The Importance of Assessing IC Compliance Annually Within Your Organization


Here’s a question often posed to nextSource’s workforce management experts. “If my organization has previously engaged any Independent Contractors to complete work, is it necessary to reevaluate their compliance with classification guidelines should we decide to engage the IC again for a different project?” The answer to this question is a resounding, “YES!”

First and foremost, it makes sense to reassess all IC compliance annually because of the strong possibility of changes to the laws and regulations. There are changes to laws and regulations for various jurisdictions on a regular basis.  Is there a member of your workforce management program team tasked with staying current with regard to these changes? If not, there should be. It is a best practice to ensure there is someone who keeps tabs on the latest IC regulations and to perform and annual IC compliance audit.

Whether the Independent Contractor is engaged to perform the exact same type of project or a completely different type of work, relationship controls or other aspects used in the IC classification process may change for the re-engagement. These changes may reflect more of an employee/employer relationship than the prior engagement and that could result in the contractor falling out of compliance with IC regulations. 

For example, if the IC previously worked as a short-term resource, working by remote, but the new engagement requires them to work at your office location during set business hours for the next three months, it is quite likely this IC no longer qualifies as such.  Alternatively, if the rate of pay or scope of work has changed significantly, this may signal a change in classification. Perhaps the IC was previously paid per completed project deliverable, but is being paid by the hour for the new project, which involves ongoing, day-to-day activity without a definitive deliverable or goal. Again, the qualitative change to their work requirements has an impact on how the resource should be classified.

Re-engaging workers in this fashion could also result in meeting the threshold where it becomes required that an employer provide health insurance according to recent ACA regulations. If a worker logs 30 hours per week (130 hours per month or 1560 hours per year) they are considered full time equivalents (FTE) in the eyes of the law. Therefore, your organization is required to provide access to health coverage. There are some troubling grey areas however, raising questions that may be a bit more difficult to answer such as:

  • What if the IC allowed his/her insurance policy to lapse?
  • What if the IC has not worked for other clients in the last 12 months?
  • As insurance is typically issued for a 1-year period, is the IC we reviewed at six-months into their term still covered by an active policy today?

The answers to questions like these are not always clear-cut. This is why we often recommend outsourcing IC compliance management to a provider/partner such as nextSource. Providers make their living keeping up with the details of changing regulations. They often have strong systems in place to track expiration dates on insurance policies and advise their customers on potential opportunities to lower organizational risks when engaging IC’s.

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