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The 10 (IC)ommandments (Part 1)

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Spend Matters welcomes this sponsored article from Richard Watkins, IC Compliance Program Manager at KellyOCG.

Are you an independent contractor (IC), or does your company engage independent contractors?

If you’ve answered “Yes” to either of these questions, then you’re probably aware that since September 2014, the federal government has amped up its support of states in the enforcement of IC rules. Yet there’s a lot of confusion between both ICs and the organizations that procure their services as to where precisely the distinction lies between an IC and an employee. As a result, misclassification of workers is a very real risk — one that can cost both companies and workers dearly.

In order to provide some clarity, KellyOCG offers 10 general guidelines: the 10 (IC)ommandments. In this article, we’ll examine the first five.

1. Thou Shalt Apply Common Sense, Not Just Common Law

The common law analysis basically provides a number of guidelines intended to determine whether a worker should be classified as an IC or an employee. Though these guidelines are useful, they’re not exhaustive. That’s why it’s advisable to apply common sense before performing a common law analysis. One of the most critical factors to look at is whether the duties the worker performs are integral to a company’s core, day-to-day operations. If so, then the worker should be considered an employee, not an IC.

2. Thou Shalt Re-Evaluate

It’s important to understand that even if a worker has been classified as an IC by the authorities, there’s a need to re-evaluate status at the beginning of every new engagement, as well as whenever the parameters of an engagement change. Even when it concerns repeating contracts with an existing client, both the IC and the company have the obligation to re-assess whether any factors have changed that would affect the IC classification.

3. Thou Shalt Do What Thou Sayest, and Sayest What Thou Meanest

In all legal matters, language is key — and that’s also true for classifying workers correctly. One common mistake is to use the word “hire” in connection with ICs. However, “hiring” is associated with employees. More appropriate phrasing for ICs include “engaging,” “contracting” or “procuring the services of.” Another noteworthy fact is that even if a contract states that the relationship is one of an IC and client, that’s not necessarily the case. Ultimately, any auditor or legal agency will consider the facts over a written agreement when classifying a worker.

4. Thou Shalt Beware the Hourly Rate IC

In the majority of cases, an IC should be paid based on deliverables — not by the hour. The reason why is simple: ICs are businesses. They provide tangible products or services to other businesses. Employees, on the other hand, are hired for a fixed number of hours per week to perform duties during this time.

5. Thou Shalt Not Make it Personal

As stated earlier, an IC is a business. It can be a sole proprietorship, so long as it conducts itself as a legitimate business. It has to meet all local, state and federal requirements to conduct its business; it must have a history of providing its services to other businesses; and it must engage in advertising and marketing to reach more customers. If an IC doesn’t meet these requirements, it’s not likely to survive the scrutiny of authorities.

To learn more about these first five (IC)ommandments, download the full report, “The 10 (IC)ommandments For Working With Independent Contractors.”

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