myths & realities

10 myths exposed: The Undue Villainization
Of Independent Work Arrangements

Unfortunately and in spite of long lasting labor market troubles with record unemployment numbers, independent work arrangements have experienced increased scrutiny by federal and state authorities, particularly the IRS. Under-payment of taxes and avoidance of employment regulations through improper worker classification are reported as the driving factors, which frequently creates misconceptions around the merits of flexible work platforms. Below are 10 myths and realities that we believe deserve attention.

myth 1			Companies save money by deploying independent contractors, freelancers or free-agents, because the company and the individual pay less taxes.
reality			Self employment taxes are not less than payroll taxes, with the exception of the federal and state unemployment premiums which a properly classified contractor doesn’t pay (the contractor is not eligible for unemployment benefits). Further, income taxes paid by an employee are the same as those paid by a contractor. The bottom line is that the ‘tax value’ of an employee and a contractor are the same.

myth 2			A ‘payrolled’ contractor is an independent contractor.
reality			A ‘payrolled’ contractor is an employee (W-2) of the payrolling company or the ‘Employer Of Record’ services provider. This has consequences for the tax deductibility of work related expenses of the contractor. Payrolled contractors are employees and can not claim self employment status when it comes to computing taxes.

myth 3			Self incorporation ensures Independent Contractor compliance by default.
reality			Self incorporation and a self-sufficient support structure can be important ingredients to a compliant independence status, but need to be part of an overall recipe that meets the criteria set by the IRS and other authorities to establish a control, risk and autonomy profile of a contractor, without elements that resemble a traditional employment arrangement.

myth 4			Employment is a prerequisite for loyalty.
reality			Today’s reality is that the opposite is true. Employment is increasingly experienced as an overly rigid vehicle by organizations and individuals alike. Employment saddles companies with disproportionate liabilities and obligations and creates a high level of dependency for the employee. Dependency is not a basis for loyalty Professional gratification, reward, performance, accomplishment and a pleasant, stimulating environment are the true loyalty definers.

myth 5			An Independent contractor position is not a ‘job’.
reality			Any position, career or “job” can potentially be held by an independent contractor, assuming there are no compliance obstacles. The position can certainly influence the choice of engagement platform, but does not automatically define it. Business considerations should determine the engagement platform for each position.

myth 6			The safest way to avoid any compliance exposure, is through employment, either directly or through a 3rd party True, as much as the best way to avoid traffic accidents is to prohibit driving. Many positions, when structured properly and managed and monitored accordingly, qualify to be filled by independent contractors. Many large contemporary organizations have a significant portion of their workforce on a contractor basis by design.
reality			True, as much as the best way to avoid traffic accidents is by stopping all traffic. Many positions, when structured properly and managed and monitored accordingly, qualify to be filled by independent contractors. Many large contemporary organizations have a significant portion of their workforce on a contractor basis by design.

myth 7			Corporate health plans reduce health insurance premium burdens.
reality			Putting people in a group doesn’t make them healthier. Hence, the cost of healthcare is the sum of the costs of providing care to the individuals. There may some scale related administrative efficiencies, but total premiums will not be lower. Group plans ‘even out’ demographics; i.e young, healthy participants overpay and older, less healthy participants underpay. Recent moves by the federal government point to a future where healthcare is detached from the traditional employment relationship, just one less reason we need to remain shackled to traditional employment relationships.

myth 8			Employment provides security.
reality			Employment security no longer exists. Global trends make it necessary for companies to take an ‘on-demand’ approach to deploying talent. As job security eroded of the last 3 decades, it has, at least in part, been replaced by income security. Today’s reality is that skills provide security, not a job.

myth 9			Statement Of Work (SOW) contracting is a contracting ‘class’.
reality			Contracting can basically be done on 2 bases: time or deliverables. Either base has its specific applications, but neither constitutes a separate ‘class’. It is sound business practice and in support of compliance assurance to outline contractor duties, deliverables and performance expectations very clearly and using a SOW approach for that purpose is commonly done.

myth 10			An independent contractor, freelancer or free-agent is a second hand citizen ‘at the water cooler’.
reality			Although this may be true at some companies, this is certainly no longer the case universally and is even the reverse at some modern companies. Governmental reports and statistics still refer to the ‘contingent workforce’ as opposed to ‘permanent jobs’. This terminology and distinction are outdated and no longer address or represent today’s realities. It is the quality of the product or service delivered – not the platform on which they were engaged – which is important.