Thoughts on Independent Contractor Pitfalls
Hire. Employ. Train. These are a few words that can cost you dearly, should a governing entity decide it wants to look at your business model and how you utilize independent contractors (ICs). Do they wait at your location for their next job? Are your drivers in uniform? Do their vehicles have your logo on it? What happens if someone is hurt during one of your deliveries? What level of economic dependence do they have on your business? How do they run their business? Are you going to ultimately be held responsible for things that they do or don't do, that you cannot control? Are you ripe for a misclassification suit?
Here in Washington State, it is a huge hotbed of ugly. Possible misclassification can be enormously costly, not only with the defense but also with the audits, fines and lawsuits if you lose. Though we are one of the few monopolistic states (workers comp insurance is run through labor and industries; we cannot shop for carriers and quotes), an injury claim is one of the biggest triggers for an audit you can face in any state.
Does this sound familiar? You utilize an IC. He is doing a delivery, and during the pickup his hand gets injured. It will need medical attention, so off to the emergency room he goes. Sitting in admitting, he is asked if he was hurt while working. Well, yes, he was working. (trigger #1). Who was he working for? He gives them your name (trigger #2). Out comes the L&I (or Workers Comp) paperwork that has to be completed. You are now in the bullseye (insert sound of racking shotgun here).
If you want a good read, check out the "Administrator's Interpretation No. 2015-1" from the U.S. Department of Labor, Wage and Hour Division. I was first hopeful that there would finally be some clear guidelines, continuity and cohesiveness that would cross the boundaries of these governing entities' guidelines for which we are all held accountable. Although clarity is made for some issues, what is most clear is that collectively, the entire essay is indeed open to interpretation—their interpretation (not surprising, as the word is part of the title). It is also quite evident that the IC model is something in which they hope will go the way of the dinosaur.
I get it. How many companies use this model as a way to skirt the expensive cost of workers comp or other taxes? The potential loss in revenue can be staggering. However, for those that take the time to make sure their IC's are legit, that there are no controlling factors to the IC, and that do their level best to only use the ones that truly understand their role as a business owner, then great. You may very well be ahead of the pack.
It used to be that control was one of the biggest factors in determining the role of the IC. These days, less significance is given to control and much more to how your IC runs his business. If you have an IC that is kept busy contracting with your company, or is simply content just to do a few jobs here and there, then that could put another target on you and your company's back. It is indeed frustrating that as a carrier, you could be held to a misclassification for keeping some IC's busy. It's a bit of a Catch 22; you celebrate the growth of your business which allows you the opportunity to provide more work to your IC's which can then end up biting you on your backside. How similar is their business to yours?
Our goal is to be 100% compliant. Always. I see both sides of the coin on this issue and it is big enough to be a front runner on a daily basis to ensure your people (sales, dispatch and the IC themselves) are thoughtful in their approach in all manner of involvement. Your best defense? Some may argue its merits and the time and attention required to strive for 100% compliance. It is a difficult path, but necessary unless you prefer to live on the edge with your fingers crossed that you are never in the path of an audit. Take the time to do it right!
I realize this is somewhat simplistic and it is not meant to be an audit survival guide. The intent is to merely open up thought and awareness and perhaps a self-audit of your own business practices whether you are an I/C or a carrier that contracts them. Perhaps it will help you notice a hole that needs repairing or make you aware of potential pitfalls.
We utilize both employee drivers as well as ICs. As business owners, we are aware of the differences and how we can and cannot utilize them and have to look at each job to confirm if the driver is a good fit. Our customers have always been and will continue to be the most important thing to us and we cannot care for them without drivers. Our business has a place and process for its employees and also for the IC. The tightrope between them grows ever thinner. It is up to us to be vigilant about new regulations and interpretations that affect our industry and how it will impact our business.