Relying on independent contractor professionals to carry out your marketing? Proceed with caution, you might be a step away from a huge lawsuit.
The talent pool of nonconventional staff has long been leveraged by the marketing industry, even more so than most others. Though the national workforce is only now approaching a 20% rate of temporary workers, contractors and freelancers have been a staple resource of marketing development and execution capacity for decades.
Businesses have increasingly turned to flexible staffing solutions as a way to handle the uncertainty of marketing…
It’s no surprise that our field relies so heavily on alternative sources of talent. After all, much of marketing itself is constantly shifting. Business needs come and go, clients appear and vanish, trends skyrocket in popularity then fade into obscurity.
Businesses have increasingly turned to flexible staffing solutions as a way to handle the uncertainty of marketing, and that trend has only accelerated with the rise of digital technology.
To be sure, there are plenty of potential benefits to effectively leveraging independent consultants and staff, freelance labor and the like:
- Few long-term employment obligations
- Potential cost savings in payment and benefits
- Better flexibility to handle marketing work on a project-by-project basis
But they also come with substantial, immediate legal risks, especially if your organization doesn’t have a robust structure to deal with them.
The $100 Million Danger of Freelance and Independent Marketers
Businesses in many industries, especially marketing, frequently fall into a common legal problem by working with an individual as independent staff when they are, by legal definitions, an actual employees. Though this is rarely an issue for one-off services or work on short-term projects, it sometimes occurs when an organization brings in independent marketing staff for long-term work.
And of course, companies have many more obligations when it comes to an employee than an independent worker in terms of support, compensation, and labor regulations. That’s part of the reason they find freelancers and contractors attractive.
But if you treat an independent worker like an employee and/or pay them like an employee then they’re likely to be considered as your employee in the eyes of the government. And that could even supercede any agreement or contract you have with that individual that says otherwise.
If that happens to you, you’ll be liable not only to begin treating your freelancers as employees: you’ll also be expected to retroactively compensate them (and the IRS) for any missed payment and benefits during the time they worked with you (which has ballooned recently with the Affordable Care Act). And that’s not to mention the costs associated with going to court and the potential damage it could do to your brand.
Just how much could this cost you? Well, Microsoft once was directed to distribute nearly $100 million to 12,000 contractors that it was using in employee roles. Though a lawsuit of that magnitude will probably never occur again for this kind of mistake, mis-classification of labor and expertise remains an expensive danger for businesses of all sizes and across all industries.
The hazards of independent contractors don’t end at employment liability. Though the rest of those risks aren’t usually as immediately expensive, they can still lead to lost opportunities and wasted resources.
In general, the quality of work from freelancers and independent marketers is less consistent than what you’d expect from a full-time employee or agency contractor. They may be harder to hold accountable to deadlines and more difficult to track down if their output isn’t what you expected.
Then there’s the difficulty of verifying their legitimacy. Ensuring your independent contractors have the proper certifications, business licenses, insurance, etc. is difficult at the best of times.
All these problems can be mitigated with careful vetting and and management of independent worker resources. But at a certain point, especially for your most critical marketing efforts, it becomes more effective to avoid the uncertainty altogether and turn to an alternative source of talent.
The Marketing Staffing Agency: A Safer Solution
So how can you avoid the practical and financial problems associated with independent contractors and freelancers while retaining the flexibility and cost-effectiveness?
The simplest answer is to bring that talent on through a reputable marketing staffing agency. In this arrangement, the contractors work as actual employees of the staffing firm.
The agency maintains a degree of separation between you and the marketers, so there’s little risk of you taking on employer status. You work with the agency to explain your needs and arrange payment. The agency then hires a contractor to fulfill those needs, while handling their payment, benefits and tax responsibilities.
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4 thoughts on “How a Misstep with Your Independent Contractors Could Cost You Millions”
Fear mongering. You are 1,000 times more likely to make a bad, or badly timed hire than you are to attract the attention of an auditor relative to the rules of independent contracting.
Chris, you’re right that a firm is more likely to run into problems with a poor hire than a government audit. After all, there are millions of employees out there, and only one IRS.
Still, it’s worth taking steps to protect yourself from potential problems, legal or otherwise, associated with contract talent. The DoL has stated that worker misclassification will be one of its areas of focus this year. And as the freelance/contractor portion of the workforce continues to grow, we expect it to become more and more empowered (and more likely to bring lawsuits when it’s dealt with improperly).
But of course, making the right hire at the right time should also be a huge priority for any organization.
Chris is right that a government audit is not going to happen. The big Microsoft strategy approach days are over.
I’ve witnessed many agency people suffer without health care benefits and pretend they are employees because the economy was crap and they needed a good paying job – we’re not talking about entry-level but people near or at six-figure jobs. Many have even been managers of other people – completely against the law. They’re never going to report it because they needed the work.
Rather than post this idea as an explicit promotion of your complementary services, you could post with an intent to stop this bad behavior. Give people constructive advice on this difficult topic. What should a freelancer do if employers cross the line? What should a department head do if they’re tasked to use contractors? What about the ethical issue of client disclosure and contract compliance?
We all realize that these decisions are typically mandated by senior leaders, including the financial people that pay the bills and and the human resources people that clear the paperwork. You didn’t suggest blowing the whistle. Why not?
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