Many employers recognize the advantages of “alternative” work arrangements with independent contractors, consultants, freelancers, temporary staffers, and “as needed” workers. Generally, employers utilize these arrangements because they hope to obtain cost savings and increased flexibility, particularly in an uncertain business climate. In some companies, use of a contingent worker expands working capacity without increasing employee headcount, which can be particularly attractive during a hiring freeze.
Any company that is considering such an arrangement, however, should be advised of the costs and risks that can accompany a contingent worker or contractor, including: significant transaction and administrative costs; reduced quality or efficiency; compromised security of intellectual and other property; liability for wage and hour violations; obligations for employee benefits; assessments of back taxes and penalties; and damages for various types of employment-related claims. Incorrect classification can lead to significant adverse consequences, particularly if multiple workers are involved. A number of large and sophisticated companies have been forced to pay staggering amounts to resolve cases alleging misclassification of workers.
What can you do to avoid an adverse outcome with respect to contingent workers? Getting the right legal guidance is paramount. Once your objectives and concerns have been properly identified, there are likely a number of ways to address them. Properly structured contingent worker arrangements will account for all types of risk. In some instances, it may become clear that hiring an employee on a part time or full time basis is more desirable than engaging a contingent worker, once all the costs and benefits are fully considered.
The Labor and Employment Team at Hunton & Williams has a task force focusing on issues related to contingent workforces and independent contractor relationships. We would be glad to discuss with you how you can best accomplish your business objectives while minimizing your risks. This may include proactive planning for future engagements of contractors, or perhaps an audit of current engagements to determine whether they can withstand challenge by a government agency or individual claimant. The most important thing is to gain awareness of the risks and to seek ways to address them before they become liabilities.