Top 5 contingent workforce compliance considerations

Freelancer, consultant, and contractor compliance requirements

Organizations are facing major obstacles with the time and money it takes to recruit, hire, train, and onboard employees. When there is rapid growth in industry opportunities, a need to supplement internal capacity, or plans to execute strategic projects outside the scope of internal expertise, these obstacles grow tenfold. These are examples of when it’s worth considering a contingent workforce approach to staffing.  

These temporary workers can be called many things, including independent contractors, temps, consultants, gig workers, interns, contract workers, and freelancers. Regardless of what you call them, these workers all have two key things in common:

1. They are hired for a specific job or project to work within the structure of an organization or business on a non-permanent basis.
2. They are not eligible for benefits or other forms of compensation offered to full-time employees.

There are many advantages to using a contingent workforce, such as cost savings and access to skills that exist outside of the staff roster. Above all else, the flexibility of contingent workers can be the big selling point for why companies want to hire them. But just because they’re not full-time employees doesn’t mean there are no strings attached. Even though they don’t qualify for benefits like paid time off or life insurance, there are important aspects of contingent workforce compliance that need to be considered.

When full time employees are hired, there are compliance regulations that must be met, and this is true for contingent workers as well. Depending on the situation, contingent workers might be contracted through an agency or consultancy organization. In these cases, the responsibility for adhering to compliance regulations falls on that agency.

Here are the 5 main areas to pay attention to regarding contingent workforce compliance.

1. Independent contractor regulations concerning payment, taxes, and the reporting of hours worked

Fair wages, taxes, working hours, and the reporting of this information are crucial to maintaining good standing with your contingent workers and the Fair Labor Standards Act (FLSA). For a full-time employee, wages and tax exemptions (if any) are reported through a W-2 form. This form also tracks employer’s withholding of social security, Medicare, federal income, and state income taxes. The W2 tethers a worker to their employer and serves as one form of evidence of their full-time status.

For contingent workers like independent contractors and freelancers, a W-2 is not applicable, so they’d use a 1099 form instead. The 1099 workers do not have taxes taken out of their pay, and this is a key distinction because they’re able to write off certain business expenses. In addition, because 1099 workers are typically engaged with an organization for a specific project or finite job, they are responsible for setting their schedules and providing their own equipment to complete the job at hand.¹ On the flip side, many states require employers to send full-time workers the specifics of the job they’ve accepted, including necessary equipment (like a laptop, extra monitor, etc. for a remote position), information about the job title, pay, the pay cadence, and how to report a workplace injury.²

For non-exempt employees like interns who are paid at an hourly rate, they qualify for minimum wage and overtime pay—as determined by the state they’re working in. Any hours worked must be recorded by the employer, and this includes any time the contingent worker is on employer property, “on duty,” or at an agreed-upon workspace.³

2. Temporary worker compliance guidelines for healthcare protections and workplace safety

While it’s true that contingent workers are not eligible for the same corporate benefits as full-time employees, there’s some nuance when it comes to healthcare. As stipulated by the Affordable Care Act (ACA) employer mandate, employers with 50 or more full-time or full-time equivalent employees must offer full-time workers and their dependents “minimum essential,” affordable health care coverage. Any business that fails to provide this can face serious penalties and fines. For organizations hiring contingent staff to be subject to this mandate, the organization must have employed a combination of full-time and part-time employees that equaled at least 50 full-time equivalents.⁴ For a company with temps, interns, and contingent staff on the payroll, the application of the ACA is slightly vague. In most cases, the employer has to offer a medical plan option, at least to the worker alone. For workers classified as independent contractors, the ACA doesn’t apply.⁵

In addition, businesses are required by the Occupational Safety and Health Administration (OSHA) to provide a safe work environment for their workers. This applies to all employees, regardless of if they’re temporary or full-time. This includes ensuring that all employees receive specific training for their job, as well as training for the work environment.⁶ The regulations and stipulations of OSHA must be accessible and/or displayed in the work environment.

Organizations must ensure the physical safety of their employees, as well their mental safety. Workplace harassment or discrimination is never permissible; it doesn’t matter whether someone is a full-time or temporary worker. The ramifications of these issues could have enormously negative effects on a company, so protecting the workers also protects the business.

3. Consultant compliance best practices for workplace accommodations

Accessibility is quickly becoming a crucial element of inclusive workplace culture. While some contingent workers might be remote, those that work onsite at a client location or office are entitled to certain assistance if they have a disability. Under the Americans with Disabilities Act (ADA), companies are legally obligated to provide reasonable accommodation(s) to an otherwise qualified individual with disabilities, and this prohibits employers from withholding employment opportunities because of the need to provide an accommodation.⁷

While this clearly applies to full-time staff, this is also relevant for contingent workforce compliance. If a company hires a group of consultants to work onsite at their office headquarters, and one or more of these individuals self-identifies as having a disability, the company is responsible for ensuring the workplace has the necessary accommodations for those individuals.

This could be as simple as accessible doors and entrances but could also extend to specialized equipment for a job. This applies to all employees, regardless of exempt or non-exempt classification, temporary or full-time. The only exception is if the accommodation in question would provide undue hardship to the employer, but there are specific stipulations for how that’s assessed.

4. Independent contractor regulations for employment authorization

With a highly competitive talent market and companies feeling increased pressure to fill open roles, some hiring regulations could be overlooked, and this can have dire consequences. Under the Immigration Reform and Control Act, employers are prohibited from hiring and employing any individuals without first verifying their identity and validating they are authorized to work in the United States. Employment authorization is mandatory for U.S. citizens, as well as immigrants coming to the U.S. to work.

Depending on the country of origin, work visas are usually required and must be part of the employment authorization documents that an employer gathers and retains prior to the employee beginning their job. All employers must keep copies of the I-9 form, which serves as the validation of employment eligibility, on behalf of any person working for them. This form must be completed within a 3-day period when the employee accepts the offer of employment or contract, otherwise their work authorization expires, and the process must start all over again.⁸

5. Contingent workforce compliance as it relates to security clearances

The final key consideration for employers hiring contingent workers is security clearance. There are many jobs within the U.S. government that require access to sensitive and classified information. For a contractor to be eligible to access this sensitive information, they must obtain a facility security clearance (FCL). The Department of State does not administer FCLs to contractors or outside workers, but the Defense Counterintelligence and Security Agency (DCSA) does. Any contractor selected to perform on a classified contract with the Department of State must have an FCL. The FCL is required for any firm bidding on a contract that includes classified information during the bid phase of the contract, necessitating that the FCL is issued before this material is provided to the contractor.⁹ It’s important to note that a waiting period is common, since there are background checks and other verifications conducted to reduce liabilities and risks.

A trusted partner for providing contingent workers

It can be difficult to find and hire the right talent for open roles in an organization. Navigating the nuance of hiring contingent workers can be equally challenging. Finding a trusted partner or consultant to provide additional talent to supplement existing staff can be a way forward.

CAI contingent workforce solutions can help organizations minimize hiring and onboarding expenses while delivering qualified talent when it counts.