one of the biggest regulatory clouds hanging over organizations today!

August 5, 2014 Nathan Gibson

Recently, much press has been given to the looming threat of chaos caused by the Affordable Care Act. Political pundits and business leaders alike are decrying the chaos to come as the ACA mandates go into effect. They say the regulations are vague and complicated. They say the ACA will prove to be expensive, and it will cost jobs. These worries are understandable, and in many ways the dire predictions may prove true, but that’s only part of the story. 

Today, as we worry about the future problems of ACA, another regulatory issue is already causing tremendous problems for US companies and workers, and it threatens our ability to compete in the global economy. It’s an issue of tremendous implication. It is gaining press, but only occasionally makes the front page, and, most frustrating of all—it is an issue that can be solved if only federal regulators would take charge. 

That issue is the classification of workers as employees or independent contractors (IC).  

Specifically, today the US lacks a common set of national “rules of the road” for engaging contractors. This void leaves much of the regulation and enforcement of misclassification to the states—and that leaves companies at risk for serious legal troubles and large-scale payouts. It’s a problem that has led to lawsuits from all types of trades, from home improvement contractors, to drivers, newspaper carriers, and exotic dancers.

We’ve all heard the stories of companies that place employee-like expectations on contractors, without providing the associated employee benefits. Contractors or government regulators can then bring lawsuits to the companies to compensate for the difference. As a result, in their dealings with contractors, companies often don’t know when they’ve crossed the line that would require them to treat those contractors as employees.

The problem with today’s system of IC regulations is precisely the same set of issues often attributed to ACA. The rules are vague. They are complex, and they vary from state to state.  They are expensive to navigate, both in terms of legal support needed and for the possible payouts levied on companies if they fall afoul of the regulations.

This means that to simply engage talent from the fast-growing IC population that makes up today’s workforce, companies must assume a significant level of risk. It is not a healthy market-driven risk (such as investing in new capital or taking on new people); instead, it’s simply an added risk due to unclear regulations. This hurts the employer, because it may slow or prevent it from engaging contractors. It hurts the contractor, who may miss out on work as companies grow skittish about engaging ICs due to varying regulations.

Finally, it hurts our economy as a whole. As my colleague Beth Mesechoff noted in an article earlier this year, “According to Randstad’s Workforce 360 study, 43 percent of the workforce say they are interested in pursuing non-traditional work arrangements, and more than 2.6 million workers are already living the 'free agent' lifestyle.”  If a lack of clear regulation stands in the way of engaging a large portion of the workforce, the competitive ability of US companies, and of the US economy as a whole, is compromised.

With all this confusion, there could be a clear solution.  The answer: establish a single set of IC definitions that applies to all states. 

A national standard for IC classification would clear up a significant portion of risk associated with engaging ICs, particularly for companies that operate across multiple states. At a minimum, this standard would improve on the current system (or lack thereof). It would remove some of the uncertainty, and free up companies to more quickly engage ICs, resulting in more opportunities for the contractor.

Of course, with any seemingly simple solution, particularly when it comes to regulation, there is usually a large snag. In this case, developing such standards requires a certain amount of public awareness, subsequent pressure on our legislators, and ultimately the political will to get it done.

When there is a massive change of any sort in the economy, it usually takes some time for regulators to take action and catch up to that change. And they usually don’t start trying to address it until people start shouting about it. On behalf of companies, skilled contractors, and everyone who depends on the work they do to drive our country’s success, it’s time to make some noise. We need one national standard for independent contractors.


About the Author

Nathan Gibson

Nathan is Vice President, Independent Contractor Compliance at Randstad Sourceright. He leads our independent contractor compliance team. He and his team help mitigate their clients' risks by properly screening and classifying independent contractors, freelancers, consultants and self-employed workers as part of a complete contingent worker solution. Nathan has more than 16 years experience in the staffing industry.

Follow on Twitter More Content by Nathan Gibson
Previous Article
the sourcing dilemma: when to standardize and when to think outside of the box
the sourcing dilemma: when to standardize and when to think outside of the box

Consider steps in the sourcing process that require customization In the first of this three-part series o...

Next Article
want a better SOW outcome? get your MSP involved
want a better SOW outcome? get your MSP involved

better process rigor, transparency, and cost efficiency are just some of the reasons why organizations sh...