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Independent Contractor Compliance: Everything You Need to Know

Amy Watts
Amy Watts

The way we work is rapidly changing. Millennials are increasingly opting to enter the gig economy, enticed by the flexibility and control offered by freelance work. In fact, 44 million US workers - nearly 30% - were self-employed at some point during a given week in 2019. With the upheaval brought on by the Coronavirus pandemic, 2020 saw independent contractor wages and participation grow by another 33%

As more and more specialist workers make the shift over to freelance work, companies must embrace this new phenomenon and learn to take advantage of the skills, flexibility and cost benefits that independent contractors can provide. 

Hiring 1099 employees is not without risk however, which is where independent contractor compliance comes in. As regulators begin to narrow in on worker rights and misclassification, failing to comply with taxation and labor laws can be costly. That’s why establishing a comprehensive compliance program is more important than ever in helping companies avoid financial losses and benefit fully from the opportunities independent contracting can offer. 

What is an independent contractor?

Whereas an employee works for a single employer who dictates their wages and hours, independent contractors operate as an independent business and can work for multiple clients. This means that they are responsible for providing their own equipment and taking care of taxes on both the individual and employer side. You may also have come across the term 1099 contractor, which refers to the 1099 tax form they are required to file.

This form of working is undoubtedly beneficial to individuals seeking more flexibility and autonomy in their work, however this new model is also advantageous for businesses. Hiring external workers can allow companies access to niche skill sets not available as in-house resources, as well as offering considerable financial benefits.

In addition to less overhead, taxes and maintenance costs, utilising independent contractors can also offer a cost-effective way to manage business cycles and fluctuations in demand. Outsourcing work allows companies to react quickly and efficiently to market dynamics and changes in consumer behaviours, ultimately allowing them to maximise their profits.

Why is it important to ensure safety and compliance for independent contractors?

From a legal perspective, establishing a proper compliance program is essential when hiring independent contractors, as legal obligations for health and safety ultimately fall to the employer. Certain industries and regulators also require a comprehensive compliance program by law, so it’s crucial to do your research.

As regulators continue to crack down on worker misclassification - which they say deprives governments of crucial tax revenues and leaves workers vulnerable to exploitation - the potential costs can be steep. Back wages, tax liabilities, unpaid unemployment insurance contributions, fines and penalties are all costs that businesses will be desperate to avoid. For those wanting to enter international markets, it’s worth noting that regulations can be even more strict abroad.

Safety and compliance is also important from a business perspective. Ensuring that your contractors comply with quality, behavioral and safety policies is vital to your business’ success, especially if they are client or customer-facing. While some companies may be hesitant to spend crucial time and resources on training external workers, doing this is actually seen to engender loyalty and make contractors less likely to jump ship, ultimately avoiding wasted costs.

What does compliance training for independent contractors entail?

Depending on your industry, independent contractor compliance training can entail a wide range of topics from Covid safety to selling age-restricted products. For our clients in the on demand delivery industry, compliance training on road safety when performing deliveries has been crucial.

Some of our clients have also utilised compliance training to tackle wider social issues. For example, Uber recently launched an anti-harassment campaign in partnership with EduMe which was made mandatory for all active drivers across the US and Canada, ensuring the safety of both drivers and passengers by providing education on personal safety, privacy and sexual misconduct.

How can I create a compliance program for independent contractors?

Unless you already have the expertise, resources and infrastructure necessary to establish a comprehensive IC program in-house, turning to outside experts and latest technologies is a way to get the ball rolling with safety and compliance.

EduMe is a mobile-based training tool that allows companies to roll out tailored and robust safety and compliance education to independent contractors seamlessly and effectively. We help you enforce a clear implementation plan and boost engagement to ensure that safety procedures are done right, as well as providing regular refreshers to keep up with changing regulations and circumstances. 

Get in touch now to see how we can help 👇