Buyer Beware: Internet Compliance Problems
With the holiday season upon us, we see that more and more of direct product purchasing in today’s market is taking place on the internet. However, more than just goods are being procured on the Web. Contingent workforce sourcing is also making the same shift towards cyberspace. Though staffing firms of all sizes have been successfully utilizing the internet for recruiting and filling their client’s requisitions for several years, the latest internet “fad” is touting the benefits for companies to directly source and pay their temporary talent using the convenient and money-saving powers of modern technology.
It almost sounds too good to be true, right? Send recruited staffing the way of Amazon – if it worked for consumer goods, why not contract talent?
My concern with this new business premise is twofold:
- First, we are dealing with human talent, and much like the “job board” craze, buyers will quickly realize they still need to administratively screen, interview, match, and engage the candidates, quickly diminishing the productivity gains and “ease of use” benefits of direct sourcing;
- Secondly, many “work market” aggregators, eager to eliminate the middleman (staffing firms), will spring up overnight. This “procure-to-pay” solution seems like a bed of roses, but buyer beware – if the workers are not engaged properly or paid via a 1099, they (and you) will be a large target for state and federal tax and labor agencies.
The target would exist in the eyes of the IRS because of the large amount of potentially misclassified workers. A service aggregating large numbers of contract workers that were traditionally W2 workers of a staffing firm would be a clear “bullseye” for a misclassification audit where both the aggregator and the buying company could be at risk. Additionally, if hours worked are not properly documented, both the aggregator and the buying company are potential targets for minimum wage and overtime infractions – concerning, as there was a 400% increase of FLSA actions over the last 10 years.
As we are seeing today with Amazon and other online retailers, the federal and state governments won’t let sales flow freely for too long without mandating the collection of sales tax. Similarly, if these tax-starved agencies realize their corporate side tax revenue from traditional staffing agencies is being compromised, they will quickly set their targets on these “work market” aggregators.
The solution for this area of risk is to insure that the “pay” part of the “procure to pay” model properly compensates “employee-like” workers through a payrolling W2 service. This includes assessing all Independent Contractors and reimbursing them via meaningful and compliant IC Engagement Solutions.
In the end, it’s the same logic you use when shopping during the holiday season: if a deal sounds too good to be true, it probably is. Don’t let the glamour, ease of use, and cost savings associated with the internet sourcing of contingent talent tempt you. You could be opening up a Pandora’s Box of bigger problems, penalties, and risks.