When Selecting an Independent Contractor Compliance Vendor, Are You Focused on the Right Criteria?

The marketing team here at MBO Enterprise Solutions loves my sales team to spread the concept of MBO as the “market leader” in enterprise IC programs, based on our spate of successful program rollouts over the last few years. While I do firmly believe we are the market leader, there is a thriving community of staffing, payrolling and technology firms vying for the title of “expert” in 1099 risk and IC compliance.

This marketplace ranges from honest brokers with solid legal and financial underpinnings to opportunistic charlatans. Various vendors, MBO included, wish to position perceived “best practices” for an IC risk mitigation program in a light that suits their perceived strength. Unfortunately, some of these practices may divert your governance program’s focus to the wrong goals, thus creating programs that disenfranchise the very people you are trying to serve.

I’d therefore like to offer some common sense tenets that every business should consider when selecting an IC compliance and engagement vendor. Unfortunately, many buyers do not adopt these concepts. As a result, they adopt feckless programs that can sometimes even be a drag on their entire organizations. My suggestions:

• Satisfaction of the IC and the business unit is paramount. Astonishingly, many RFPs to which we’ve responded make no mention of IC adoption and business unit satisfaction in their questions or award criteria. This is a glaring and potentially crippling omission. The most successful programs are ones built around clearly evident incentives for ICs to engage and benefits to business units that embrace the program. Throughout the selection process, vendors should be able to demonstrate why your ICs will adopt their programs and support these claims with clear references.
• The compliance pass rate of a vendor is irrelevant. Selecting the vendor with the highest pass rate for IC compliance tests may seem like a good statistic at first, but it could actually reflect a lack of rigor in the vendor’s compliance rubric. Our clients tell us they have visited with vendors willing to “buy” risk to gain IC engagement business; these vendors would unabashedly determine that ICs are compliant, even when they obviously are not. Improperly classified ICs that passed a phony IC assessment may actually have a more negative effect in an audit than if they had not been tested at all. The key criterion is vendor accuracy, not a simple pass rate. Vendors should be transparent and demythologize their process and criteria for an IC to pass a compliance tests, as buyers are fully capable of understanding this process. Comparatively, we expect our schools and universities focus on quality education, not on a “pass” rate that masks a poorly educated student body.
• Technology is an ante, not a core feature. Frequently, RFPs for IC compliance vendors feature a disproportionate number of questions concerning the vendor’s IC compliance technology. While any worthwhile vendor in the space should have capable, flexible, and scalable technology, this can be determined with a handful of questions and a demo. Focusing the foundation of the program on compliance technology is like shopping at a certain store because it has the most advanced registers. The quality of the contractor engagement process’s full life cycle is the critical factor, not simply the technology for assessing the IC.
• ICs are not commodities. As mentioned above, the happiness of the workers – and the business units that engage them – is the key to a successful program. Secondary criteria such as specific industry experience, diversity, and integration should not outweigh the overall quality of the governance program.

These suggestions may seem obvious, but we receive RFPs nearly every week that have aspects running counter to these ideas. Successful IC programs do not operate in a vacuum; good programs are baked into the DNA of an organization over time, while poor ones languish underutilized with ICs (and their managers) finding back-door engagements around the program. Evaluating your governance program to accommodate for these tenets will go a long way towards establishing a best-in-class program.

To predict a client program’s success, MBO has created a Client Readiness Evaluation (CRE) to measure the likelihood (and subsequently the actuality) of a client’s IC program. MBO conducts the initial CRE during implementation, reassesses it at program launch, and measures it at intervals during steady-state. The CRE helps customers self-assess the quantitative factors that ensure successful programs, giving them the opportunity to make adjustments, build incentives, and prepare for the inevitable issues. If you would like a review of the CRE, please contact me at dputt@mbopartners.com.