Independent contractor engagement risk – what you need to know

Jimmy Sheehan, Contracting Plus
Jimmy Sheehan, Contracting Plus

A well thought-out contract sets out the way in which a company and contractors engage, says Contracting Plus' Jimmy Sheehan

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12 February 2020 | 0

It is no secret that tech companies in Ireland have been making use of independent contractors for many years.

The reasons are simple: for companies, it allows them tap into specialist skills they may otherwise not require (or be able to afford) on a full-time basis; it gives them a competitive edge by being able to quickly react to client needs, scaling up without delay when needed; it gives them the agility to move in different directions as the market may dictate.

Contractors, too, benefit. They have more freedom. They control their own work/life balance. They can become specialists in an area which interests them and they are well paid.

The tech sector accounts for about 27% of all independent contractors in Ireland, and as such made them an easy target for the tax authorities in 2013. Moving into 2020, we see the focus of the tax authorities and the Dept of Employment Affairs & Social Protection tends to be geared more toward the companies engaging the independent contractors, rather than the individuals themselves.

If you want to use independent contractors to give your company a competitive advantage and to help accelerate innovation, then it is essential that you both understand, and then mitigate, the risks of Independent Contractor engagement.

When a company either misclassifies an independent worker, or engages them through policies more aligned with those of a PAYE employee, then the business may face a tax audit, fines, penalties and possibly even negative press.

However, there is no need for panic or sleepless nights once you have the correct policies in place to compliantly manage the engagement of the independent contractors you use in your business.

Ensure your contractor is independent

The Revenue Commissioners set out the attributes which determine whether an individual is employed (a PAYE worker) or self-employed (an independent contractor). There can often be confusion in interpreting these guidelines and at times the guidance may appear to contradict itself. This can make the task of determining a contractor’s independent status all the more difficult. Having the contractor supply you with a compliance pack which includes things like their company details and VAT number, their Tax Clearance confirmation, and other relevant documents can go a long way in this regard.

Don’t be too controlling

A well thought-out contract is an essential item which also suggests independence, however it will also set out the way in which the company and the contractor agree to engage with each other. Contractors need no direction or control. They should be capable of coming in and working at full speed on day one with little or no training required.

They then should be left to complete the work how they choose (always giving consideration to your company’s security protocols, deadlines and client demands).

Without the right training, department mangers unaware of the risks in managing contractors and employees in the same way can undo all the good compliance work by treating a contractor like an employee.

Have a clear process for sourcing and on-boarding independent contractors

Find the right balance between allowing your hiring managers the flexibility to source independent talent quickly, without compromising on compliance. Having a clear on-boarding document outlining the information you require from the independent contractor means your independent contractors can still be sourced whatever way you like. Using a preferred supplier for contractor accounts, tax and payroll can work well in ensuring compliance is managed efficiently for both parties.

Confirm that proper insurance is in place

You should protect your business from liability, albeit a highly unlikely event that damages may be caused by an independent Contractor during their engagement. Independent insurances further strengthens the independent status and the requirement can be achieved by stipulating minimum insurance cover the independent contractor should have in place in the ‘contract for services’ or ‘statement of works’.

Umbrella companies managed by a company like Contracting Plus come fully insured, ensuring compliance while keeping additional overheads low for your Independent Contractors.

Keep your independent contractors educated and happy

When there are blurred lines between employee and contractor operational policies, or if an independent contractor is aggrieved by certain actions you take, even if these actions are permissible by way of contract, it can cause friction and upset which is avoidable from the outset.

With many businesses searching for suitable talent, you should be doing as much as possible to ensure good independent contractors will be happy to continuing to work on your projects into the future.

If you’re sourcing (or thinking of sourcing) Independent contractors, and you’d like some further solutions to these risks and others, you can request our guide How Tech Companies Successfully Engage Independent Workers by e-mailing jimmy.sheehan@contractingplus.com

Jimmy Sheehan is commercial director of Contracting Plus

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