IC Roads: Driving Independent Contractor Compliance 

The Dilemma

Ensuring full regulatory compliance in the realm of Independent Contractors (ICs) is paramount to an organization's success. As the IRS continues to meticulously examine companies who rely on the services of ICs, it is critical that companies follow the IRS guidelines, and sometimes the best way to do that is by hiring talent experts to help. For our client, an international leader in the software industry, they needed visibility into their ICs concerning the personnel involved, duration of involvement, project details, timeline, potential extensions, and contingency plans. To help them stay in control of their contingent workforce, they asked DZConneX  (DZX) to help with their talent management. The complex nature of ICs increases the difficulty level of making certain that companies remain in compliance with all regulatory standards that have been explicitly mandated by the IRS.

The Strategy

From a holistic standpoint, DZX is uniquely equipped to manage ICs operations. DZX has the capabilities to not only conduct a screening process to distinguish whether or not an Independent Contractor exhibits the necessary qualifications, they can also configure total talent solutions by utilizing an innovative technology platform to solve workforce challenges. Our experts decided to implement this technology into our client's talent management process. The implementation process lasted for four months, as DZX worked alongside talent managers to structure data, centralize IC contracts, and install new auditing processes and Vendor Management System (VMS) softwares.

The Impact

With the introduction of DZX’s state of the art integration platform, Independent Contractors now operate under the guidance of the VMS that provides complete visibility into deadlines, personnel, IC status, disbursements and more. The procurement process for our client has been simplified to enable the finding, tracking, and budgeting of  ICs to be achieved from anywhere instantaneously.

Software Industry Facts 

308 billion U.S. dollars spent on enterprise software in 2015 alone

10% of the U.S. workforce is comprised of Independent Contractors

85% of Independent Contractors and self-employed professionals are content with their employment

26 states since July 2007 have enacted legislation intended to curtail misclassification of employees as Independent Contractors

Independent Contractors are a fundamental component of company ascension. They provide flexibility and particular expertise in a field that ordinary employees cannot always provide. Independent Contractors are not exclusive to a single industry and tend to run the gamut. They can range from programmers and engineers to designers and writers.

For DZX’s clients, Independent Contractors are a vital part of ensuring the efficacy of our total talent solution. Public opinion remains in the balance about the impact of ICs. Although, we would argue that their specific expertise in their given industry and their financial flexibility is invaluable to enterprises.

Organizations must ensure they abide by IRS standards of tax laws for the different classification of contingent talent versus permanent talent. It is critical that companies attach the appropriate nomenclature to individuals entering an organization, as there is a distinction between ICs and a company's employees. Remaining cognizant of these specific distinctions is convoluted, but necessary to avoid an IRS penalty for misclassification.

DZX’s total talent solution helps streamline your worker identification process by providing consultation expertise. With distinguished knowledge of IRS and corporate compliance laws, we are uniquely equipped to design a talent managment plan that is tailored to the specific needs of your company.

Dependent On Independents 

Every organization depends on the services of Independent Contractors for a variety of purposes. For DZX’s software client, they possess a specialized concentration in a particular field that an ordinary employee might not be able to provide without intensive training. The acquisition of a specialized instructor is expensive, time-consuming, and inefficient. Instead Independent Contractors can be instantly acclimated to the details of the project, are given a clear timeline, and are typically terminated upon completion. The organic relationship that typically germinates between employer and employee beyond the scope of the project, typically does not exist with the introduction of an IC. Instead, ICs migrate from company to company providing specific expertise and are typically not sedentary to one firm.

On the surface level, the talent acquisition process may seem straightforward in theory with the emergence of several online job boards. However, the acquisition process for ICs is far from straightforward. The increasing complication associated with compliance laws, worker types, and company sizes can make it difficult to maintain the company standards of high quality output. DZX's talent acquisition strategies connect elite IC talent from around from the globe to your company.

Before the introduction of DZConneX’s talent acquisition and management processes, it was no surpise to observe misclassification issues among our client's workforce. Our consultative experts conducted thorough analyses and research to make the clear distinction. The negligence of companies to ensure proper labeling can land a firm in legal trouble with the IRS. Companies who mislabel workers can expect to be penalized by the IRS in the form of a substantial fine. These small nuances in worker labeling can be extremely detrimental to a company's financial success. DZX's experts were called upon by the client to ensure the company abides by IRS compliance laws and gains visibility into their IC's status.

Auditing To Prevent An Audit

Implementing a transformative talent solution requires a substantial amount of forethought to ensure proper execution in a viable amount of time. DZX conducted considerable research to audit the client’s U.S. and Canadian employee database in search of identifying mislabeled workers. The employee database was comprised of both contingent and permanent talent. The audit was a successful endeavor, as DZX identified a multitude of workers who were given an improper title. The associative payment processes for these mislabeled workers meant that the company was in jeopardy of financial penalization from the IRS.

In hopes of ameliorating the mislabeled workers, DZX was able to install a holistic classification system that properly identified and processed every individual introduced to the company's workforce. In an effort to ensure total compliance, we introduced a new 64-question checklist to take a deep-dive into the job description and desired skill sets of prospective candidates. This system was greatly successful for two reasons in particular. The process established a streamlined payment process for ICs that is organized and timely, in addition to eliminating the possibility of having to pay back taxes. Hiring managers who had even an ounce of doubt about complete compliance, had the ability to communicate with DZX's representatives to discuss project IC resources to optimize the talent solution.

DZX’s capabilities allowed for the client to compare industry standard rates for ICs to the rates that the client has historically paid in the past. These cost-effective techniques allowed for the client to analyze whether or not they were overpaying ICs. Additionally, our direct sourcing strategy paired our clients with qualified ICs that offered a better price. DZX’s awareness of available IC talent differentiates our services from competitors. The implementation process completely transformed how clients identify talent and ensured they avoided infractions with the IRS, assuming they followed the entirety of DZX's processes that were introduced.

Our MSP program continues to work alongside our client to continually screen, police, and audit the employee database to monitor hundreds of ICs. By implementing our total talent solution, we have instilled a feeling of security in our client’s mind that they will not have to preoccupy themselves with the possibility that the IRS will pursue further action for compliance infractions. The implementation is arduous and thorough, but it comes with the invaluable expectation of cost savings, optimized talent pools, and appropriate compliance.