In the contingent workforce world, the topics of payrolling and IC compliance are usually top of mind. Given the established employer of record (EOR) is the one tasked handling the complexities of each system, while ensuring contingent workers are paid on-time/accurately, and properly classified, outsourcing those back-office burdens to a third-party provider is typically the preferred method.
However, if you are going to take on the task of serving as the EOR for your clients, there are various trends and potential opportunities your organization should be aware of when dealing with payrolling and independent contractor (IC) compliance:
Payroll is the most important financial component of any business, and the process of payrolling is incredibly complex. Payrolling comes with a myriad of demands, including managing employee, data, employment and taxation compliance, data storage and privacy, salary and benefit calculations, work rules, and time-off benefits. As such, staffing firms that take on payrolling and employment of their client’s talent are challenged with managing risk exposure, increased government audits, standardizing processes, and handling governmental changes.
Further, with worker classification being so nuanced and not always agreed upon by law makers, it can make things all the more difficult and put your organization at risk for a lawsuit. Also, given local, federal, and international laws are constantly changing, it can be tough trying to remain up-to-date on all the compliance changes that might impact your business.
Given the risk that comes with classifying temporary workers, clients often look to staffing partners they’re already working with to help them avoid co-employment. However, payrolling is often done at lower margins than placing independent contractors, and comes with a lot of administratively intensive work. As such, while choosing to do payrolling provides you with a competitive edge and access to new opportunities within a client organization that you might not have had access to prior, payrolling is likely to take up a lot of your time and resources,
Should you decide to take advantage of this position and say “yes” to a client and their payrolling needs, it’s then important to decide if you’re going to use your own resources to get the job done, or outsource to a third-party, back-office services provider. Key factors to consider include whether or not you are comfortable taking on riskier job categories (e.g. light industrial), as well as if you have the ability to support certain regional-based placements (i.e. domestic vs. international).
Instead of just purely IC, clients are beginning to look at a more holistic approach to classification (including W-2/T4 and agent of record). In fact, there are AI and technology systems in place that incorporate all state and federal local texts that help you render a classification that is immediate, while still protecting the worker.
However, the challenge is still that it’s not a simple or totally comprehensive process, and it still requires time and careful handling. If you try to simplify it down too far in an attempt to save time or money, you put yourself and your client at huge risk for a lawsuit.
While payrolling and worker classification are fundamental aspects of the contingent-workforce world, and it’s crucial you stay informed on how they impact the industry and your business, know you don’t have to handle either on your own! To learn more about how a back-office services partner, like People 2.0, can provide you with a solid payrolling solution for your business by becoming your EOR for contingent workers (including pre-identified and self-sourced candidates), helping you ensure worker compliance, and resources to make sure you stay up-to-date on trends and regulations, make sure to contact us!
Source: Ideas presented at SIA’s NA Executive Forum 2019 via the “Trends and Opportunities in Payroll and Independent Contractor Compliance” roundtable.