Is the IRS Making You Paranoid about using Contingent Workforces?
Are today’s laws scaring you from using temporary workers and independent contractors? The laws in every state are getting stronger but it does not have to keep you from reaping the benefits of using these types of workers if you have a contingent workforce strategy in place. These benefits include maximizing flexibility, accessing key skills and bringing in outside perspective.
The other day, I was talking with a friend of mine who has been a interim manager for the last couple of years. She loves the flexibility it gives her around raising a family. However, recently her contract was suddenly terminated. The reason the company gave her was that her time with them was approaching a year. She was only halfway through her recent project with them but when her contract got terminated, there was nothing to do but shelve it and hope they come back later to have her finish it. Both the company and the independent contractor lost in this situation.
A lot companies today tend to live by this 12-month rule; created solely by their internal risk department. This is totally their internal rule because the amount of time a contractor works with a company is not the only factor that is used by the IRS and other agencies to determine legitimacy of an independent contractor. Other factors just as important are whether the company has the right to control or direct only the result of the work and not what will be done and how it will be done.
The IRS uses 3 factors to determine the relationship between an independent contractor and a company. You can find information on these factors at the IRS website, read more.
All signs are pointing to the importance of using contingent workforces on a consistent basis to maintain competiveness in the marketplace so instead of being paranoid, become informed on the rules and implement a contingent workforce strategy that is compliant.