PRO Unlimited is a pioneer in contingent workforce management, laying the foundation with the launch of independent contractor misclassification and co-employment risk management services in 1991. PRO followed this with industry-first MSP and VMS offerings. And the innovation has continued throughout the years. Most notably in 2017, PRO was given the highest score in Gartner’s Critical Capabilities for Services Procurement Solutions report; specifically for the Contingent Workforce Management Use Case.
While the need to legally distinguish “employees” from “independent contractors” has existed for hundreds of years, it was not until the early part of the last century that the distinction assumed the significance that it retains to this day. The early driver for this change was the enactment of worker compensation laws, which provide medical care and income continuation benefits for employees, but not independent contractors. The development of the income tax laws and mandatory payroll tax withholding led to further development of methods for distinguishing between the two types of workers, as did the enactment of federal laws governing the workplace—such as the National Labor Relations Act (NLRA) and Fair Labor Standards Act (FLSA)—which protected the rights of employees but not independent contractors.
Each of these sets of laws used their own criteria to test worker classification. For example, the Internal Revenue Service employed a 20-factor common law test for employee status (later consolidated into the 13-factor “Categories of Evidence” test), while the courts developed a six-factor “Economic Realities” test for applying the FLSA. Of the two tests—Categories of Evidence and Economic Realties—the latter is a bit broader in scope than the former. As a result, a worker might qualify as a bona fide independent contractor under the IRS’ Categories of Evidence; however, that same worker might be deemed an employee under the FLSA’s Economic Realities Test. In addition to the multiple tests for worker classification under federal law, each state has multiple tests that are used to apply state laws governing the workplace. Of course, worker classification is a significant issue outside the United States as well, also largely driven by the differing treatment of employees and independent contractors under tax, social benefit, and employment laws.
The complexities of managing worker classification and co-employment risk management necessitates that organizations have the right systems and processes in place to ensure they remain compliant. Download our Solutions Brief on “Worker Misclassification and Co-Employment Risk Management” to get more detail on the various tests for worker classification and how they apply to contingent labor.