01 Mar How Well Are You Managing Your Independent Contractors?
While independent contractors have their role and can make major contributions to an agency, they can also be your biggest headache. For this reason, there needs to be strong management of these folks to ensure, among other things, that they are handling the various tasks following the agency procedures. Independent contractors can certainly cause their fair share of E&O claims.
Since I do not claim to be an expert on this issue (this is my disclaimer), below is language from a very recent IRS article:
“For federal employment tax purposes, the usual common law rules are applicable to determine if a worker is an independent contractor or an employee. Under the common law, you must examine the relationship between the worker and the business. You should consider all evidence of the degree of control and independence in this relationship. The facts that provide this evidence fall into three categories – Behavioral Control, Financial Control, and Relationship of the Parties.
Behavioral control covers facts that show if the business has a right to direct and control what work is accomplished and how the work is done through instructions, training, or other means.
Financial control covers facts that show if the business has a right to direct or control the financial and business aspects of the worker’s job. This includes:
- The extent to which the worker has unreimbursed business expenses
- The extent of the worker’s investment in the facilities or tools used in performing services
- The extent to which the worker makes his or her services available to the relevant market
- How the business pays the worker, and
- The extent to which the worker can realize a profit or incur a loss
Relationship of the Parties covers facts that show the type of relationship the parties had. This includes:
- Written contracts or oral agreements describing the relationship the parties intended to create
- Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay
- The permanency of the relationship
- The extent to which services performed by the worker are a key aspect of the regular business of the company.”
Don’t hesitate to secure legal assistance for clarification.
It should be clearly understood and documented that independent contractors are held to the same standard and expectations which apply to those employed regarding work-product. There should be a written agreement with independent contractors to ensure no misunderstandings. Some issues that should be included:
Handling/management of email. Emails about clients/prospects must be properly sent, stored, and readily available for senior management to view. These should be monitored from time to time.
Voicemail/email disclaimers. There should be a statement in each that “coverage cannot be bound, added or modified without authorization from an agency representative.”
Use of the agency management dystems. Independent contractors are expected to utilize the agency system in the same manner as employees. This includes where information is located, when paper files are scanned into the system, what proposal template is to be used, etc.
How the independent contractor is promoting themselves. Is there the possibility that the independent contractor is working for more than one agency? If so, to ensure no misunderstandings or issues should a problem develop, while independent contractors are working on behalf of your agency, they should be required to use official agency stationery, letterhead and business cards, etc. Without this, there could be some question about who they were working on behalf of.
Proper management of independent contractors can keep this issue from becoming an E&O headache.