IC Precheck Gives Independent Contractors a Compliance Shot in the Arm

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IC Precheck, a new compliance product aimed at independent contractors (ICs), launched this week. The product, which will be marketed and sold to contractors, provides, as the name implies, a kind of precertification to support or strengthen a contractor’s assertion of independent contractor (1099) classification status. The product is intended to benefit contractors as well as the businesses that engage them.

Contractors who go through the review and documentation process and become certified under IC Precheck are able to use their certification as a part of their own marketing and as a proactive tool to reduce friction and time for themselves and their clients. While IC Precheck is not a substitute for a formal, complete worker classification evaluation, it does provide businesses with some of the needed information to assess the status of the contractor at the beginning of the sourcing process.

Context

In today’s human capital environment, the engagement of talent that works independently, often falling under the general terms of freelancer or contractor, is growing in importance. The practice — for some time discouraged due to the compliance risk, lack of standard safe engagement models and the dominance of agency supply channels — is becoming a critical way for businesses to source and engage the talent they need in flexible, efficient and sometimes even innovative ways.

Business sourcing policies and processes for engaging and contracting with individual independent workers are typically not well-defined (if at all) and, in any case, can be a kind of “no-man’s land” between contingent workforce sourcing through staffing suppliers and SOW sourcing from established, incorporated service providers. Historically, third-party classification compliance and AOR/EOR specialists typically have entered the process after a contractor has been sourced and selected to figure out a worker’s appropriate classification, and then support either an IC-1099-AOR or payrolled-W2-EOR engagement, with a strong bias toward the latter.

At this time, however, an increasing numbers of skilled workers not only prefer to be independent (i.e., neither employed by a company nor a staffing agency), but, for many reasons, also prefer to be engaged as independent contractors rather than as third-party payrollees. Business managers increasingly want and need to engage this talent, and with minimal friction, transaction cost and delay. As we have noted elsewhere (see Services Procurement Practitioners: Is It Time for ‘SOW Lite’?), services procurement organizations now need to be putting in place appropriate sourcing and engagement practices, processes and technology to make that happen. While there will be many components to such a solution for businesses and contractors, IC Precheck could become one of them.

IC Precheck

IC Precheck is a subscription product for non-agency contractors who are intent on working as legally classified (1099) independent contractors. Contractors purchase an annual subscription ($299 first year, $199 each thereafter) at the IC Precheck website, where they will:

  • Build an account profile
  • Complete the certification application
  • Upload required documentation
    • Obtain a background check (included in subscription price) through IC Precheck preferred partner
    • If needed/desired, obtain appropriate insurance/certificate through an IC Precheck preferred partner
  • Review IC Compliance and Best Practices Training materials and complete online test.

At this point, IC Precheck staff reviews all of the submitted information. If all requirements are met, the contractor is issued an IC Precheck Certification. If requirements are not met, IC Precheck provides a structured remediation process.

When certified, contractos can represent their status in CVs, marketing documents/presentations and online profiles (e.g., LinkedIn). In addition, upon request (as a part of the subscription), contractors may have IC Precheck send their prospect or client businesses an “IC Due Diligence Package,” consisting of detailed information/documentation maintained, validated and updated by IC Precheck, including:

  1. Business formation and tax filing documentation
  2. Criminal background check clearance
  3. Evidence of multi-client business activities
  4. Certificate of completion of IC Compliance and Best Practices Training
  5. Certificate of insurance (or commitment to procure)

Another extremely important contractor requirement and service included in IC Precheck is IC Compliance and Best Practices Training. Michael Matherly, one of IC Precheck’s co-founders, told us:

“We believe an educated IC is not only better equipped to protect their own interests but their clients as well. The IC classification requires compliance not only at the beginning of the engagement, but throughout the engagement and all the way until the IC files their tax returns. According to our legal counsel, the four the most common IC misclassification audit triggers, are missteps by the IC’s themselves - for instance, improper filing of an unemployment compensation or workers compensation claim. Our IC Compliance and Best Practices Training focuses on these issues during the initial certification assessment and throughout the year with continuing education requirements.”

Again, IC Precheck is not a formal, complete worker classification evaluation; rather, it is intended to provide businesses with significantly more information than they would typically have at the start of a sourcing event. If desired or needed, however, IC Precheck contractors can also purchase “IC Agent Services,” an offering best described as a kind of “on-demand” worker classification and agent of record service offering.

Benefits

IC Precheck, while purchased by contractors, is intended to benefit both contractors and businesses:

  • Contractors are intended to benefit from their certification from marketing differentiation and by reducing friction costs (e.g., complications, red tape, delay). Compliance training also benefits contractors by helping them avoid missteps across all of their engagements.
  • Businesses are intended to benefit from having significantly more classification/compliance information about contractors at the very beginning of the sourcing, engagement and contracting process. They also avoid problems by working with contractors that are compliance competent.

In theory, businesses will be able to make hiring decisions based on better classification information early in the process and potentially reduce costs that would stem from the absence of such information. That being the case, businesses should be able to increases their utilization of the skills and expertise of contract talent that wish to work under the legal 1099-IC classification.

Conclusion

The arrival of IC Precheck in the market is at the very least a sign of the times. In addition to signaling the further advance of the gig economy trend, it may also further indicate the emergence of a whole new ecosystem that supports and enables independent workers. Such an ecosystem, which would integrate a range of services for independent workers, will also be of essential importance for businesses that will be increasingly looking toward independent workers as a source of skills, expertise and service outputs.

IC Precheck is definitely an interesting service in this respect. It is a relatively low-cost, consumerized service for independent contractors that promises a good value tradeoff. Contractor value can come from two sources: the IC Precheck certification in relation to prospect/client businesses and/or the potential integration of other IC Precheck or third-party value-added services for the contractor. For a contractor, these can be significant. But the value of the IC Precheck certification (and perhaps the main impetus for contractors to subscribe) will ultimately depend on the extent to which businesses find IC Precheck valuable in their sourcing and engagement independent contractors.

From the IC Precheck sales perspective, there is something of chicken-and-an-egg challenge, but it is one that has not prevented the success of such products in other categories over the years. Moreover, if successful, IC Precheck may be not only a product, but also the beginning of a platform.

For businesses and contingent workforce and services procurement practitioners, there is potential value here that, in our opinion, definitely warrants allocating time and attention to examining how IC Precheck certification can be of benefit. We also believe the full value of IC Precheck will be appreciated when looked at in the context of a new overarching process for sourcing and engaging independent workers — something that today may be ad hoc or even non-existent in organizations. Such a process would be designed from the ground up to meet corporate governance needs as well as the needs of today’s internal business users and external independent workforce in what is taking shape as a new digital/information-based paradigm of how work gets done and who does it.

In this emerging sourcing and engagement paradigm, agility and velocity are of high importance and can only be achieved by providing decision-makers (whether human or artificial) with operative information as early as possible in the independent worker sourcing and engagement process. From our standpoint, IC Precheck has the potential be a crucial component of sourcing and engaging skills and expertise from a digitally connected, information-based independent workforce ecosystem. For businesses, it makes sense to check it out.

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Voices (3)

  1. Michael Matherly:

    Hi Rebecca – I appreciate your comments. They echo the traditional point of view that has been in place for years in the contingent labor / IC compliance industry. However, we believe the winds are shifting. Industry stalwarts and veterans like MBO Partners and TalentWave recognize that the old way of thinking about IC compliance isn’t exactly aligned with the changing way work is getting done or with new strategies for managing contingent labor as a whole so they keep innovating and enhancing their offering to clients as well as contractors. Other industry providers are responding with innovation and investment as well. Just look at the success of cloud-based technologies like Genesys Talent and TalentNet. Consider the investment in dedicated self-sourcing workflow automation from a VMS leader like Beeline. Why all this new investment and innovative activity? Because client companies are engaging the fastest growing segment of the “gig economy” workforce (sorry Andrew!) – non-agency contractors or freelancers, independents – more than ever before. That’s where a lot of the talent is these days. And with that shift of talent base to the ranks of independents, the client companies are demanding more non-agency contractor protections, more pricing parity with the rest of the contingent labor spend and better process efficiencies to make the market for independents as frictionless and smooth as possible.

    With the focus shifting to freelancers and independents, IC Precheck sees opportunity in serving an under-served market: the independent worker. And importantly, doing so in a way they have not been served to date. Our certification allows them to differentiate themselves from other non-agency contractors that may not qualify for the independent contractor classification. Not only does the contractor benefit from that differentiation, but clients do as well. Here’s how: in the traditional engagement model the hiring manager identifies a freelancer for a project. Then, after the interviews, after review and negotiation of proposals, the selection is made. Finally, the traditional IC screening comes into play (if they are indeed managing IC misclassification risk) and then the classification is made, as either a W2 or an IC. That means the entire sourcing process was conducted and completed before the final price had been determined. How could the final price and risk position be known before screening and classification? Markup for a W2 is 15-25% higher than the markup for ICs, assuming a third party payroller is being used by the client. We think companies can better manage their spend (and their risk) when they know up front who they are engaging. This demand for sourcing transparency will increase as companies better package their demand into deliverable and project-based requirements that are better suited for ICs than W2s. The core idea behind IC Precheck certification is that our seal is presented right there on their resume, in their Linked In or other digital profile, so the hiring managers can see it and know what they are buying.

    Certification alone, though, doesn’t meet the full needs of the client companies engaging ICs. That is why an integral part of the IC Precheck service is our IC due diligence package: a full set of vendor due diligence documentation that meets or exceeds most Fortune 500 company requirements. At the IC’s request, we deliver a common, standard due diligence package to their prospects and clients or even to their clients’ third-party IC compliance provider. We designed IC Precheck and the due diligence package with the full IC compliance screening in mind. Our objective is to feed right into what the MBOs, TalentWaves, Populus Groups and NextSources of our industry are doing to serve and protect their client companies. And since IC Precheck is a B2C (business to contractor) service, neither the client nor the IC compliance provider incurs any additional cost; yet they get all the service provider side of the compliance screening information and documentation they need. We meet their compliance screening procedures half way. It is our goal to make the market for independent contractors safe and reliable for ALL parties.

    And finally, there is one other thing in this new way of thinking that ties back to your comments: an IC who is educated about IC compliance, is familiar with best practices and who knows that compliance is just as important to them and their business aspirations as it is to their clients, will be a more fully engaged and capable steward of IC misclassification risk, working with and in some cases even leading their client counter parts. IC Precheck has talked to many freelancers and independents and we hear them loud and clear: they want their independence, they want to be in control of their business and they understand the need to protect their own classification, especially when the client may not be mature or equipped to do so on their own. Many freelancers have intentionally left the agency work model and are looking for supporting services to help them do so. Our research tells us IC Precheck is one of the supporting services they are looking for.

    New, innovative products are sometimes hard to figure out in the beginning when they are first introduced to the market, especially when they run counter to current expectations (ie B2C vs B2B model). We expect to be challenged on our new product and we welcome it! So thanks again, Rebecca, for your comments. Please feel free to visit our website at http://www.icprecheck.com or contact me directly at Michael@icprecheck.com if you would like to learn more about our product and our thinking in this space.

  2. Rebecca Karp:

    I’m curious to what the real benefit of this service are. In my experience, the distinction is in how workers are treated while working and the onus is on the hiring company. None of the things they look at are requirements to be an independent contractor nor will they really keep a company out of trouble on the compliance front. It will be interesting to see if companies see a benefit or if it is a solution looking for a problem.

    1. Andrew Karpie:

      Yes, it’s hypothetical at this point, and the proof will in the pudding–and that largely depends on what value companies find in it. The folks behinds this say they have done their market research. As things develop further, it would be great to have some companies share their thoughts.

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