It’s the age of remote work, and more companies than ever go beyond their local market to find the right talent.
While building a distributed workforce helps companies meet their unique hiring needs, engaging talent across borders also requires extra effort from HR, legal, finance, and other internal teams. These teams must put in the time to ensure they comply with local labor laws across markets—no small feat, especially when placed on top of their day-to-day responsibilities.
As companies navigate new opportunities and challenges that come with building and managing distributed workforces, here are three questions they typically ask.
How Can We Ensure We Accurately Classify Talent as Independent Contractors?
Companies go to great lengths to ensure their talent is correctly classified as independent contractors or supported employees—and for good reason.
Businesses in the United States that misclassify workers as independent contractors rather than supported employees must pay back taxes, interest, and penalties of up to 35%. The IRS imposes fines of up to $500,000 on corporations that knowingly misclassify their talent. Companies operating overseas must contend with various fines, legal fees, and reputational damage that comes with violating market-specific laws, like IR35 in the United Kingdom or the Balanced Labour Market Act in the Netherlands.
To ensure proper worker classification without having to sort through complex market-specific regulations everywhere they engage talent, some companies turn to distributed workforce experts. Velocity Global, for example, offers an Independent Contractor Compliance solution to give companies peace of mind their talent is correctly classified in over 185 countries. Here’s how Independent Contractor Compliance works:
- Companies and their independent contractors answer a series of questions about their independent contractor’s assignment.
- Velocity Global’s experts recommend whether to classify the worker as an independent contractor or a supported employee within two days.
- Velocity Global then offers two ways to onboard, manage, and pay the talent, depending on whether the worker should be classified as an independent contractor or a supported employee.
Through the Independent Contractor Compliance solution, companies get peace of mind they are correctly classifying their talent—without taking on the headache of researching classification laws themselves.
How Do We Ensure We Properly Classify 1099 Contractors?
For U.S. companies that want to compliantly engage independent contractors domestically without using the Independent Contractor Compliance solution, they must pay close attention to the IRS definition of 1099 contractors. The IRS uses three criteria to determine whether a 1099 contractor is compliant:
- Behavioral Control: 1099 contractors must remain independent of company control over how they perform their job. If a company directs the worker’s day-to-day activity, it must classify that worker as a W2 employee rather than a 1099 contractor.
- Financial Control: While companies usually prohibit full-time employees from taking other jobs or work, 1099 contractors are under no such restrictions. Contractors also can negotiate their payment terms, whereas full-time employees receive consistent compensation, usually on a bi-weekly or monthly basis.
- Relationship Type: When companies offer their workers benefits such as vacation time, pension, and insurance, they must classify them as employees. 1099 contractors typically do not receive these benefits. Additionally, their working relationship with their employer usually has a set start date and end date, while employees work indefinitely.
Comparing their talent against the criteria above gives employers a good idea of whether they can compliantly classify them as 1099 contractors. However, employers must constantly stay vigilant to ensure their classification aligns with how they are currently managing their employees. For example, suppose a manager starts giving their 1099 contractors more detailed, specific, and direct instructions on how they perform their work. In that case, it’s time for that company to reassess how it classifies that talent.
Are Employer of Record (EoR) or Agent of Record (AoR) Suitable Long-Term Workforce Solutions?
After companies use the Independent Contractor Classification solution or put in the work required to accurately classify workers on their own, they need to manage their talent long-term. EoR and AoR solutions are viable solutions—regardless of whether that talent is classified as an independent contractor or employee.
EoR: Companies use EoR providers like Velocity Global to effortlessly hire or relocate supported employees within the U.S or globally. Our U.S. EoR solution helps companies quickly onboard and manage talent in compliance with state and city employment laws. At the same time, our Global EoR (also known as International PEO) solution helps companies engage talent overseas under international labor laws. For both services, Velocity Global takes on tedious employer responsibilities so companies are free to manage the day-to-day working relationships with their supported employees.
AoR: Employers that engage independent contractors use Velocity Global’s AoR solution to easily pay and manage their talent. Through AoR, employers consolidate every independent contractor payment on one invoice, increasing efficiency and delivering enormous time savings. Our AoR solution also handles everything required to quickly and compliantly engage talent, from background checks and statements of work to contractor agreements and insurance. As a result, companies get peace of mind their independent contractors are compliantly paid and managed without putting in constant work to do so themselves.
Simplify Distributed Workforce Management With Velocity Global
The benefits of engaging independent contractors or supported employees across markets are numerous, but so are the challenges. Velocity Global can help.
With expertise helping companies compliantly engage and manage talent in over 185 countries worldwide, Velocity Global is a global leader in distributed workforce solutions. Reach out to our experts today to find out how our services can mitigate risk and streamline workforce management for your company.