:: Practices & Policies ::

Contingent Workers

Companies that seek ways to reduce personnel costs and the administrative paperwork associated with employing regular full-time or part-time employees sometimes retain the services of contingent workers, such as independent contractors, freelancers, temporary workers or volunteers. Some companies refuse to employ any employees, opting instead to contract with an outside leasing entity, which recruits and employs the workers that are assigned to work at the company for an agreed-upon fee.

There are a multitude of benefits associated with using workers that fall in those contingent worker categories, including reducing payroll taxes and workers' compensation insurance costs, and avoiding wage and hour obligations, such as minimum wages or overtime payments. In addition, depending on the company policies, the company may not need to offer employee benefits to these workers, such as vacation, sick leave, medical or retirement benefits.

Legal definitions and distinctions control whether a worker is really an employee rather than an independent or contingent worker. Consequently, even though a company fully intends to characterize a worker as independent or contingent, whether the worker actually is an employee under the law depends on whether the nature of their working relationship meets the applicable legal standards. If an independent contractor or contingent worker does not meet the appropriate tests used by various state and federal government agencies to determine whether the worker is an independent or contingent worker rather than an employee, the employing company is exposed to the payment of back payroll taxes, as well as other substantial monetary risks, penalties and fines assessed by the government agencies. In addition, an unwary company can be exposed to expensive and resource-consuming lawsuits by the workers for failing to pay overtime, provide employee benefits or comply with other laws applicable to employees. Responsible individuals at the company also are subject to liability and criminal penalties for failing to properly characterize and treat the workers as employees.

SWERDLOW FLORENCE SANCHEZ SWERDLOW & WIMMER has found that its Firm's clients who seek to retain independent contractors or other contingent workers as a way to obtain significant savings to their bottom line benefit greatly from our early advice on applicable characteristics of employees and contingent workers, and advance planning and development of appropriate policies, procedures, agreements and other supporting documentation. The costs associated with assisting our clients with these approaches is a fraction of the potential monetary costs of making mistakes in this area and substantially contributes to positive and productive working relationships between management and its workforce.