Big Picture Interviews
You Better Watch Out, You Better Comply. We're Going to Tell You Why in this Podcast
Does your company hire contract or contingent workers? If so, you'll want to have a listen to this podcast.
According to Aberdeen Research, 27 percent of the total workforce is expected to be contingent labor by 2015. That's next year people! Since attending the HRO Today Forum in Philadelphia, I've developed a renewed interest in the "free agent nation" the contingent workforce.
This is Peter Clayton reporting, welcome to a Big Picture Channel Podcast on TotalPicture Radio.It started with Gene Zaino, president and CEO of MBO Partners. His presentation at the conference got my wheels spinning, resulting in an interview with Gene (see the sidebar for the link to Gene's podcast), and a blog post on RecruitingBlogs.com with the catchy headline, "Screw Your Cubicle Farm." Gene came to our interview loaded with statistics and advice.
We're going to follow that up today with another expert in the contingent workforce, Nathan Gibson, Vice President of Payrolling and Contractor Solutions at Randstad Sourceright. Nathan wrote an article for the May issue of HRO Today Magazine titled Declaring Independent Workers. As Nathan noted in his article, "Federal and state regulators are focused on independent contractors for a number of reasons." Tune-in now for an in-depth understanding of "why?".
TotalPicture Radio Transcript: Nathan Gibson, Randstad Sourceright Airdate: June 10, 2014, Big Picture Channel.
Does your company hire contract or contingent workers? If so, you'll want to have to listen to this podcast.
Welcome to TotalPicture Radio. We produce cutting edge video and podcast interviews with a focus on talent acquisition, HR technology, leadership and innovation. Visit our conference and events page on TotalPicture Radio, that's totalpicture.com to learn about TotalPicture medias, unique video and podcast service offerings at many of the must-attend trade shows and conferences throughout the year, like SHRM Annual June 22nd through the 25th. We'll be teaming up with Sarah White, shooting thought leader interviews and client testimonials. That's the conference and events page on totalpicture.com.
According to Aberdeen Research, 27% of the total workforce is expected to be contingent labor by 2015. That's next year, people. Since attending the HR today forum in Philadelphia, I've developed a renewed interest in the free agent nation, a.k.a., the contingent workforce.
This is Peter Clayton reporting. Welcome to a Big Picture Channel podcast on TotalPicture Radio. It started with Gene Zaino, President and CEO of MBO Partners. His presentation at the conference got my wheels spinning, resulting in an interview with Gene and a blog post on recruitingblogs.com with a catchy headline, "screw your cubicle farm." Gene came to our interview loaded with statistics and advice. We're going to follow that up today with another expert in the contingent workforce Nathan Gibson, Vice President of Payrolling and Contractor Solutions at Randstad Sourceright.
Nathan wrote an article for the May issue of HRO Today Magazine titled, "Declaring Independent Workers." As Nathan noted in his article, federal and state regulators are focused on independent contractors for a number of reasons, and we're going to learn about that today.
Nathan, welcome to TotalPicture Radio.
Nathan: Peter, thanks for having me.
Peter: You warn in your article in the HRO Today Magazine that engaging independent contractors can present very significant risks if it's not done carefully. Can you give us some examples of what you mean?
Nathan: Well, right now independent contractors are being scrutinized by a lot of different government agencies for different reasons. The IRS is interested in whether workers are classified as an independent contractor or employee because they're looking for companies to withhold payroll taxes from workers. So if you're an employee, your company will withhold your social security taxes, your Medicare taxes, your income taxes, but if you're an independent contractor the company doesn't do that. So the IRS loves employees and really is skeptical of independent contractors because they prefer the ability to collect the taxes.
The Department of Labor, on the other hand, is more interested in protecting workers rights under various labor laws. An employee has protections for overtime, for workers compensation, family and medical leave and those protections aren't given to independent contractors. So the Department of Labor is interested in pointing out if you classify someone as an independent contractor or an employee because they want to protect the workers and they're worried that companies are going to classify workers of independent contractors to avoid giving them some of the labor law protections.
State agencies are also interested in the classification because they collect unemployment taxes off of employees but they don't collect unemployment taxes off of independent contractors. So with the recent recession, a lot of the state unemployment funds have really been depleted, and so state agencies will be looking at whether or not you classify someone as an independent contractor or an employee because they want to collect more in terms of unemployment taxes.
Finally, the independent contractor himself may one day wake up and say, 'hey, you know, I should have been an employee all along. I worked tons of overtime. I'm going to now sue the company because they should have paid me overtime.' Or they may wake up and file for unemployment claims after the assignment is over and then all of sudden that may trigger an audit with the state agency.
For all these different reasons, people are looking at the classification between of a worker that's either an independent contractor or an employee, and if you don't do it right then you can get yourself in trouble and people will come in and audit your company and spend a lot of time and hassle when really it could have been avoided if done right upfront.
Peter: So following up on that and quoting from your article, "If the company has the right to control the manner and means of how the work is performed, the worker is an employee." And I'd like you to expand on that a little bit.
Nathan: The right to control really is at the heart of the question of whether or not a worker is an employee or an independent contractor. Really the question is, is the worker independent, and the core of the independent question is, how much control does the company have.
All of the tests around independent contractors look at how much control the company has over the worker. The IRS looks at things like behavioral control and financial control and then the relationship of the parties. Many states have adopted what is known as the ABC test. The first part of that test is that the individual must be free from the direction and control of the company. He really must be working independently. And so it goes back to a concept in tort law where if you were an agent of someone and they had the right to control you, if you caused damage then the principal would then be responsible for the damages.
So this goes back a long way in terms of if somebody working for you and if they cause damages then are you responsible for it? So control factors include things like, do you provide training to the worker? Do you say the worker has to work on your premises? Do you set the hours that the worker has to work? Things of that nature really define how much control the company has over a worker and whether or not they'll be considered independent contractor or not.
Peter: So obviously things like being a seasonal temp worker mean that you are an employee.
Nathan: Right. One of the classic examples we talk about is a receptionist. The receptionist almost always is going to be an employee. The company sets the hours, tells him or her where they ought to sit, how to answer the phone and then trains them on how to use the phone system and they usually get paid hourly.
In contrast something like a web designer could easily be an independent contractor. The company would say, hey, I need a website; the web designer could off and work, set his own hours, work from whenever he wants, he doesn't receive any training and provides the result at the end of the project and gets paid a lump sum for the project.
Peter: I want to get back into your article here. You list best six practices for compliance and I want to discuss several of them with our audience today, starting with number one, "Document all engagements with a written agreement."
Nathan: A written contract is really enormously helpful in documenting the relationship between the parties. It's not an absolute safe harbor because regulators will look at to see what really what happened and what were the realities with the situation but it becomes extremely useful to show what the parties intended and what elements of control are there. All the elements of control we talked about earlier you can put into a contract and use that to defend your classification of a worker. You can say where the worker has to work, can the worker pick their own hours, things of that nature enables you... if you do unfortunately get audited you can say this is what the relationship is, you can see by the contract we did not exercise much control, it gives the auditor something to work from he will then basically document what's in the written contract. He may ask you certain questions, he'll ask the worker certain questions, and if all ties together and is explained in a written document, it gives you a terrific defense if you end up in an audit.
Peter: And you caution that employers should hire independent contractors who have established themselves as a business.
Nathan: It's another key thing to do. It's not that you can't hire someone the first time out. You can't be their first job but it just makes things an awful lot harder. It's always better to engage with an independent contractor who has been around for years and has lots of clients. A lot of states have what they call the economic reality test. They look at the economic reality of their situation and if they are someone who is working only for you and working 40 hours a week for you and working multiple years for you, they're going to take a look at that and say, you know, the reality of the situation this person really is just working for this one client and they really should be considered to be an employee. There's a specific part of the ABC test where the third part specifically asks, is the worker customarily engaged in independent established trade? So you really are much better off if you find someone who has been in business for a number of years who has multiple clients who is relying solely on you for their income or for their work because that enables you to say look, this person really does have independence here, which as I said, is the heart of the question about an employee versus independent contractor.
Peter: Right. And obviously companies like Gene's like MBO Partners and many of the temp staffing agencies out there provide that firewall to employers because you're not hiring that person directly. You're hiring that person through another agency.
Nathan: Absolutely. We highly recommend using a staffing firm or Gene's company or somebody who is well-versed in the classification of workers, who understands the ins and outs of state laws and the federal law to make sure people get classified properly.
In some states for example, I live in Massachusetts, and Massachusetts has a one rule for independent contractors for the purpose of payroll taxes the revenue department and a different rule for independent contractors for the Department of Labor and what's enforced by the attorney general. So even though in Massachusetts we've got two different rules for how to classify independent contractors, and so we highly recommend using or consulting with people who are highly skilled and are familiar with the ins and outs of the laws.
Peter: Here's one that should raise red flags but I would guess some of our listeners you say, "exercise extreme caution when contracting with former employees." I know a number of people who boomerang back into a former employer in a consulting role.
Nathan: It is. It's a common occurrence and it's one that raises lots of red flags. If you are working for a company in January and you have a certain set of responsibilities and perform certain tasks, and then you retire and come back in March as an independent contractor basically doing the same tasks and the same responsibilities, the IRS is going to say, well, what changed? If you were an employee in January, why aren't you an employee in March? And the answer usually is, well, I didn't want to have them take out taxes. That's not a good reason for the IRS. The IRS is going to say...
Peter: I'm sure.
Nathan: ... well, I'm now an independent contractor. Why did you become an independent contractor? Well, I didn't want to pay all those taxes. Boom. And then you're done.
If you're doing the same thing as what you were doing before, or if you're doing the same thing as somebody you're sitting right next to and you're an employee and the other person is an independent contractor that makes it really hard to say - to defend to the IRS or another agency that this person really is independent and that they're doing the same thing that they used to be doing when they were an employee.
Peter: Number 5 on your list is, engage independent contractors for non-core work. Unpack that for us, please.
Nathan: Core work is really the main business to business does. A CPA firm hires accountants, a law firms engages with lawyers, a hospital engages with nurses. It is hard in those settings for the CPA firm to hire an accountant to work for them full time who is not an employee. It's hard for a law firm to hire a lawyer and say that he is not an employee. If you're doing what the business really is set out to do and they're doing the main focus of the business then that's really going to be a core work and it's going to be hard to say that person is exercising a lot of independence because it's really your core business.
On the other hand, if a law firm hires somebody to clean the offices at night or to paint the offices, that's really not their core business. They don't do cleaning on a daily basis. They don't do painting on a regular day-to-day basis. It's a lot easier to justify that person for bringing in a special skill that the company doesn't have to come in and perform services that the company doesn't usually perform. It's a lot easier to be able to justify that and say, yup, that person is independent. We don't know much about what they do and therefore, we don't have a lot of control over what they do. They are independent from what we do.
For your core business, it's hard to say you don't want to exercise control, you don't have the skills or the knowledge or the expertise to control that area. Your core business is stuff you ought to be up to speed on and you ought to exercise control over it because that's your core business.
Peter: That's really interesting. Back to your early example, if a CPA firm brings in a web developer to design a website for them that's certainly something that could be viewed as an independent contractor.
Nathan: Absolutely. My favorite example is the plumber. When you hire the plumber to come to your house, he comes to your house, he's got his truck, it says Dave's Plumbing. You tell him the toilet upstairs is all backed up. He brings his own tools, he goes in, he fixes it and then he sends you a bill. That really is the essence of an independent contractor.
On the other hand, if I'm hiring somebody to watch my kids and I tell them I want you to pick them up t at 2:30, I want you to take them to the park, I want you to feed them this for dinner, then you're giving an awful lot of instructions and that person really begins to look like an employee.
Peter: So I guess the moral of this story is that this is very complex and different states have different rules and regulations and you really have to be very, very careful in embracing the free agent nation that's growing out there.
Nathan: You're absolutely right. I think this is a very challenging time for companies because there are more and more highly skilled individuals who are entrepreneurial, who want to establish their own business, want to be out on their own. At the same time, you have a lot of scrutiny for those type of positions. So you want the skills and there are number of studies out there that show that there is a skills gap between available talent that's out in the market and what companies need. So you want the skills and you want to be able to engage with these highly skilled people; at the same time you need to be careful because either the IRS or the Department of Labor or any number of people are looking at these arrangements to make sure that you've done it correctly.
Peter: Nathan, thank you so much for taking time to speak with us today on TotalPicture Radio. Is there anything else, any other recommendations you'd like to share with the audience?
Nathan: I think you've covered an awful lot of it. Documenting the work in a written agreement, being very careful about how you set up the arrangement and not exercising a lot of control over independent contractors, and really in hiring employees for your core work are really a few of the basic things that we advise people to do. Again, we strongly suggest using people who are well-versed in this area to help you walk through this if you're going to be engaging with independent contractors.
Peter: Yeah, people like yourself!
Nathan Gibson is Vice President of Payrolling and Contractor Solutions at Randstad Sourceright. Nathan, thanks again for taking time to speak with us today.
Nathan: Peter, thanks for having me. I appreciate it a lot.
Be sure to visit Nathan Gibson's show page for a complete transcript of this interview, resource links and much more information available in the Big Picture Channel of TotalPicture Radio, that's totalpicture.com. While there, sign up for our newsletter. It's quick, easy and free. Connect with our TotalPicture Radio community on Facebook and follow me on Twitter @peterclayton and @totalpicture. I'm happy to connect on LinkedIn to our listeners; just be sure to indicate that you listen to TotalPicture Radio.
Thanks for joining us today.
Questions Peter Clayton asks Nathan Gibson in this Podcast
You warn in your article that engaging independent contractors can present risks if not done carefully. Give us some examples of what you mean.
Following up on that and quoting from your article, "If the company has the right to control the manner and means of how the work is performed, the worker is an employee." Could you expand on that for us please?
Your article lists six best practices for compliance - I'd like you to discuss several of them with us today, starting with #1 Document all engagements with a written agreement.
You caution that employers should hire independent contractors who have established themselves as a business.
Obviously, companies like Gene's and many of the temp staffing agencies out there provide that firewall to employers.
Here's one that should raise red flags with some of our listeners.. Exercise extreme caution when contracting with former employers. Why? I know a number of people who've boomeranged back to an former employer in a consulting role.
Number 5 on your list. Engage independent contractors for non-core work. Unpack that for us.
So the moral of your story is be very careful when embracing the free agent nation?
Forecast: By 2018 there will be 24 million independent "free agent" workers in the United States.
In 2001, Dan Pink published a bestselling and forward-thinking business book titled Free Agent Nation: The Future of Working for Yourself. That future has arrived.
At the recent HRO Today Forum in Philadelphia, Gene Zaino, Peter Clayton's guest today for this Big Picture Channel Podcast on TotalPicture Radio, gave a compelling presentation on the future of work. He is the President and CEO of MBO Partners, which he founded to re-invent the way independent contractors and organizations work together. Based in the Washington, DC metro area, the company has enjoyed double-digit growth since 2003. MBO Partners is a major force in the development of best practices, risk mitigation programs, and independent contractor engagement tools that support workplace independence.
Learning Diversity: the art of switching leadership styles to more effectively work with people who are different from you.
"The workplace around the world is changing - growing increasingly multicultural, female, and younger. Experts often tell CEOs and managers what NOT to do, and corporate diversity programs can feel like defensive measures against lawsuits and harassment charges. While technology has connected all of us as a global workforce, it has not equipped us with the capability to interact genuinely with people around the globe. We need the ability to build the trust required to achieve great outcomes in our workplaces by working with those who are different from us."
"In order to be successful in this new global business environment, we need to re-think the way we lead and connect with others." That's taken from the introduction to an important new book titled Flex: the New Playbook For Managing Across Difference.
Welcome to a Big Picture Channel podcast on TotalPicture Radio with Peter Clayton reporting. Joining me today is Jane Hyun an executive coach and global leadership adviser to Fortune 500 companies, business schools, and nonprofit organizations. She speaks frequently on the topics of authenticity, culture, and leadership. A graduate of Cornell University with a degree in economics, she is the co-author (along with Audrey S. Lee) of FLEX The New Playbook for Managing Across Differences, published by Harper Business.
Know Your People Better Than You Know Your Customers: how big data and technology can be applied to transform the workplace into a customized environment that brings out the best from talent.
At every HR, recruiting, and leadership conference I've attended over the past several years, Big Data and predictive analytics are hot topics. It's no wonder: In every aspect of our personal lives, whether we're watching Netflix, shopping on Amazon or eBay, using Facebook, Linkedin or Twitter - intelligent algorithms are consuming data and learning our preferences to customize our experience to them. Yet in the workplace, we are subjected to one-size-fits-all policies and processes that lead to frustrations and stifle productivity and innovation. Welcome to a Big Picture channel podcast on TotalPicture Radio with Peter Clayton reporting. Joining Peter is Leerom Segal, co-founder and CEO of Klick Health, the world's largest independent digital health agency
Marking the most significant change to the workplace in decades, companies in search of competitive advantage are applying the power of Big Data and predictive analytics to understand and manage their employees... and find and hire the best talent.
According to the authors of The Decoded Company, Leerom Segal, Aaron Goldstein, Jay Goldman, and Rahaf Harfoush, "applying the power of Big Data to analyze the data trail that follows employees on their projects, managers of any size of organization can personalize each employee's experience to increase emotional engagement, speed up mastery of new skills, and maximize their entire team's potential."
The book is the result of real-world experience and in-depth research and is written by some of the most experienced pioneers in the application of this new technology, most of whom are leaders of Klick Health, the world's largest independent digital health agency.
Rather than treating people as interchangeable resources, companies can develop a "sixth sense" about their people. The result? Increased agility and speed, evidenced-based decision making, decreased bureaucracy, and the ability to predict problems before they occur.
Peter Clayton talks with Jonathan Weiner, Executive Producer of A Real World Documentary on the Staffing Profession
As anyone in the recruiting or staffing profession will tell you, misconceptions and misinformation run rampant. A new film documenting the "day-in-the-life" of a real recruiting professional aims to show how the business really works.
I met Jonathan Weiner in New York several years ago and was impressed by the quality of the film and video work he was doing, and his success in executive search and staffing. A rare combination. We had agreed to stay in touch. However, he returned to North Carolina, I returned to Connecticut, and that was the end of our contact - until several weeks ago, when I interviewed Karen Russo, executive search and sourcing professional. Karen moved her business, International Executive Research & Search - IIPE - from Stamford, CT to Playa del Carmen, Mexico. I wanted to know why! (See the link on the sidebar). Karen, a born people-connector, did just that!
So here's the backstory: Jonathan Weiner and his partner at Mez Media, Jim Shaki, wanted to showcase a high performer in the recruiting and staffing industry with documented success. They chose to profile truly a successful staffing and recruiting professional with proven accomplishments, a stellar resume, real clients and the type of integrity that the industry values most. They chose Jenifer Lambert, vice president, sales and marketing with TERRA Staffing Group. Jenifer has been a member of the Pinnacle Society, a consortium of the nation's top producing recruiters and is a noted trainer and public speaker.
More Big Picture Interviews Articles & Podcasts
Bill Kutik Reflects on the Greatest HR Technology Show on Earth for the Past 16 yearsWhat's Bill Kutik's most memorable HR Tech experience? NEW - Watch the video Now!
Andrew Gadomski: How Big Data will Disrupt HR and RecruitingIf you still don't believe Big Data is about to impact everything you do, and change the human resource management game - you need to listen to this.
JobEscrow - New Pay for Performance OutplacementJobEscrow provides the world's first internet escrow solution to meet your outplacement needs.
Recruiting, Fostering and Retaining Innovative LeadershipExclusive IACPR Innovation Panel Interview with Dr. Linda Pittenger
Weekend Inspiration: The Dip by Seth GodinA Little Book That Teaches You When to Quit (and When to Stick)