contingent workforce solution providers who can implement an effective program for them.
#4 - Contingent Workforce Compliance is an Ongoing Challenge
It is essential for businesses to recognize that contingent workforce compliance is not a one-time effort but an ongoing challenge that requires constant attention and adaptation. As regulations change and the business landscape evolves, organizations must be prepared to adjust their policies, procedures, and strategies to remain compliant and mitigate risks associated with non-compliance.
This should include:
#5 - Data Privacy and Security is an Increasing Concern in a Digital World
With the growing reliance on technology and the increased prevalence of remote work (particularly among contingent workers), businesses must take data privacy and security seriously when managing a contingent workforce.
This includes ensuring that sensitive company and customer data is protected, and that workers are aware of their responsibilities when it comes to data privacy and security. Businesses should implement comprehensive data privacy and security policies, provide training and resources to their workforce, and conduct regular assessments to identify and address potential vulnerabilities.
Are you doing enough to mitigate contingent workforce compliance risk? Request a consultation with Contrax’ team of contingent workforce management specialists today to make sure.
