Labor Laws for Remote Employers to Consider
by YOSS Community Writer, on July 2, 2019 at 2:00 PM
The freelance economy is thriving. According to a McKinsey study, 20-30% of working-age people in the U.S. and EU-15 countries are independent workers. They often choose independent work because of the short-term nature of projects, the ability to be paid per project, and the freedom and autonomy to work where and when they want and on the projects they want.
Companies continue hiring freelancers because they benefit greatly from the on-demand skills of talented professionals more rapidly with lower overhead compared with the costs of on-boarding and retaining regular employees. They have access to high-level expertise in areas ranging from data science and systems analysis to business strategy consulting, all without the commitment of hiring them full-time.
Flexible talent will play a big role in the future of work, and every industry needs to be ready for it. Companies must prepare to have a contingent of their workforces in remote locations and working under contracts that can make compliance challenging.
How to Stay Compliant
If your organization is considering adding freelancers to your workflow, you’ll need to watch for nuances in areas like worker classification, payroll and tax considerations, data security, and more. Navigating these roadblocks can be the trickiest part of incorporating freelancers into the fold. Once you’ve cleared the path, you can access a pool of talent that will give your company a competitive edge.
Start with this checklist to ensure you remain compliant while reaping the benefits of working with freelance talent:
1. Classification: Employee or Independent Contractor?
Misclassifying freelancers is more common than you might realize. According to one study, millions of employees are misclassified as independent contractors when they should be reported as employees. Intentional or not, noncompliance with proper workforce management can cost companies in several ways, including severe penalties for every unfiled Form W-2. Avoid these by taking a government-supplied compliance test, such as the IRS 20-factor test, the Economic Realities test, or the ABC test.
To help evaluate whether someone is an employee or an independent contractor, these tests use factors like how much control an employer has on a person’s behavior, what kind of benefits they receive from a partnership, and how much the person relies on the employer for his or her financial well-being. To put it simply, if someone is required to work during specific hours in a specific location and is given a step-by-step guide to completing a task, that person is likely an employee. If someone is simply instructed to complete a specific goal by a specific date or time and has few other set requirements for how or when to work on the project, that person is likely an independent contractor.
If you’re having trouble differentiating between these two classifications, refer to the tests above or to your company’s legal team for help.
2. Engagement: Are Your Project Managers Engaging With Freelance Experts as Independent Contractors?
Independent contractors are essentially their own business entities contracted to provide valuable skills and services in order to help a company accomplish a specific goal in a certain time. They should be treated as the independent professionals they are. This means your team might need to make a shift in management perspectives and practices. Having an established independent contractor engagement program makes everyone aware of ways to distinguish between freelancers and full-time employees and helps project managers engage professionally.
For example, project managers don’t control when, where, or how freelancers complete their work, so they shouldn’t set required working hours or locations. Freelancers also don’t require supervision during every step of the process. Instead, managers should share the ultimate vision and goal for the project and let the freelancers use their skills to accomplish the task. Sure, checking in and communicating often with freelancers is a great idea, but managers should do so like one pro speaking to another, not as a boss would speak to an employee.
Finally, don’t ask freelancers to take on additional work not outlined in their contracts or to start new work before the original project is complete. Treat freelancers with the respect you would afford a professional service provider outside your industry.
3. Payroll and Tax Specifics: Do You Tax for Your State or the Freelancers’?
As the remote workforce grows, so do the chances that one or more of your freelance employees will reside in a state or country different from your company’s. To avoid paying penalties for noncompliance, you’ll need to know which state you should withhold taxes in. Generally, the physical presence rule says it should be the employee’s state. However, some states have different laws, so speak with a tax expert to ensure you abide by the right ones.
4. Data Security: Can You Keep Your Company Safe?
Every independent contractor and employee is a potential avenue for hackers to infiltrate your company’s network, even if they don’t work remotely. Off-site work increases that risk because digital communication over different networks runs through channels you can’t directly secure. As online and digital platforms become prevalent for all work, the burden falls on everyone to help protect any data and information you share. You should already have top-notch network security in place, but ensure that you also create policies and guidelines that adhere to cross-border data privacy and security laws and that address remote working.
It starts with security awareness. To create a successful remote policy, you need to equip your employees with the right knowledge, tools, and mindset that will keep them from falling prey to cyberattacks. Provide them with a detailed security plan along with tips on how to boost security anywhere through proper password management, multifactor authentication, secure connections, encryption protocols, and more.
You should also offer a list of all user tools such as cloud document platforms, workforce communication tools, video conferencing apps, and project management platforms so that all in-office and remote employees are literally on the same page and using approved, security-monitored tools.
From there, keep a record of security successes and failures, and ensure your policy is flexible enough to adjust when necessary. Set a schedule for reviewing your remote work policy frequently, sharing any changes you make.
5. Contracts: Can You Complete an 1-9 From Across the World in Three Days?
Companies need to ensure they complete and submit a Form I-9 to verify that all remote independent contractors and employees are authorized to work in the United States. The form must be submitted within three days of the new hire’s start date — even if they live halfway around the world. Be sure to provide clear instructions to employees on how to fill out the forms, utilize E-Verify for cloud-based verification, and implement policies to review all I-9s carefully before submission.
How a Freelance Platform Can Help
Making use of the remote workforce makes more sense now than it ever did. The benefits outweigh the challenges. Once you have your checkpoints established, it will be much easier to continue working with freelance experts. If you aren’t sure how to classify a remote worker, engage him or her accordingly, verify his or her background and eligibility, or ensure that every box is checked, then consider working with a comprehensive freelance platform like YOSS.
At YOSS, our compliance and legal teams can do the work for you. We offer classification compliance services, electronic audit trails, background and status checks, and more to help you ensure transparency in the approval process and protect your company from the penalties of workforce mismanagement. Interested? Sign up today.