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Compliance Training

What Compliance Challenges Does Freelance and Contract Labor Create?

By Josh Young May 25, 2017

freelance contract compliance challenges

If you haven't noticed, the global labor force has shifted. While traditional, full-time positions are still the norm for most workers, the advent of technology along with cost pressures has created a new force in today's labor market — the "gig economy."

What is this gig economy? It's a recently coined term to identify the complexities surrounding the labor market created by the increasing number of short-term contracts or freelance work that is replacing roles previously handled by permanent employees. 

According to a survey conducted by the Freelancers Union, more than 53 million Americans are engaged in freelance work — 34 percent of the national labor force. And current estimates expect this number to grow to 40 percent by 2020. Altogether, this crowd is comprised of:

  • Independent contractors, who have no main employer and move from gig to gig (40 percent)
  • Moonlighters, who have a primary full-time job in addition to their freelance work (27 percent)
  • Diversified workers, who hold a mix of traditional and project-based positions (18 percent)
  • Temporary workers, who work for a single employer on a provisional basis (10 percent)
  • Freelance business owners, who may have up to five employees but still operate under a freelance model (5 percent)

While the gig economy offers several advantages to businesses, it also creates an equal number of management and compliance challenges for this distributed non-employee workforce.

In a 2016 report from Deloitte, only 19 percent of surveyed executives felt that their organizations fully understood the related labor laws surrounding the gig economy, and only 11 percent of surveyed organizations had in place "complete management processes for the contingent part of the[ir] workforce."

Worker Misclassification

While not the most pressing daily concern, worker misclassification lawsuits are definitely one of the most visible challenges faced by organizations using contingent staff. And if your business cannot properly classify its workers, you have little hope in developing a sound compliance program to oversee these outsourced roles.

Both Uber and Lyft, perhaps two of the most recognizable brands active in the gig economy, have been involved with lawsuits alleging employee misclassification. And as it stands, neither of these cases have ended in a clear definition of worker statuses.

How Can Your Business Best Navigate the Gig Economy?

Clearly define roles

Depending on where your business is located, the definition of an employee, freelancer, or independent contractor may vary along with the associated rights of each of these classes. For example, New York City recently passed legislation that strengthened the rights of freelancers, guaranteeing them written contracts and 30 day payment windows. While a Connecticut court ruling from earlier this year reduced the burden on local businesses to document independent contractors.

Coordinate with legal experts to determine the specific definitions and rights of each class of worker in your region, and build your projects and staffing plans accordingly.

Provide education

More than likely, your organization will not need to provide the same level of training support for contingent workers, but their actions and potential ignorance can still place your organization at risk. Some areas to consider training include:

  • Regulatory compliance — particularly any governmental or industry standards that apply to their role
  • Anti-corruption — if they are involved in any financial or sales processes
  • Data security — assuming that they have access to confidential data or files that could pose an information risk for your company

Establish management

Too often, contingent workers are hired on an ad hoc basis with little thought given to management. But just like your regular employees, these workers need a reporting structure to provide direction and oversight. As has been demonstrated by many businesses, poor management often encourages poor ethics and lapsed policy — a sure recipe for litigation and legal penalties.

Whether your company hires a team of contractors or a single freelancer, every contingent worker should have a designated contact to serve as their manager. And this contact should be an internal employee that is directly answerable to your organization.

The Next Step

With the proper support and management, contingent workers can be a major boon to your business, providing just-in-time skills and labor that can keep costs low without compromising quality. However, failing to monitor these non-employees can place your business in just as much jeopardy as ignoring traditional staff members.

If you would like to know how Workplace Answers could help you coordinate compliance training efforts for your regular staff or contingent workers, request a demo of our services today.

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