On Sept. 18, California legislators signed Assembly Bill 5 into law effective January. This bill dramatically impacts companies who engage contractors throughout their operations. I thought it’d be helpful to write an article addressing two critical considerations for business owners interested in a remote workforce.
The flexibility and freedom of freelancing enables contractors to control their work-life balance. It’s more than just an “Uber-thing,” too. Many highly talented professionals are flocking to this type of employment.
Contractor arrangements reduce typical expenses accompanying hiring employees and allow for greater scalability. Yet, it’s essential to classify freelancers correctly and secure your company assets with remote work security policies.
Correct classification is critical
Cases involving companies like Dynamex have cast more light on widespread contractor misclassifications. This issue prompted California’s legislature to adopt the three-pronged test described by the California Supreme Court’s ruling in the Dynamex case.
First, the hiring entity must not have direct control over the worker concerning the performance of the work, either in the contract’s terms or in reality. There are many nuances and specific direction required for each situation, so it’d be best to employ an employment law attorney to help you decide on whether your contractors fall within this requirement.
Second, the contractor must perform duties that are outside of the business’ core services. For a typical company, this would include services like maintenance, technical support and payroll. For companies like Uber, whose business is “driving people,” hiring contractors to “drive people” would most likely not meet this requirement.
Third, contractors must also have an established practice where they offer numerous clients the same services performed for your company. For example, if I were contracted to do accounting for a company, this relationship would most likely fulfill this requirement since I have an established firm where I perform full-service accounting.
It’s important to remember that this article should not replace the expert counsel and advice of an employment law attorney (which I am not); I’m merely describing points to consider when engaging freelancers. As a rule, the IRS and your state law will assume that a contractor is an employee unless you’re able to demonstrate otherwise.
Secure your company’s assets
Employing freelancers comes with its share of security risk. If left unaddressed, improper access control and safeguards can become a hack or breach. To clarify, using contractors isn’t inherently unsafe. Instead, the lack of a coherent remote work security policy is risky.
While research has demonstrated that contractors are often more productive than employees, it’s nevertheless essential to take steps to avoid damage to your company or misuse of confidential information. Here are two pieces of advice to help you start securing your remote work arrangements:
— Educate and train contractors: An article in Threatpost explained that about 73% of C-suite executives, including IT leaders, believe contractors pose a higher risk than rogue employees. Continual security training can mitigate this risk for your company.
— Focus on enforcement: OpenVPN’s research showed that only about 49% of IT leaders agree that their contractors uphold remote work policies. In the early phase of the contract, establish clear expectations and relevant key performance indicators for measuring their performance and quality of work.
As the freelancing trend continues to grow, it’s imperative to take every necessary step to protect your company’s reputation and assets, allowing you to have a productive and collaborative relationship with your contractors.
Cassidy Jakovickas, CPA, is president and CEO of MBS Accountancy Corp. in Downtown Fresno.